The regulator has released a series of FAQ about the AML/CFT reporting, including clarification of question 6.1 in the report, which has been contentious.

That section is potentially the most onerous of the AML return, and asks reporting entities to estimate the value and number of all transactions settled by their reporting entity during the year.

SiFA had argued that advisers whose clients sent money direct to a fund manager, rather than using a trust account for client money, were arranging transactions but not settling them – and should answer “nil” and “nil” for the value and number of transactions.

The FMA said yesterday that it did not agree with that view, although it acknowledged that the wording was open to different interpretations. It wants advisers to record those transactions, even if the money did not go through their accounts.

It said that advisers who had managed their records in good faith over the year on the basis of the interpretation that their transactions would not be counted as “settled” by them would not have action taken against them for a breach of the obligation to correctly complete the annual report this year. But the advisers would not be able to argue in the following year that they, in good faith, did not realise.

SiFA spokesman Murray Weatherston said the regulator must regulate within the confines of the legislation that sets out their boundaries. “We think it has overstepped those boundaries in its AML FAQ yesterday. We think it is attempting to extend legislation by FAQ. Essentially it is rewriting a few key words in the legislation.”

Weatherston said a legal opinion from DLA Philips Fox supported the view that when an AFA did not handle client cash or investments through their business or trust account, the AFA was not settling transactions. “Therefore they should report ‘nil’ and ‘nil’. We supplied that opinion to the FMA but it has dismissed it.”

He estimated 95% of advisers would not run client money through their own accounts. Many of those using platforms would be able to get the information on the value and number of transactions from the platform provider but others would find it difficult.

He said: “Since the same legislation applies to all reporting entities supervised by all of the supervisors (FMA RBNZ and DIA) then presumably any statutory interpretation promulgated by any of the supervisors must apply across the board. That is it applies more widely than to just those reporting entities captured under regulation 16…The FAQ is addressed to AFAs in particular, but its content must have wider impact.”