The FMA has released its first AML/CFT monitoring report. There are 588 AFAs who are reporting entities, of 796 supervised by the FMA.

In its first year of monitoring, it conducted 36 reviews of REs. The largest number of those were of financial advisers. There were six on-site reviews of advisers and five desk-based.

The FMA said it was pleased with REs’ attempts to comply. But there was non-compliance in a large proportion of those visited.

We considered that REs’ efforts to comply with their obligations under the AML/CFT Act simply did not meet expectations. Often there was a lack of support for AML/CFT compliance from senior management. This is of particular concern to us, as effectiveness of the AML/CFT regime will be substantially reduced if issues are not escalated and addressed at a senior level.”

Three formal warnings were issued and the audits of five REs were brought forward in response to concerns about their compliance. The FMA would not say whether they were advisers.

Some of the FMA’s concerns included the adoption of generic risk assessments, not linking money laundering risks to the RE’s business, and a disconnect between the risk assessment and the AML/CFT programme.

“In these cases REs appear to be unaware of the need for the risk assessment to be used to develop the AML/CFT programme. In the worst cases, there have not been any policies or procedures to support the AML/CFT programme, or when developed, they have not been implemented in practice.”

Some Res had not properly developed a transaction monitoring system. “When asked, some of these entities cannot explain to us what criteria they use to identify a transaction as unusual.”

The FMA said if voluntary compliance was not achieved, it would use its enforcement powers. It has already issued a small number of non-public warnings and litigation is also possible.

Barry Read, of compliance firm IDS, said the FMA report mirrored his firm’s experience.

IDS had encountered problems with templates, too, and advisers who had not given thought to clients’ individual circumstances and potential for risk. 

One of the frustrations for advisers was their own identification system for clients could be different to that required of them by product providers, he said.

“There’s a good chance the adviser knows the person and has been to their house. But when they hand over a printout from the white pages to confirm their address, the provider say that’s not enough.”

That double-up of due diligence requirements was something that should be addressed, he said.  “I still have a question mark over whether or not financial advisers whose business doesn’t receive monies directly should be a full RE.”