AML/CFT Act review: Ministry of Justice releases first draft regulations
On 1 March 2023, the Ministry of Justice (MoJ) released draft regulations under the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (AML/CFT Act). The draft regulations are supplemented by an explanatory consultation document and flow from the MoJ's 2022 report on its statutory review of the AML/CFT Act.
You can find our previous update regarding the MoJ's AML/CFT Act review here.
Who does this affect?
As we describe below, the draft regulations are broad ranging. This means all current reporting entities under the AML/CFT Act should review the draft regulations to understand how their obligations may change. All entities currently outside the scope of the AML/CFT Act should also review the draft regulations to consider whether they may be captured (eg virtual asset service providers (VASPs)).
The draft regulations do not address the current AML/CFT Act exemption relied on by certain workplace savings schemes. Currently, regulation 20A exempts workplace savings schemes under which member contributions are determined as a percentage of salary or wages, as provided for in the scheme's trust deed. We will keep this under watch.
What do the draft regulations cover?
The draft regulations comprise over 70 changes to the anti-money laundering and countering financing of terrorism (AML/CFT) regime. The consultation document groups the regulations into eight themes, which we summarise below:
- Addressing areas of risk — addressing high-risk “gaps” in the current regime, including requiring reporting entities to identify settlors of trusts, and providing for additional enhanced customer due diligence for high-risk customers.
- Clarifying definitions and exemptions — clarifying definitions and other terminology that is out of date, unclear or not fit-for-purpose (eg the definitions of “customer” and “beneficial owner”).
- Virtual Assets — explicitly defining VASPs as a type of reporting entity and setting a NZD1,000 threshold for virtual asset transactions to be occasional transactions.
- Remittance networks — requiring money or value transfer service providers (or remitters) which control both the ordering and beneficiary end of a wire transfer to determine whether a suspicious activity report is required.
- Information sharing — broadening the scope of information sharing between AML/CFT supervisors, government agencies and other regulators.
- Clarifying obligations — clarifying reporting entities' customer due diligence and record keeping obligations, including a requirement for reporting entities to adopt a risk-based approach (eg requiring reporting entities to “risk-rate” customers).
- Improving transparency of payments — to comply with the Financial Action Task Force Recommendations, improving the transparency of wire transfers (eg requiring name and account data to accompany international wire transfers of less than NZD1,000).
- Providing regulatory relief — providing exemptions to crown entities, charities, and lawyers' and accountants' trustee and nominee companies.
The draft regulations include the following changes previously announced by the Minister of Justice:
- Exempting reporting entities from verifying the address of most customers, except where enhanced due diligence is required;
- Extending the timeframe to 20 working days for reporting entities to submit prescribed transaction reports; and
- Exempting registered charities from the AML/CFT Act when providing loans that do not exceed NZD6,000.
Note that the underlying policy decisions have already received cabinet approval and the MoJ is seeking feedback on only the finer details of the draft regulations.
Consultation on the draft regulations closes at 5pm on 14 April 2023.
As currently drafted, most of the regulations will come into force on 31 July 2023 with the remaining regulations coming into force on 1 June 2024.
This is the first tranche of changes seeking to implement some of the 215 recommendations contained in the MoJ's 2022 report. Further tranches will follow in medium- and longer-term legislative reform packages.
Please get in touch if you would like any more information regarding the AML/CFT Act or the current consultation.