30 Jun 2020

Anti-money laundering regulation easier under all-in-one agency - lawyer

2:31 pm on 30 June 2020

The government should consider setting up one agency for better Anti-Money Laundering (AML) enforcement, a lawyer specialising in regulation and financial crime says.

New Zealand dollars

The Reserve Bank has yet to take an entity to court for Anti-Money Laundering (AML) enforcement. Photo: 123RF

The Department of Internal Affairs (DIA), the Financial Markets Authority (FMA), and the Reserve Bank all regulate the sector for AML, each covering different types of firms.

Barrister Gary Hughes of Ākarana Chambers said as pressure built on the regulators to chase firms and detect more crime, setting up one dedicated agency might make the task easier.

"[Keeping them separate] seemed to make sense at the time the law was passed but I think now, a decade later, we are seeing some cracks and some inconsistencies open up," Hughes said.

"The teams within the regulators work hard to overcome that but it feels like there's more and more of those and maybe the time and effort spent to keep everybody on the same page could be better served if we rolled it all into one."

The Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) Act came into force in mid-2013 and placed obligations on financial institutions, casinos, trustee companies and others to detect and deter money laundering and terrorism financing.

In 2017, it expanded further to include lawyers, accountants, and real estate agents.

Hughes said up until this point the regulators had leaned toward education over punishment.

"We are seeing now an increasingly hostile approach from regulators, feeling that they've given people a reasonably long period to get their head around what is complex legislation and time to get their compliance processes in order and that patience is running out."

The DIA and the FMA have both taken entities to court - the FMA's first was just last week - however the Reserve Bank has yet to.

Hughes said it was only a matter of time, but of the three supervisors it was the least equipped to move to tough enforcement action.

"They're very good at prudential supervision, monetary policy, things that require high-level oversight, but within that they've also been handed the AML obligations and they do struggle a bit at the institutional level, because it's not an easy fit with some of the things they do.

"There are question marks over whether they'll be able to do what AUSTRAC, the enforcement arm in Australia has done, which is take on the big banks, if they needed too."

He said the central bank had good staff within the AML unit, but court enforcement would be a challenge due to its competing objectives.

"It's responsible for market stability measures... how do you reconcile that with taking pretty tough enforcement action, maybe against the banks, as seen in Australia?"

He said one agency dedicated to AML/CFT enforcement may relieve some of that pressure.

"No-one likes creating new government agencies but at the same time this area is not going to slow down or get any less challenging.

"It might be that the statutory review next year is a good opportunity to check if this triple-headed set up is the right one for New Zealand."

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