‘Early’ AML/CFT Regulatory Package released

On 2 March 2023, the Ministry of Justice (MoJ) released its eagerly anticipated first package of regulatory amendments by opening its exposure draft Anti-Money Laundering and Countering Financing of Terrorism Regulations Amendment Regulations 2023 (Draft Regulations) for public consultation.  

The Draft Regulations were released alongside the MoJ’s consultation paper (Consultation Paper), and follow the Government’s approval of initial regulatory changes identified in the Report on the review of the Anti-Money Laundering and Countering financing of Terrorism Act 2009 (the Act) released in November 2022 (the Report).  

The Draft Regulations cover a wide range of issues, and will amend the majority of the current suite of AML/CFT regulations listed below:

• The Anti-Money Laundering and Countering Financing of Terrorism (Definitions) Regulations 2011 
• The Anti-Money Laundering and Countering Financing of Terrorism (Exemptions) Regulations 2011 
• The Anti-Money Laundering and Countering Financing of Terrorism (Requirements and Compliance) Regulations 2011 
• The Anti-Money Laundering and Counter Financing of Terrorism (Cross-border Transportation of Cash) Regulations 2010 
• The Anti-Money Laundering and Counter Financing of Terrorism (Prescribed Transactions Reporting) Regulations 2016 

Draft Regulations – Key points

The Draft Regulations seek to address gaps in the AML/CFT regulations relating to known high-risk areas, plus a range of other issues identified in the Report as high priority. Some of the key points in the Draft Regulations are:

• Introduction of a virtual asset service provider (VSAP) definition (as provided by FATF) to clarify all types of VSAPs are reporting entities for the purposes of the AML/CFT Act.
• Prescribing the occasional virtual asset transaction threshold of NZD1,000 or more, and that virtual asset transfers must be treated as international transfers unless the reporting entity is satisfied otherwise.
• Exempting reporting entities from address verification other than when enhanced customer due diligence (CDD) is required and providing for verification according to the level of risk.
• Prescribing certain information to be obtained and verified according to the level of risk as part of CDD, including the ownership and control structure.
• Enhancing requirements around wire transfers so New Zealand meets FATF standards.
• Requiring reporting entities to keep records of prescribed transaction reports and other files, correspondence, written findings, and filings for 5 years.
• The timeframe for submitting prescribed transaction reports is extended from 10 to 20 days.
• Exempting trustee or nominee companies who provide administrative services on behalf of a parent reporting entity, registered charities (who provide loans of not more than NZ$6,000), and non-court appointed liquidators. 
• Exempting reporting entities to verify source of wealth or source of funds information for ‘low-risk’ trusts and clarifying the definition of a beneficial owner.
• Giving some effect to section 33 of the Act enabling reliance on CDD conducted by others. 
• Allowing greater information sharing so a wider range of agencies who observe money laundering and other harms can share its information with AML/CFT agencies.

Consultation open

The period for submissions on the Draft Regulations will close at 5pm, 14 April 2023. Details about how to submit can be found in the Consultation Paper. 

The MoJ says in the Consultation Paper the legislative and policy settings reflected in the Draft Regulations have already been agreed by the Government, strongly indicating they are unlikely to rehash these. Instead, specific feedback is sought on the wording of the Draft Regulations and in particular if, they meet their intended purpose, there are any points needing clarification, or there are any unintended consequences.

Our thoughts

The Draft Regulations are a very welcome practical first step towards adopting a more risk-based approach to the AML/CFT regime and providing some relief in other compliance areas. The changes proposed in the Draft Regulations should overall, have a positive impact on businesses currently overly burdened with AML/CFT compliance obligations.

By providing the regulatory framework (supported by suitable guidance) to better encourage reporting entities to analyse AML/CFT risk and document that analysis, entities will be better equipped to, proportionately, manage the risk. This will have a wider benefits for society as it confronts  AML/CFT issues, in contrast to the rules based approach the Act has metamorphosed into.

The overdue updates to reflect the fast-moving nature of technological changes (for example, expressly providing for VSAPs) are also important in ensuring our AML/CFT legislation is fit for purpose to address areas of higher risk.

We will be reviewing the Draft Regulations in detail to assess whether the operation of the proposed provisions will work in practice and are consistent with the intention and purposes outlined in the Consultation Paper and Report. We encourage other reporting entities and interested parties to have their say.

Next steps

After the consultation closes, the MoJ will report to the Justice Minister who will decide how the Draft Regulations are to progress. 

Currently the Draft Regulations indicate the intention is for the majority of amendments come into force on 31 July 2023, with the remainder proposing to take effect from 1 June 2024.

The other recommendations in the Report are being  progressed by the MoJ in its ‘medium and long-term package’ of reforms. The MoJ has not provided further information on these at this stage.  We would expect any further reform packages to be staggered and have a more fluid timeframe as their progress will depend on what kind of change is needed to implement them.  

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If you would like a briefing on any aspect of, or have any questions in relation to this article, please contact Pauline Ho, Special Counsel or Henry Brandts-Giesen, Partner.

Gary Spalding, Dentons in New Zealand’s AML Compliance Officer, also assisted the authors with this article.