MR No. 2020 – 4
6 April 2020
The Financial Markets Authority (FMA) has issued a formal warning to NZX-accredited broker Tiger Brokers (NZ) Limited for failing to have several adequate anti-money laundering protections in place.
The regulator has also privately warned six other businesses for their anti-money laundering practices, mainly due to late auditing of their systems and controls.
The FMA identified the issues with Tiger Brokers and the other companies as part of its ongoing monitoring of around 800 businesses that report to the regulator under the Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) Act.
In the FMA’s view, Tiger Brokers had failed to:
- adequately conduct enhanced and ongoing customer due diligence where required.
- adequately verify relevant customer identification documents.
- obtain adequate source of fund or wealth information relating to high risk customers, and take reasonable steps to verify that information.
- report suspicious activity to the relevant authorities within three working days after forming a suspicion.
- take reasonable steps to determine whether a customer or any beneficial owner, is a politically exposed person.
The FMA concluded there were reasonable grounds to believe the business had contravened the Act.
Tiger Brokers must prepare and submit a plan to the regulator before 17 April 2020 describing how and when it will amend the issues to become compliant. It must then complete these actions by 30 September 2020 or it will face enforcement action.
James Greig, Head of Supervision at the FMA said, “Warnings are an important regulatory tool for the FMA because they can force faster change than court proceedings. In these cases, formal warnings were the most proportionate response to the conduct by the firms in question. A public warning is designed to send a signal that we have issues with a company, and they need to address the concerns we have raised.
“The severity of Tiger Brokers’ likely breaches meant that a public warning was necessary, especially becuase it is a large business that is growing fast in New Zealand. The issues were wide ranging and weren’t minor or technical, meaning there was potential for immediate and ongoing damage to the integrity of our financial markets.”
“The anti-money laundering legislation has been in effect for some time now, so we expect businesses to be aware of their obligations and why it is important to the integrity of New Zealand’s financial system.”
“While the industry is grappling with the impacts of COVID-19, anti-money laundering is a high-risk issue so we are continuing to actively monitor for non-compliance and take enforcement action.
Mr Greig said the FMA is alleviating pressure where appropriate — New Zealand’s AML supervisors recently outlined how businesses can conduct due diligence in different ways during the COVID-19 alert levels.
Private warnings for anti-money laundering breaches
The FMA issued formal warnings to six other firms after finding:
- Four failed to have their AML risk assessment and programme audited in a timely manner;
- One failed to provide an audit of its AML risk assessment and programme;
- One failed to have an AML programme in place, undertake a risk assessment, and designate an employee to administer and maintain the programme. This entity has undertaken remedial action due to the nature and extent of its breaches.
Mr Greig said, “We decided not to name the other six businesses after considering the proportionate regulatory response. All of these firms in breach were either small businesses or individuals, and they are cooperating with the FMA and taking steps to become compliant.”
“Many of the private warnings relate to independent audits of anti-money laundering systems. These audits are essential because they help to ensure businesses have robust systems and processes to detect and deter money laundering. A guidance document on the auditing of risk assessments was issued last year so there is now no excuse for non-compliance.”
The FMA conducts cyclical reviews of the roughly 800 entities it supervises for anti-money laundering. In 2019, the FMA analysed the AML audit reports of 49 businesses. The regulator also performs on-site monitoring visits.
Last year’s review focused on entities with overdue audits and those with medium-low and low risk profiles. High risk and medium-high risk entities are reviewed on an annual basis.
The warnings do not suggest that the businesses have allowed or enabled illegal activity to take place.
The warnings were issued under section 80 of the AML/CFT Act.
Senior Adviser, Media Relations
021 945 323
Notes to editors:
The Anti-Money Laundering and Countering Financing of Terrorism Act 2009 and associated regulations came into full effect on 30 June 2013. Its purpose is to deter and detect money laundering and terrorist financing.
The FMA is one of three supervisors under the Act, along with the Reserve Bank of New Zealand and Department of Internal Affairs. The FMA currently supervises around 800 reporting entities who are required to comply with the Act. Not all are licensed by the FMA.
Roughly two-thirds of the reporting entities the FMA supervises define themselves as financial advisers, but reporting entities also include: issuers of securities, licensed supervisors, derivatives issuers, providers of discretionary management services, fund managers, brokers, and custodians as well as equity crowdfunding and peer-to-peer lending platform providers.
The FMA expects every reporting entity that it supervises to have an audit of its AML/CFT risk assessment and programme completed every two years or on request. A copy of the audit report must also be provided to the FMA when specifically requested.