Who is a reporting entity for AML / CFT purposes? 

The Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (hereafter referred to as the AML / CFT Act) came fully into force on 30 June 2013. 

The AML / CFT Act contains a set of compliance obligations for “reporting entities”. Penalties for non-compliance with these obligations are massive and can be as high as $2m and/or up to 2 years in prison. The key to determine whether you have obligations under the AML / CFT Act is to understand the term reporting entity (RE). Once you establish you are a RE then you can start undertaking the necessary work to ensure you comply with the AML / CFT Act. 

Who is a reporting entity? 

In general, persons (individuals or entities) who may have obligations under the AML / CFT Act are known as REs. The definition for a RE in the AML / CFT Act is ‘inclusive’. RE means: 

• A casino, or 
• An entity or an individual carrying out in New Zealand, in the ordinary course of their business, certain financial activities listed under the definition of financial institution*, or 
• Persons declared by regulations to be a RE. Examples include individuals/entities who are financial advisory businesses providing advice on certain financial products. 

*Section 5 of the AML / CFT Act explains the term financial institution. It is defined with reference to a list of financial activities. Advisers carrying out any of these listed activities will have AML / CFT obligations. Some of the financial activities, described, are: Managing individual or collective portfolios; investing, administering, or managing funds or money on behalf of other persons, etc. Broadly, advisers who carry out transactions with clients’ funds, directly manage client assets are likely to be REs and have AML / CFT obligations under the AML / CFT Act. 

Are you a reporting entity? 

Here is some good news. Not all financial advisory businesses are REs for AML / CFT purposes. Keeping in mind, the general focus of AML / CFT is “involvement” with “money” and its “use”, the following may help you in determining whether you or your business are a RE under the AML / CFT Act or the Regulations: 

• You are likely to be a RE and have obligations under the AML / CFT Act if: 
• You recommend clients buy financial products and also act as an intermediary for the purchase of these products from product providers, or 
• You provide a broking service or a discretionary investment management service, or 
• You arrange insurance policies* for clients through insurance companies, or 
• You arrange home loans* (mortgage credit), or consumer credit (e.g. personal loans) for clients through lenders and/or finance companies. 

*Issuing, or undertaking liability under, life insurance policies, and lending activities (e.g. mortgage credit, consumer credit, etc) are one of the 13 specified financial activities which make the entities undertaking these activities (e.g. insurer, and lenders) REs.  

If you are a financial advisory business only recommending an appropriate financial solution (risk, investment, etc) to your clients but not acting as an intermediary, then you are not likely to be a RE and are unlikely to have obligations under the AML / CFT Act. 

Brokers 

If you are a broker (an individual acting as an intermediary for clients and generally handling money on behalf of clients), then you are likely to be a RE and have obligations under the AML / CFT Act. 

Individuals who are fire and general insurance brokers may have obligations under the AML / CFT Act if they act as an intermediary for clients and handle clients’ money. 

Individuals who do not handle client money but only provide advice on fire and general insurance products may not have obligations under the AML / CFT Act (on the basis they are not AFAs). 

Note: Individuals referring to themselves as mortgage brokers or insurance brokers may be mortgage advisers or insurance advisers (and not brokers, if they are not handling client’s money). 

How do you satisfy the requirements of the AML / CFT Act? 

Under the AML / CFT Act, it is possible for your business to discharge your compliance obligations, relating to the development of an AML / CFT risk assessment and documented AML / CFT programme, for the services provided through it. This is because if you are a reporting entity by virtue of being a financial institution  

If not sure if you are a RE, then seek legal advice or contact us to discuss your situation.