Expiring regulations update

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New Zealand’s anti-money laundering and countering financing of terrorism (AML/CFT) system is intended to adapt as money laundering and terrorism financing risks evolve.

Two regulations that are a key part of the AML/CFT system are due to expire. The AML/CFT (Exemptions) Regulations 2011 expire on 30 June 2020, and the AML/CFT (Definitions) Regulations 2011 partially expire on 27 July 2021.

In October last year the Ministry of Justice consulted on these regulations. This was to identify whether each regulation is still required, and, if so, whether changes or updates are needed to be fit-for-purpose and reflect the current risk environment. 

Cabinet has agreed to make changes to the Exemption Regulations and the Definitions Regulations. The Ministry of Justice has released the documents (PDF, 960KB, Ministry of Justice website) about these decisions on their website. The changes and the impact on reporting entities supervised by the Department is summarised below.

Until new regulations come into force reporting entities must comply with the requirements of the current regulations.

The Ministry of Justice is progressing the changes in three steps

Step

What is covered by the step

When will it come into force

1

Remove the expiry date of 30 June 2020 from the Exemptions Regulations

The Ministry has amended the regulation to remove the expiry date and this is now in force.

2

Changes to the Exemptions Regulations and Definitions Regulations made and new regulations issued.

The Ministry aims to have new regulations in force by December 2020.

3

Consolidation of the existing six Regulations into a single Regulation

The Ministry aims to have new consolidated regulations in force by the end of 2020.

If you have any additional questions about the planned changes, the process or timing for changing the regulations, please can contact the Ministry of Justice on aml@justice.govt.nz.

New and changing regulations that will affect reporting entities supervised by the Department

Regulation

Change

What this means for DIA reporting entities

New regulation

Exempt liquidators appointed by the High Court under s241(2)(c) of the Companies Act from some customer due diligence requirements.

This affects reporting entities that are liquidators.  If appointed by the Court, there is no requirement to conduct initial customer due diligence on the liquidated company. Requirements continue relating to payments to beneficial owners, wire transfers, prescribed and suspicious activity reporting.

New regulation

Wholly exempt transactions where a client pays money for specific low-risk disbursements, such as when a lawyer receives money to file an application in court.

Low risk disbursements will no longer be captured under the AML/CFT Act when funds are received from clients to pay certain types of low-risk payments, such as to government departments, some professional services (on behalf of the reporting entity client), and some payments within NZ of less than $1000.  This means there is no requirement to conduct customer due diligence on the client and cease acting for the client if customer due diligence cannot be conducted.

New regulation

Ensure that limited partnerships can more easily be included in designated business groups

Limited partnerships will be eligible for inclusion in a designated business group where they are related to the other members of the designated business group

New regulation

Extend the default timeframe for AML/CFT audits to every three years, with some businesses potentially being eligible to be audited every four years.

AML/CFT audits will be required every three years. DIA can request a more frequent audit or a less frequent audit.

New regulation

Reduce the potential for a business to unintentionally tip off people who are subject to a Police inquiry.

An exemption will apply, for 30 days unless otherwise notified by the Police, from having to conduct enhanced due diligence in respect of the subject of Commissioner’s Order. (A Commissioner’s Order is when the Commissioner of Police requires information relevant to a suspicious activity report or prescribed transaction report.)

New regulation

Protect businesses from companies that misuse nominee director relationships to obscure their beneficial owner.

Reporting entities will have to obtain information from customers, who are companies, as to whether there are any nominee director relationships or nominee shareholder relationships. If the company declares that such a relationship exists, reporting entities will then be required to conduct enhanced customer due diligence.

Definitions regulation 3 – expiry date

The expiry date will be removed.

Reporting entities now have certainty that the current regulatory environment will continue after 27 July 2021.

Definitions regulation 13A – Inclusion: wire transfer of more than $1,000

Clarify that this regulation applies to ordering institutions for wire transfers that occur outside of a business relationship with a customer, as well as applying to beneficiary institutions for wire transfers that are received outside of a business relationship with a customer.

This clarifies that AML/CFT obligations apply to an ordering institution of a wire transfer of more than $1000 if the reporting entity does not have a business relationship with the person sending the funds.

This also clarifies that AML/CFT obligations apply to a beneficiary institution of a wire transfer of more than $1000 if the reporting entity receives funds for somebody with which it doesn’t have a business relationship.

Definitions regulation 15 – Inclusion: transactions involving certain stored value instruments

Amend the definition of ‘debit card’ so that the reference to ‘financial institution’ does not apply to a non-finance business; ensure structuring with stored value instruments cannot occur.

The change prevents multiple transactions or stored value instruments being issued to avoid the application of AML/CFT requirements.

The change also clarifies that non-finance businesses, for example cafes issuing loyalty cards with funds held on account, are not captured as reporting entities.

Definitions regulation 20 – Exclusion: lawyers, etc

Update heading to reflect amended scope of exemption (estate administration and family trusts); restructure the regulation to exclude the relevant activities instead of reporting entities who only provides the relevant activities.

AML/CFT obligations do not apply when carrying out a relevant service as an executor, an administrator, or a trustee in respect of services provided in the administration of an estate or, in the case of a trustee, in respect of services provided to beneficiaries of a family trust. This applies to administration of estates and family trusts.

Definitions regulation 21B – Exclusion: persons carrying out property management activities

Restructure the regulation to exclude the activity of property management from the scope of ‘managing client funds’ instead of excluding reporting entities which only provide that activity.

This clarifies that AML/CFT obligations do not apply to property management activities even when you provide other real estate services which do attract AML/CFT obligations

 

Definitions regulation 24A - Time at which real estate agents must conduct customer due diligence

Real estate agents that engage in commercial leasing will be required to conduct customer due diligence on the landlord when an offer to lease is presented, rather than when they sign an agency agreement.

For commercial leasing, real estate agents will now only be required to conduct customer due diligence on the landlord when an offer to lease is presented (rather than when they sign an agency agreement).

For other types of real estate transactions, the timing of customer due diligence remains the same.

Exemptions regulation 3 –  expiry date

The expiry date will be removed. This will provide business with more certainty.

Reporting entities now have certainty that the current regulatory environment will continue after 30 June 2020.

Exemptions regulation 8 – Transactions that are not occasional transactions or wire transfers exempt from section 49(2)(d) of Act

Update this regulation to ensure clarity and ensure that transactions below applicable thresholds are exempt from record keeping requirements; repeal reg 8(3) as it is unnecessary.

This change is unlikely to have any practical effect. It clarifies that for low value transactions that occur outside of a business relationship that are not occasional transactions (as defined), reporting entities will not have to keep a record of the parties to the transaction, though all other record keeping requirements will still apply.

Exemptions regulation 15 – Relevant services provided in respect of certain stored value instruments

Amend the definition of ‘debit card’ so that the reference to ‘financial institution’ does not apply to a non-finance business; ensure structuring with stored value instruments cannot occur.

The change prevents multiple transactions or stored value instruments being issued to avoid the application of AML/CFT requirements.

The change also clarifies that non-finance businesses, for example cafes issuing loyalty cards with funds held on account, are not captured as reporting entities.

Exemptions regulation 16 – Relevant services provided to related entities

More types of businesses will be captured by the ‘related businesses’ exemption

AML/CFT obligations do not apply to relevant services provided to related entities. The definition of ‘related’ will include entities where A is ‘controlled’ by B (and vice versa) or where A and B are both ‘controlled’ by C.

Exemptions regulation 17 – Relevant services provided under premium funding agreement by insurance company

Exemptions regulation 18 – Relevant services provided under premium funding agreement by non-insurance company

The definitions for both reg 17 and reg 18 are contained within reg 17, which has the potential for confusion. As the regulations are similar in scope it is appropriate to amalgamate the regulations.

No change to AML/CFT obligations. This is to reduce duplication of definitions.

We have developed some questions and answers – read those here: Frequently Asked Questions

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