The Anti-Money Laundering and Countering Financing of Terrorism (Supervisor, Levy, and Other Matters) Amendment Bill (Bill) was introduced last week, setting in motion a wide-ranging reform of New Zealand’s anti-money laundering and counter terrorism (AML/CFT) framework. The Bill aims to streamline supervisory functions, accelerate regulatory decision-making, and align national efforts under a coherent and risk-responsive strategy.

A unified approach

One of the Bill’s most significant structural changes is to provide for a single AML/CFT supervisor. This departs from the current model, where the supervisory responsibility has been split between three different agencies (Department of Internal Affairs, Financial Markets Authority and the Reserve Bank).

The Bill does not prescribe a specific agency. Instead, the supervisor will be whichever public service agency the Prime Minister authorises to perform this role. It has been well-signalled that this will be the Department of Internal Affairs.

The supervisor’s functions still include monitoring and investigating reporting entities, but the Bill will add compliance-support responsibilities, such as:

• providing timely guidance to reporting entities;
• engaging with reporting entities to mitigate unintended consequences of the legislation; and
• issuing codes of practice, rules, and notices to clarify the supervisor’s expectations.

The Bill further enhances coherence by requiring the Minister of Justice to adopt a national strategy for AML/CFT. This strategy must be informed by relevant risk assessments and intelligence. It will direct the supervisor, the Ministry of Justice, and other agencies about how to perform their AML/CFT functions to achieve the legislation’s purposes. Following Financial Action Task Force mutual evaluations, the national strategy must be reviewed to ensure it remains fit for purpose.

A regulatory work programme

The Ministry of Justice will be responsible for developing a regulatory work programme aligned with the national strategy. This programme will set out how key agencies will give effect to the national strategy.

The Ministry must also:

• establish working and reference groups to support the regulatory work programme;
• engage with international counterparts; and
• report annually on how levy funds are collected and used.

Breaking the bottlenecks: notices and rules

The Bill provides the potential to unblock slow regulation-making processes. It empowers officials, rather than Ministers, to make certain decisions through rules and notices. This includes transferring a number of powers to the chief executives of the AML/CFT supervisor and Ministry of Justice, or to the Commissioner of Police.

These new tools can be used to do things which would otherwise require regulations, such as to:

• exempt or prescribe specific transactions, activities, or entities;
• set sector-specific requirements for customer due diligence (CDD) and reporting;
• clarify definitions that create uncertainty (such as “facility”, “customer”, and “occasional transaction”); and
• declare who are “approved entities” for the purposes of CDD outsourcing. Under the principal Act, a reporting entity that outsources its CDD generally remains liable if the CDD the third party performs does not satisfy the Act. However, the reporting entity could avoid liability if it meets certain conditions, including that regulations declare the third party an “approved entity”. Unfortunately, the regulations needed to activate this safe harbour have never been issued. The Bill’s new rule-making structure brings greater hope of achieving this game-changing safe harbour.

These tools should allow quicker and more nimble responses to specific areas of risk or where innovation or change require new or different rules. For example, there could be a more agile response to developments in crypto-asset services or correspondent banking relationships.

Expanded supervisory powers

The supervisor’s enforcement toolkit is also enhanced. The supervisor will be able to:

• set deadlines for the production of documents or records;
• compel individuals with relevant knowledge to attend meetings and answer questions (with safeguards against self-incrimination, and protections around privileged communications);
• enter residential dwellings with consent or a warrant;
• set sector-specific information requirements for annual reporting; and
• when exercising search warrants, be able to require assistance from those familiar with relevant computer systems (reversing the previous exclusion).

Levies

Every reporting entity will be required to pay a levy, set by regulation. These levies will fund:

• part of the costs of the AML/CFT supervisor, Ministry of Justice, and Commissioner;
• part of the costs arising from the national strategy and regulatory work programme; and
• the cost of levy collection.

Levy regulations can prescribe different rates for different types of reporting entities.

The Minister must consider the work programme when setting industry levies, to ensure that regulatory priorities are appropriately funded.

Strategic and structural promise

This Bill presents a forward-looking restructuring of New Zealand’s AML/CFT system. We remain of the view that the AML/CFT legislation contains fundamental flaws (see our previous article), but this Bill does have the potential to improve how the system functions through having a single supervisor, empowering officials to make more timely decisions, and coordinating activity under a shared strategy and work programme.

If these changes are implemented well, they could significantly improve regulatory clarity, efficiency, and fairness, minimise bottlenecks, and enable more targeted, proportionate, and risk-based supervision.

Most promising of all is the potential to formalise safe harbours, guidance, and trusted third-party CDD verification. Changes such as these will help reporting entities focus more on stopping money laundering and less on second-guessing the rules.

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