New Zealand central bank has failed on AML/CFT supervision, says FATF

The international anti-money laundering standard setter has criticised the Reserve Bank of New Zealand (RBNZ) for failing to supervise the banking sector adequately, despite an overwhelmingly positive national review. The Financial Action Task Force’s (FATF) latest mutual evaluation report revealed the central bank has just five full-time staff dedicated to financial crime compliance supervision.

The RBNZ had failed to take any significant action against any of the country’s largest banks. This is despite extensive evidence of misconduct involving three of the New Zealand banks’ parent companies in Australia, the report said. The RBNZ’s failure as a banking supervisor was one of only a handful of serious deficiencies identified in the Pacific island nation’s critical fourth-round mutual evaluation report.

On the whole, FATF gave New Zealand an impressive scorecard — noting there were significant improvements since the third-round review. Notably, New Zealand has moved to regulate lawyers, accountants and real estate agents since the 2009 review. It has also closed many of the vulnerabilities in its foreign trusts regime, as identified in the Panama Papers.

The report found New Zealand was at least partially compliant with all 40 of FATF’s recommendations. in 2009 found the jurisdiction was lagging badly and was non-compliant with 18 recommendations, the report said. Since then, New Zealand has moved resolutely and its latest results place the country ahead of Australia in terms of technical compliance.

With regards to effectiveness, New Zealand was found to be either “highly”, “substantially”, or “moderately” effective in all of the 11 areas FATF assesses.

The standard setter singled out New Zealand for its effectiveness in targeting the proceeds of crime. The New Zealand Police, which houses the country’s financial intelligence unit, has a strong focus on asset seizures. This is supported with a top-level target for the volume of criminal assets to be restrained (NZ$500 million by 2021). The dedicated Asset Recovery Unit also works in cooperation with law enforcement agencies to run parallel restraint and forfeiture proceedings, alongside any civil or criminal matters.

Room for improvement 

Despite the overwhelmingly positive report, FATF singled out a number of areas for improvement. New Zealand needed to improve the transparency around the ultimate beneficial owners of companies, such as shell companies and trusts, that are commonly used to launder illicit funds, it said.

FATF also urged New Zealand to improve supervision in the areas of banking and designated non-financial businesses and professions (DNFBPs). The country has also been urged to improve its counter-terrorist financing measures, particularly with the supervision of targeted financial sanctions.

On the supervision front, the review noted the good supervisory work being carried out by the Department of Internal Affairs (DIA) and the Financial Markets Authority (FMA), particularly following the expansion of the regime in July 2018.

The results may put pressure on New Zealand to reconsider its “tripartite” model of AML/CFT supervision, given the mixed scorecard and potential for inconsistent oversight.

When New Zealand’s AML/CFT laws were passed, the government took the view that the cost of establishing a dedicated regulator and financial intelligence unit, such as that established in Australia, could not be justified.

“Out of our three AML supervisors, RBNZ is the one that faces the biggest challenges. It was never set up to be an independent and focused regulator compared with, say, the Financial Markets Authority,” Hughes said.

“RBNZ has too many conflicting institutional roles requiring it to be aloof — around prudential supervision, monetary policy and stability of the banking system — to be able to prioritise tough AML enforcement.”

The report said the scope and depth of RBNZ’s inspections “does not adequately reflect the risk and complexity of the banks inspected”.

“There is scope to improve the range of sanction powers available to the supervisors, and for the supervisors to impose sanctions that are more effective, proportionate and dissuasive,” FATF said.

Reluctant regulators 

Central banks and prudential regulators are often reluctant to take on enforcement cases due to their conflicting mandates. The priority of financial stability and confidence tends to trump the need to be perceived as a strong and committed enforcement agency. In Australia, for instance, the central bank has described itself as a “reluctant regulator” of the payments sector.

The challenges with the RBNZ’s supervisory approach run far deeper, however, than the obvious staffing and resourcing issues.

“It’s not just a case of lack of funding or people resources. It is unfortunately not the right agency for the job [the] government has thrown to it,” he said.

By Nathan Lynch, Thomson Reuters, 20 May 2021

Read more at Thomson Reuters

Source: riskscreen.com