New Zealand s AML/CFT Regime: Impact on AFMA members. Presented by Lloyd Kavanagh June 2013

Transcription

1 New Zealand s AML/CFT Regime: Impact on AFMA members Presented by Lloyd Kavanagh June

2 Agenda Objective and timing of the new AML/CFT regime Key features of the new AML/CFT regime Similar in principle to Australia But significant differences in the detail Questions

3 Objective and timing of the new AML/CFT regime Purposes of the AML/CFT Act: To detect and deter money laundering and terrorism financing To maintain and enhance New Zealand s international reputation by adopting FATF Recommendations To contribute to public confidence in the financial system Latest Regulation Changes 27 May 2013 Key difference: No assisted compliance period

4 Key features of the new AML/CFT regime - Supervisors 3 Supervisors: Reserve Bank Financial Markets Authority Department of Internal Affairs Involvement by other entities including: Financial Intelligence Unit of Police AML/CFT National Co-ordination Committee Customs Ministry of Justice Key difference: Split Supervision No Austrac

5 Key features of the new AML/CFT regime - components AML / CFT Act Regulations Codes of practice Guidance Material Key difference: Limited guidance so far.

6 Key features of the new AML/CFT regime reporting entities Casinos Financial Institutions - person who in ordinary course of business: accepts deposits from public lends or finances financial leases transfers money for customer issues means of payment undertakes financial guarantees trades financial instruments participates in securities issues provides financial services related to securities issues manages individual or collective portfolios safe keeping cash or liquid securities invests, administers or manages funds or money for others underwrites or places life or investment related insurance changes money or currency Inclusions by regulation e.g. trust and company service providers, certain financial advisers Key difference: Wider scope: Ambiguity

7 Key features of the new AML/CFT regime territorial scope Guideline: Territorial scope of the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 issued by Supervisors: An entity formed in New Zealand which carries on financial activities wholly outside New Zealand and will not be a reporting entity under the AML/CFT Act An overseas entity will likely be a reporting entity if: Carrying on business in New Zealand; and Engaged in one or more of the activities listed in the financial institution definition in the AML/CFT Act in New Zealand Not carrying on business in New Zealand is unlikely to be a reporting entity under the AML/CFT Act Key difference: No territoriality clause

8 Key features of AML/CFT regime - obligations Obligations like Australia, the AML/CFT Act puts in place a number of active steps: AML/CFT Compliance Officer Risk assessments Ongoing Compliance Programme and Monitoring Customer Due Diligence Transaction monitoring and reporting of suspicious transactions Detailed Record Keeping Requirements

9 Key features of AML/CFT regime obligations Key differences from Australia. Hybrid Model: Mainly risk based - but Enhanced CDD for all trusts or vehicles holding personal assets, or companies with nominee shareholders or bearer shares. PEPs require senior management approval and source of wealth. Audits every two years but annual reporting

10 Key features of AML/CFT regime obligations Key differences from Australia AML Compliance Officer must be an employee of RE or DBG DBGs can include non-res and be cross border No multi party facility holder exemption for CDD must verify all facility holders Must CDD all beneficial owners effective controllers persons on behalf over 25% owners

11 Key features of the new AML/CFT regime offences and enforcement Civil liability acts Failure to comply with requirements of obligations above, e.g. customer due diligence Extensive liability regime and penalties Could result in formal warnings, enforceable undertakings, compensation assessments, injunctions, pecuniary penalties

12 Key features of the new AML/CFT regime offences and enforcement Money laundering and terrorist financing offences predicate offences contained in Crimes Act, Misuse of Drugs Act, Terrorism Suppression Act etc Offences under the AML/CFT Act where: Civil liability acts committed and reporting entity engaged in conduct knowingly or recklessly Other events occur, such as failure to report a suspicious transaction, providing misleading information etc Shell banks Immunities

13 Summary of Major Differences from Australia The importance of harmonisation with Australia was a key submission point however: Multiple Supervisors no NZTRAC No assisted compliance period short implementation period Greater prescription in some aspects Other differences in the detail NZ decided to start from scratch rather than adopt Australian precedent No mutual recognition regime Cannot simply drag and drop Australia solutions because NZ law is not a copy of Australia even though they are similar

14 AML/CFT Questions and Answers Client Identification? Wholesale Markets? Mutual Recognition or Equivalence? Cross-border reporting Required? Permitted?

15 Team contacts LEFT TO RIGHT Lloyd Kavanagh Partner T M Aaron Lloyd Partner T M Jeremy Muir Partner T M firstname.lastname@minterellison.co.nz

16 Overview of guidelines issued by supervisors Identity Verification Code Risk Assessments AML/CFT Risk Assessment Guideline AML/CFT Programme Guideline Interpreting ordinary course of business Guideline Designated Business Group - Formation Guideline Designated Business Group Scope Guideline Countries Assessment Guideline Insurance Business Coverage Guideline

17 Overview of guidelines issued by supervisors Guideline: Issuers of securities and participants in issues Guide for small financial adviser businesses Guideline for audits of risk assessments and AML/CFT programmes Guideline: Territorial scope of the Anti- Money Laundering and Countering Financing of Terrorism Act 2009

18 Overview of guidelines issued by supervisors Beneficial Ownership Guideline Beneficial Ownership Fact Sheets: 1. Customer Due Diligence - Clubs and Societies 2. Customer Due Diligence Companies 3. Customer Due Diligence Limited Partnerships 4. Customer Due Diligence Trusts 5. Customer Due Diligence Co-operatives 6. Customer Due Diligence Managing Intermediaries

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20 The Financial Markets Conduct Bill A Roadmap Presentation for AFMA 18 June

21 Agenda Purpose Timetable What does it cover? Financial products Disclosure MIS and licensing Dealing/markets Enforcement Trans-Tasman issues

22 Purpose of the legislation Main purposes Promoting confident and informed participation in financial markets Promoting development of fair, efficient and transparent financial markets Additional purposes Timely and accurate provision of information Appropriate governance arrangements Avoid unnecessary compliance costs Promote innovation and flexibility in financial markets

23 Timetable Enactment Mid 2013? Draft regulations October 2013? New legislation effective (1 April 2014?) Transitional period 2 years to transition existing schemes and funds New offers: have 12 months from commencement during which can elect either regime No allotments allowed under former enactments after 2 years

24 What does it cover? Securities Act 1978 Securities Markets Act 1988 Securities Transfer Act 1991 Superannuation Schemes Act 1989 Unit Trusts Act 1960 Parts of the KiwiSaver Act FINANCIAL MARKETS CONDUCT ACT Parts of the Securities Amendment Act 2011 Various regulations

25 Overview of NZ s securities law - now Reserve Bank of NZ Act 1989 Companies Act 1993 [Other: LPs, unit trusts, super, KiwiSaver] Securities Act 1978 Offer to the public Registrar of Companies Registrar of FSPs RBNZ Takeovers Act 1993 Takeovers Code 2000 Takeovers Panel Securities Regulations 2009 Investment Statement Prospectus Securities Markets Act 1988 Securities Transfer Act 1991 Insider Trading Market Manipulation NZX Securities Trustees and Statutory Supervisors Act 2011 FINANCIAL MARKETS AUTHORITY Continuous Disclosure NZX Listing Rules Auditor Regulation Act 2011 Financial Service Providers (Registration and Dispute Resolution) Act 2008 Financial Advisers Act 2008

26 Overview of NZ s securities law future Companies Act 1993 [Other: LPs, KiwiSaver] Registrar of Companies Product -Licensing Disclosure [Financial Markets Statements (PDS) Conduct Regulations] Online Register Securities Trustees and Statutory Supervisors Act 2011 Auditor Regulation Act 2011 Reserve Bank of NZ Act 1989 [Financial Markets Conduct Act] -Regulated offers of financial products (equity/debt/mis/derivatives -Insider trading -Market manipulation FINANCIAL MARKETS AUTHORITY Financial Service Providers (Registration and Dispute Resolution) Act 2008 RBNZ [Non-Bank Deposit Takers Act] Takeovers Act 1993 Takeovers Code 2000 Takeovers Panel NZX Listing Rules NZX Financial Advisers Act 2008

27 What does it cover? The Bill regulates financial products Definitions focus on substance not form (except equity securities!) FMA has power to designate products 4 types of financial products

28 What is a financial product? Equity Securities Debt Securities Derivatives Managed investment products

29 Equity securities Equity Securities A share in a company A share in an industrial and provident society A share in a building society Not a debt security

30 Debt securities Debt Securities A right to be repaid money or paid interest on money that is, or is to be, deposited with, lent to, or otherwise owing by, any person Includes debenture, bond, note, convertible note, redeemable share (except where only redeemable at entity s option) Not a (transacting) share in a co-op company, a derivative, or a unit interest/membership in a registered scheme

31 Derivatives Derivatives An agreement where the following apply: Future consideration to be provided Future time is not less than prescribed time Consideration or value of the agreement is determined by reference to value or amount of something else e.g. asset, rate (e.g. interest or exchange), index, commodity

32 Derivatives (continued - 1) Derivatives Includes a transaction recurrently entered into in the financial markets and commonly referred to as: futures contract, forward, option (other than by issue, re another product), swap, CFD, margin contract, rolling spot contract, cap, collar, floor, spread Does not include agreement for future provision of services, debt security, equity security, managed investment product

33 Derivatives (continued - 2) Derivatives Does not include an agreement: to buy/sell property (other than financial products or NZ or foreign currency) at a price and on a date in the future; which cannot be cash-settled, or by set-off, rather than by delivery of the property; and where neither usual market practice nor market rules permit closing out by matching offsetting obligations

34 Managed investment products Managed investment products Right to participate in, or receive financial benefits from, a managed investment scheme (MIS) Not an equity security or a debt security MIS requires contribution of money for rights to financial benefits produced by another; not day-to-day control for investors Not bare trust schemes; DIMS; or pure risk or (grandfathered) life insurance

35 But FMA has power to designate investments into product classes

36 When is disclosure required? Will apply to regulated offers An offer of financial products to 1 or more investors where the offer to at least 1 of those investors requires disclosure under Part 3 of the Bill Disclosure is required unless an exemption in Schedule 1 applies

37 Exclusions from disclosure All offers Sophisticated persons Bright-line safe harbours Offers through licensees Small offers Other exemptions

38 Exclusions from disclosure (cont) Offers to wholesale investors: Investment businesses; Persons who meet the investment activity criteria, Large persons (assets >$10m or turnover >$20m) Government agencies Eligible investors (self certified/afa confirmed) $750K minimum subscription Offers through licensed intermediaries and DIMS licensees

39 Exclusions from disclosure (cont) Small offers (max 20 investors and $2m over 12 months) Other exclusions: Persons in close relationship (close business associates and relatives) Transfer of a controlling interest Small managed investment schemes (max 5 participants) Employee share purchase schemes Dividend reinvestment plans Offers for no consideration Offers of derivatives where derivatives issuer is not involved Offers of category 2 products or debt securities by registered banks Offers by Crown, local authorities etc Retirement villages, contributory mortgages Offers of renewals/variations

40 How to disclose No prospectuses and investment statements. Instead disclosure will generally be comprised of: Product disclosure statement (PDS) Register entry Other documents - depending on the security (such as governing documents including trust deeds) The purpose of the PDS is to: provide certain information that is likely to assist a prudent but non-expert person to decide whether or not to acquire the financial products

41 Product Disclosure Statements The form and content of a PDS will be prescribed in separate regulations and will be customised for different situations 2 parts key information summary and prescribed information section To update a PDS, an issuer can lodge a supplementary document or a replacement PDS with the Registrar

42 Register entry Other material information relating to the regulated offer must be contained in a register entry for the offer When the PDS is lodged, the register entry must contain: all info and documents that regulations require; and all material information relating to the regulated offer that is not contained in the PDS. In summary, material info is info that a reasonable person would expect to, or to be likely to, influence persons who commonly invest in financial products when deciding whether to acquire the financial products

43 So basically disclosure is changing from

44 Disclosure for derivatives Party A Party B Example Consequence licensed derivatives issuer retail investor a bank and a customer A makes disclosure; B doesn t person in the business of entering into derivatives investor who is not energy company and a retail investor A must be licensed + disclose; B doesn t licensed derivatives issuer licensed derivatives issuer two banks no disclosure required wholesale investor wholesale investor two large energy companies no disclosure required investor not in the business of issuing derivatives investor not in the business of issuing derivatives [no example given two retail investors?] no disclosure required

45 Managed investment schemes Managed investment schemes need to be registered (registered scheme) requires them to meet key common governance and reporting requirements Manager of a registered scheme will now have to be licensed by the FMA and comply with general duties Supervisors of registered schemes will also have set functions and need to meet statutory duties

46 Managed investment schemes (cont) Related party transactions in relation to managed investment schemes are regulated and limits imposed for restricted managed investment schemes Custodianship of scheme property of a registered scheme needs to be independent from the Manager

47 Licensing of market services Licensing regime for certain market services set out in Part 6 The FMA will license: Managers (of managed investment schemes) Providers of Discretionary Investment Management Services (DIMS) Derivatives issuers Independent trustees of restricted managed investment schemes

48 Licensing of market services (cont) Regulations will determine the specific license criteria and the types of conditions that apply The FMA is required to take account of whether entities seeking licenses are already QFEs or registered banks Supervisors of debt securities and managed investment schemes will continue to be licensed under Securities Trustees and Statutory Supervisors Act 2011

49 Dealing in Financial Products on Markets

50 Dealing in Financial Products on Markets Part 5 replaces various parts of the Securities Markets Act 1988 and the Securities Transfer Act 1991 Insider trading and market manipulation Continuous disclosure by issuers SSH disclosure and disclosure by directors and senior managers Licensing and operation of exchanges (licensed markets) Unsolicited offers

51 Enforcement As a general principle, criminal penalties will be reserved for conduct which is knowing or reckless Introduces an infringement notice regime for minor compliance type contraventions. FMA will be able to issue speeding tickets in these situations Bill also includes other types of enforcement options: civil remedies, compensation orders, pecuniary penalty orders

52 Enforcement (cont) Significant increase in penalties (fines of up to NZ$1 million for individuals and NZ$5 million for companies) Maximum 10-year prison terms

53 Trans-Tasman issues Provides for mutual recognition regimes Territorial scope Fair dealing Disclosure Dealing on markets Licensing

54 Conclusion Bill represents a fundamental change to the regulation of NZ s financial markets and securities offers It is important for the market to get up to speed with the requirements and to track the progress of the Bill

55 Questions