FMA defends formal warning over prosecution in anti-money laundering breach

Tuesday 3rd May 2016

The Financial Markets Authority has defended making a formal warning rather than taking legal action against sharebroking firm Craigs Investment Partners for anti-money laundering breaches – the second warning it has issued since the 2013 Anti-Money Laundering and Countering Financing of Terrorism Act came into force.

In a settlement with the market regulator, Craigs, one of New Zealand’s largest investment advisory and management firms, admitted it breached the Act by failing to conduct adequate due diligence on a client and/or terminating its business relationship with that customer.

In the FMA’s view, there were deficiencies with Craig’s anti-money laundering compliance programme following the introduction of the new Act in mid-2013 as it didn’t have a cohesive process for escalating, monitoring, and managing these issues and ensuring compliance.

Craigs had also not maintained sufficient internal written records in relation to decision making in the customer due diligence process, the FMA said.

In response to a civil breach of the Act, the regulator can opt to issue a formal warning, seeking undertakings, or pursue civil pecuniary penalties in court . The two different levels of pecuniary penalties under the AML/CFT Act carry maximum fines of $1 million for a company that enters into or continues a business relationship with someone that doesn’t have satisfactory identity information and up to $2 million for failing to conduct the required customer due diligence.

“In this case, it was determined that, taking into account all of the circumstances of the breach, a formal warning under the AML /CFT Act (rather than civil court proceedings) was the appropriate and proportionate regulatory response,” the FMA said in an emailed response to a query on why legal action was not pursued.

The FMA, under chief executive Rob Everett, has shown a preference for reaching settlements for market misbehaviour which he has said in the past are more cost effective than taking a claim to court and also deliver a more certain outcome.

Last March the FMA also issued a formal warning to MSL Capital Markets under the Act requiring it to perform an independent audit of its anti-money laundering risk assessment and programme by the end of October and provide a copy of the audit to the regulator by November. The Act requires an audit to be carried out every two years.

Since 2014, Craigs has taken steps to improve its anti-money laundering compliance programme, including a thorough review of its systems and processes and employing more staff in this area.

Craigs has introduced some initiatives to prevent similar breaches occurring in future and has agreed to appoint an independent party, to be approved by the regulator, to identify any further areas it could improve on. The stockbroker has also agreed to follow any recommendations from that third party within a reasonable period of time, the settlement agreement says.

In return, the regulator has agreed to a final settlement with no legal action against Craigs over the breach.

Craigs was fined $30,000 last year by the New Zealand Markets Disciplinary Tribunal for breaching NZX rules after failing to ensure all retail client orders were entered into NZX’s trading system with a common shareholder number used to identify shareholders.

BusinessDesk.co.nz

Comments from our readers

No comments yet