Investing platform Sharesies has been issued a formal warning for having insufficient anti-money laundering procedures, policies and controls in place.
The Financial Markets Authority (FMA) gave the company a formal warning after identifying the issues as part of its ongoing monitoring of compliance with the Anti-Money Laundering and Countering Financing of Terrorism Act.
The AML/CFT Act imposes obligations on businesses that provide certain financial services, such as banks, casinos, and a range of financial service providers. These businesses are known as 'reporting entities'.
Reporting entities are defined in the Act and supervised by three bodies - the Financial Markets Authority, the Reserve Bank of New Zealand, and the Department of Internal Affairs - according to the financial activity.
In 2017, the Government amended the AML/CFT Act to include more businesses such as real estate agents and conveyancers, lawyers and accountants, some businesses that deal in expensive goods, and betting on sports and racing.
Under the Act, reporting entities are required to record prescribed transactions in the form of Large Cash Transaction (LCT) reports and International Fund Transfer (IFT) reports.
According to the New Zealand Police, prescribed transactions are transactions conducted through a reporting entity regarding international funds transfers (IFTs) - an international wire transfer of NZD$1000 or more where at least one of the institutions involved in the transaction is in New Zealand, and at least one is outside of New Zealand; and Large Cash Transactions (LCTs) - a domestic, physical cash transaction of NZD$10,000 or more involving physical currency (i.e. coin and printed money designated as legal tender).
By law, reporting entities are required to pass on their prescribed transactions to the police's Financial Intelligence Unit, says the Reserve Bank's Deputy Governor and general manager of financial stability, Geoff Bascand.
On Monday The FMA said Sharesies has failed its obligations by not collecting enough information about customer's reasons for using the app or to determine whether customers should be subject to enhanced due diligence. It also said the platform has failed to complete identity verification for customers who have an account balance of more than $1000 as part of standard customer due diligence.
Sharesies was ordered to implement a number of changes to meet its obligations.The company was founded in 2017 and made investing more accessible for everyday Kiwis.
FMA director of supervision James Greig said they welcome the way online investing platforms such as Sharesies have changed investing, but it's essential fast-growing businesses ensure their compliance processes and policies keep pace.
"We have made this warning public because Sharesies' contraventions appeared to be symptomatic of a business that has grown quickly without ensuring fully effective processes and controls were in place for AML and CFT.
"It's important for all firms to understand our expectations under the AML/CFT Act. Sharesies has built a significant customer base over a short period and we consider there is a risk of the business being susceptible to money laundering if it continues with current practices. We do not consider the contraventions were deliberate. Sharesies is cooperating with the FMA and has taken steps to update and strengthen its practices.
"New Zealand's anti-money laundering laws have been in place for some time now and are designed to thwart criminals and maintain integrity in our financial system. It's essential that firms have the appropriate systems and controls in place."
The full changes Sharesies must make include:
obtain information from all its current customers to show their reasons for using the platform and amend its onboarding process to capture this information in the future
develop and implement a process to complete identity verification at the time of account application and provide training to staff on these processes
obtain sufficient information from all customers who used the word 'trust' in the account application process and complete enhanced customer due diligence if they are trusts - a requirement under the Act
adequately verify the identity of all customers and restrict withdrawals or transfers until those checks are completed.
Sharesies isn't the only company to find itself with a warning. Earlier in the month, The Reserve Bank of New Zealand issued a formal warning to Westpac New Zealand for failing to comply with the Act.
