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The Fiducia team's latest views on AML/CFT in New Zealand

news, AML/CFT Risk Assessments, New Zealand Business/ 2017-06-21T12:00:40+00:00 February 17th, 2016|

AML risks posed to banks by foreign exchange providers

Will E-Trans International Finance’s case against Kiwibank about the closing of their bank accounts have ripple effects in the financial services industry?

The case is currently being heard in the High Court and we’re likely to get a judgement in the coming weeks. In case you missed it, E-Trans International is a foreign exchange dealer and money remitter who had their Kiwibank banking accounts closed in March last year. Kiwibank says that its standard terms and conditions allow it to choose who it has as customers at any time. E-Trans says that Kiwibank breached its legal duties by adopting a “blanket de-risking policy”.

If you’re a foreign exchange dealer or money remitter in New Zealand or Australia right now, you’ll know all about this issue. It has become very difficult for businesses in these industries to retain banking services if they have them and nigh impossible for businesses to obtain new services if they lose them.

Why is this? Foreign exchange dealers and money remittance providers are held by regulators to be a generic “high risk”, largely because the nature of their businesses allows money to be moved around different countries and bank accounts quickly. Once deemed ‘high risk’, the banks must show that they are managing and mitigating the risk posed by these customers or risk being reprimanded, and possibly shut down, by the Reserve Bank of New Zealand . To do so, the bank will have to take on extra costs.

KiwiBank, however, claims that its terms and conditions allow it to end customer relations at its own convenience. Is Kiwibank using them to let go of E-Trans on the basis that the cost of managing and mitigating these risks are too high? Is it claiming that the threat of fines or other punishment from the regulator for working with E-Trans is to large? Is it claiming that E-Trans in particular is not compliant enough with AML/CFT regulation measures in New Zealand? We are not yet sure.

We think that banks must find a way to provide essential financial services to a legally operating industry. This, however, is not simply the banks’ responsibility. All high risk businesses must double their efforts to provide their banking partners with sufficient information about their operations, so that banks can reduce the time spent directly monitoring their activities. Furthermore, regulators must provide banks with clearer guidance about where their AML/CFT “safe harbours” are. Otherwise, with the looming threat of closure, banks will have no option but to increase costs and reduce business, resulting in such coping mechanisms as blanket de-risking.

Good on E-Trans for bringing this issue to the judicial and public realms for attention. Whether it has an impact or not remains to be seen.

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