Broker warned over lax anti-money laundering systems

Monday, 6 April 2020

In an electronic age, the fight against money laundering invovles making banks, and other financial companies responsible for checking who they are taking on as clients.

An online shares and options broker has been formally warned for its lax anti-money laundering processes.

The Financial Markets Authority (FMA) issued a formal warning to NZX-accredited broker Tiger Brokers (NZ) Limited for failing to have several adequate anti-money laundering protections in place.

It was one of seven businesses reprimanded for their anti-money laundering practices, the FMA said.

Anti-money laundering laws are designed to make it difficult for terrorists and criminals to move money around.

**READ MORE:

* Lawyer admits money laundering

* Finance company fined $4 million for anti-money laundering**

The FMA is responsible for monitoring around 800 businesses for anti-money laundering processes under the Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) Act.

The FMA said Tiger Brokers had failed to properly identify clients, including checking relevant customer identification documents.

It had also failed to check where clients' wealth came from, or as it put it failed to 'obtain adequate source of fund or wealth information relating to high risk customers, and take reasonable steps to verify that information'.

And, it had failed to take reasonable steps to determine whether a customer or any beneficial owner, was a 'politically exposed person'.

Tiger Brokers had also failed to report suspicious activity to the relevant authorities within three working days after forming a suspicion.

This anti-money laundering formal warning was issued by the Financial Markets Authority to Auckland-based Tiger Broking.

The FMA concluded there were reasonable grounds to believe Tiger Brokers had contravened the Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) Act.

Tiger Brokers has been ordered to prepare and submit a plan to the FMA before April 17 describing how and when it would address the issues.

'It must then complete these actions by 30 September 2020 or it will face enforcement action,' said James Greig, head of supervision at the FMA.

'Warnings are an important regulatory tool for the FMA because they can force faster change than court proceedings. In these cases, formal warnings were the most proportionate response to the conduct by the firms in question.

'A public warning is designed to send a signal that we have issues with a company, and they need to address the concerns we have raised,' he said.

'The severity of Tiger Brokers' likely breaches meant that a public warning was necessary, especially because it is a large business that is growing fast in New Zealand.

'The issues were wide ranging and weren't minor or technical, meaning there was potential for immediate and ongoing damage to the integrity of our financial markets.'

'The anti-money laundering legislation has been in effect for some time now, so we expect businesses to be aware of their obligations and why it is important to the integrity of New Zealand's financial system.'

'While the industry is grappling with the impacts of Covid-19, anti-money laundering is a high-risk issue so we are continuing to actively monitor for non-compliance and take enforcement action.

Greig said: 'We decided not to name the other six businesses after considering the proportionate regulatory response. All of these firms in breach were either small businesses or individuals, and they are cooperating with the FMA and taking steps to become compliant.'

'Many of the private warnings relate to independent audits of anti-money laundering systems. These audits are essential because they help to ensure businesses have robust systems and processes to detect and deter money laundering. A guidance document on the auditing of risk assessments was issued last year so there is now no excuse for non-compliance.'

The FMA conducts cyclical reviews of the roughly 800 entities it supervises for anti-money laundering. In 2019, the FMA analysed the AML audit reports of 49 businesses. The regulator also performs on-site monitoring visits.

He said the warnings, issued under section 80 of the AML/CFT Act, did not suggest the businesses had allowed or enabled illegal activity to take place.