The Financial Markets Authority (FMA) has issued a formal warning to online investing platform Sharesies for failing to have sufficient anti-money laundering procedures, policies, and controls in place.
Sharesies must now complete a number of actions to meet its obligations under the Anti-Money Laundering and Countering Financing of Terrorism Act (AML/CFT Act), the FMA says.
FMA Director of Supervision James Greig says 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.
However, Greig says the FMA doesn't consider the contraventions were deliberate, and the FMA's not alleging Sharesies has allowed or enabled money laundering or the financing of terrorism to take place.
"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," Greig says.
For its part Sharesies says as soon as it became aware of the FMA's concerns, a work programme was established to address each of the issues.
"Sharesies now includes specific questions about the nature and purpose for which a customer plans to use the Sharesies platform, rather than relying on a statement in the terms agreed by the customer," Sharesies chairman Alison Gerry says.
"The company has completed enhanced due diligence on a very small number of customers which have since been identified as a trust. Sharesies does not currently support or encourage use of the platform by trusts."
In April the Financial Action Task Force (FATF), considered the global money laundering and terrorist financing watchdog, issued a report on New Zealand. This noted trusts are very common in NZ with up to 500,000 in existence, which are used for a range of purposes including as holding vehicles for assets such as the family home. FATF pointed out NZ doesn't have a register of all domestic trusts and suggested the Government consider introducing one.
The FMA's release is below.
FMA issues warning to Sharesies for AML/CFT breaches
The Financial Markets Authority (FMA) - Te Mana Tātai Hokohoko – has issued a formal warning to Sharesies Limited and Sharesies Nominee Limited for failing to have sufficient anti-money laundering procedures, policies, and controls in place.
The FMA identified the issues with Sharesies as part of its ongoing monitoring of compliance with the Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) Act.
In the FMA’s view, Sharesies had failed to:
- obtain information about the nature and purpose of the proposed business relationship from most customers
- obtain sufficient information to determine whether certain customers should be subject to enhanced customer due diligence
- complete identity verification for up to 7,815 customers who had an account balance of more than $1000 as part of standard customer due diligence.
The FMA requires Sharesies to complete a number of actions to meet its obligations under the Act.
Sharesies must:
- 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.
These requirements are standard practice for AML/CFT reporting entities in completing customer due diligence, including why the customer is transacting with a firm¹.
James Greig, FMA Director of Supervision said: “We welcome the way online investing platforms like Sharesies have opened up the investing landscape in New Zealand, but it’s essential that 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,” Mr Greig said.
“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.”
It is not alleged that Sharesies has allowed or enabled money laundering or the financing of terrorism to take place.
The warning was issued under section 80 of the AML/CFT Act, in which the FMA may issue a formal warning if there are reasonable grounds to believe a firm has engaged in conduct that constitutes a civil liability act.
Download FMA warning to Sharesies
¹ Standard customer due diligence (CDD) is covered under sections 14 to 17 of the AML/CFT Act. Businesses covered by the AML/CFT Act are required to request basic identity information from a customer (e.g. their name, date of birth, address), verify their identity (i.e. confirm a person is who they claim to be), obtain information about the nature and purpose of the business relationship, and obtain sufficient information to determine if the customer should be subjected to enhanced CDD.
Sharesies response is below.
Sharesies strengthens AML/CFT compliance
Following a routine review in February, the FMA has today issued a public warning to Sharesies in relation to some of its anti-money laundering and countering financing of terrorism (AML/CFT) practices. Sharesies Chair, Alison Gerry, says this matter is being taken very seriously.
“I want to be clear that the FMA has not found evidence that any money laundering has taken place,'' she says. “What the FMA has identified is ways in which we need to strengthen our customer identification practice.”
“As soon as we became aware of the concerns raised, we immediately put in place a work programme to address each of the issues outlined.”
“These include:
● Asking specific questions about the nature and purpose for which a customer plans to use the Sharesies platform.
● Tighter controls to identify if customers are trying to use Sharesies as a trust and implementing enhanced due diligence where this has occurred.
● Improving our identification linking, including using biometrics as one of the ways to verify customer identity.”Changes implemented
At the FMA’s request, Sharesies now includes specific questions about the nature and purpose for which a customer plans to use the Sharesies platform, rather than relying on a statement in the terms agreed by the customer.
The company has completed enhanced due diligence on a very small number of customers which have since been identified as a trust. Sharesies does not currently support or encourage use of the platform by trusts.
The issues raised by the FMA include how Sharesies linked some customers to the different forms of identification that they provided when signing up. The number of customer accounts highlighted as needing stronger identity linking was up to 7,815. The total represents under 2 percent of the Sharesies customer base.
“Sharesies has been in contact with all of these customers to establish a clearer link between them and their identity documentation,“ says Alison Gerry. “More than half of the relevant customers have now completed the identification process.”
Alison Gerry says at no point have any customer funds been at risk.
Sharesies takes compliance seriously
Since its establishment in 2017, Sharesies has undertaken independent AML/CFT audits as per its obligations to ensure processes meet best practice. The latest audit identified areas for
improvement, but considered these were not material. Sharesies has always and will continue to work with regulators to understand and meet its legal obligations.“While Sharesies has seen rapid growth over the last year, we have consistently invested in our compliance function over the years, in terms of both technology and human resources,” says Alison Gerry.
“The changes we’re making should provide more assurance that we are demonstrating best practice. '' she says. “Our purpose as a business is to make investing accessible to everyone and we know that to do this there needs to be a process of constant improvement.”
6 Comments
Another example of the free pass given for anything that counts as an online business by regulators in this almost apologetic rebuke. Lets not offend the IT millenials they might cut off our welfare one day. My advice is avoid entitled millenials entirely when hiring, and go straight to gen z, who have a much better attitude to the world.
Maybe the financial media should do a bit of "focussing" on the FMA itself. What has it achieved? Seems to me it has just concentrated on building itself as a state empowered police agency which is gradually getting confidence to move out of its hq to rough some passing old lady, or extort a few million from any bank prepared to admit it failed to comply with some detail of FMA's standing orders.
A typical government effort....start a new agency,....find that it is more interested in looking after itself than actually 'doing stuff'. Eventually, once it has proved it's incompetence, it will be left in place to join numerous other state agencies to remain an unecessary burden on the taxpayer.
What's the REAL reason?
I bet it's more like too-many-people buying American stocks to hedge against the declining NZD - increasing falls.
Banks and KiwiSaver Providers have their heckles up as investment flows away from them [people hedging away from 'home-ownership']
The NZX is realizing people like ETF's and other international products, though the NZX have probably benefitted from Sharesies and similar offerings.
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