Bank lobby group says government proposal for its members to pay $23m of annual AML levies isn't equitable or proportionate

Whilst accepting its members are likely to "bear the majority of the costs" of the Government's proposed annual $27 million levies to fund oversight of anti-money laundering regulation, the New Zealand Banking Association argues the suggestion banks pay 85%, or about $23 million, of annual levies isn't fair.

Bank lobby group the New Zealand Banking Association (NZBA) says this in its submission on the Ministry of Justice's consultation proposal for levies to be paid by those supervised under the Anti-Money Laundering and Countering Financing of Terrorism Act (AML/CFT Act).

"We acknowledge that it appears likely that banks will bear the majority of the costs of the proposed levy. However, we are not confident that the current allocation is equitable or proportionate," NZBA says.

"We do not support the allocation of 85% of the levy to registered banks. This approach does not reflect the significant level of investment banks already make in AML/CFT compliance, and fails to equitably account for the risks posed by other reporting entities."

The submission notes the 2024 AML/CFT National Risk Assessment published by the Police Financial Intelligence Unit (FIU) highlights the real estate sector, high value dealers, casinos, law firms and accounting practices as “sectors abused for high-risk crimes - facilitating transfer or placement of proceeds to crime."

"We further submit that supervision costs are not directly proportionate to the level of inherent risk of a supervised entity, as some new technologies and emerging risks, such as virtual asset service providers and neo-banks, must be addressed by the supervisor through, for example, guidance, advice and inspections more often than mature institutions."

Additionally NZBA argues no type of reporting entity should receive a free pass from levies, meaning non-bank deposit takers shouldn't be excluded, as proposed, simply because they have less than $1.5 billion in assets.

"The proposal for banks to pay 85% of total estimated costs appears to rely primarily on transaction volumes," NZBA says.

NZBA's submission comes with ASB, one of its members, awaiting the final setting of a penalty following its acknowledged breaches of the AML/CFT Act.

Plans for the levies come after Associate Justice Minister Nicole McKee announced a shake-up to AML/CFT Act oversight in 2024, including plans to introduce levies on reporting entities. The costs proposed to be met by levies include AML/CFT statutory functions of government agencies. The proposal is a hybrid model and not a full cost recovery model, meaning there would also be some Crown funding.

'The highest risk sector'

In its consultation document, the Ministry of Justice (MoJ) suggests banks pay 85% of $27.327 million, or about $23.228 million a year, of the proposed levies to help fund the AML/CFT system. It propose most of the levy be paid by banks "for equity and efficiency reasons," using the value of bank assets to determine the levy paid by individual banks.

This would see ANZ NZ pay $6.762 million, ASB, BNZ and Westpac NZ more than $4 million each, Kiwibank $1.3 million, and smaller banks significantly less.

"In particular, the Ministry has applied the principal that from an equity perspective risk exacerbators should pay their portion of costs. The [AML/CFT] National Risk Assessment (NRA) also states that the banking sector remains the highest risk. The NRA states that over $58 trillion of financial transactions are processed through the banks. Well over 90 percent of monetary transactions include the banking system. Even where other regulated entities, such as real estate agents and lawyers, are engaged in transactions, banks are almost always involved. As most payments go through banks there is a nexus between all other money laundering and banks," the MoJ says.

The MoJ proposes a "public/club" funding split, citing club and public goods. It says public goods are those that benefit everyone, while club goods benefit a limited set of individuals or entities.

Costs proposed to be recovered via levies are identified club good provided by the Department of Internal Affairs (DIA), which will be the sole AML/CFT Act supervisor from July, the FIU, and the MoJ.

'Ultimate beneficiaries of an effective AML system are the general public'

NZBA argues a number of proposed uses of the levy categorised as "club goods" are actually public goods because an effective AML/CFT system, and access to global markets, benefits New Zealand as a whole.

"Certain outcomes of this system – such as crime deterrence, law enforcement and international cooperation – benefit New Zealand, and the integrity of the financial system more broadly. These benefits are not specific to reporting entities; the ultimate “beneficiaries” of an effective AML system are the general public," NZBA says.

It also wants a bigger slice of the levy to go to the FIU, arguing; "the greatest impact to New Zealand’s ability to detect, deter and disrupt financial crime is through an improved FIU function."

"Where banks identify potential suspicious activity and submit reports in accordance with their legal obligations, subsequent FIU analysis or investigation does not represent banks 'consuming' FIU resources; rather, it reflects banks discharging their statutory role in the AML/CFT framework, with the FIU performing its corresponding public-sector function," NZBA argues.

It wants the FIU; "funded sufficiently, so that it can effectively process the volume of reporting it receives."

The MoJ says the FIU estimates it needs levy funds of $6.337 million for 2026/27, $7.337 million for 2027/28, $7.794 million for 2028/29, and $7.756 million for 2029/30 to meet functions meeting the club good definition. This would cover salaries, indirect personnel costs, training and operating costs, plus software and licences.

For administering the AML/CFT Act, providing leadership across the AML/CFT system including leading NZ’s mandatory participation in the Financial Action Task Force, the MoJ proposes its levy funding increases from $1.725 million in the first year to $3.166 million in year four. The DIA's heads in the opposite direction, from a higher base, from $14.487 million to $12.049 million.

The deadline for submissions on the MoJ consultation paper was Friday, April 10. The MoJ says submissions will be analysed and considered in preparation for final policy proposals for Ministers and Cabinet. Subject to the passage of the Anti-Money Laundering and Countering Financing of Terrorism (Supervisor Levy, and Other Matters) Amendment Bill and Cabinet decisions, the MoJ says regulations establishing a levy would start in the second half of 2026, with the collection of them beginning from 1 July 2027.

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