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Good morning and a warm welcome to everyone, it’s a pleasure to be here.
Let me start by thanking AML Solutions for giving me the opportunity to speak on the 10th anniversary of the AML Summit.
I know you have a busy and interesting schedule to look forward to over the next couple of days. This year’s conference theme is aptly named “The evolution of Risk”. I understand that the presentations will focus on supporting reporting entities to understand what best-practice compliance looks like under a reformed risk-based and flexible AML/CFT system.
This theme is future-focused – and touches on issues I have spent a lot of time thinking about and planning for since becoming responsible for the AML/CFT portfolio in my role as Associate Minister of Justice.
You will likely know that last year Cabinet approved my plans for an AML/CFT reform programme. The objectives of legislative reform are to meet the objectives this government committed to in our coalition agreement: and that is to tackle organised crime and cut red tape.
How can New Zealand reform AML/CFT regulation to reduce burden on industry and support a common-sense approach to compliance; while still ensuring we are well placed to tackle organised crime and protect our international reputation as a trusted place to do business?
How do we equip ourselves to deal with new and emerging challenges and threats in this space? How can we harness new technologies to help us fight crime more effectively and make it easier and cheaper for businesses to defend themselves against money laundering?
How will we ensure that we, as a country, are doing our part in this inherently global fight – in a fractious world where the nexus of organised crime and international conflicts is growing?
Over the last year I have taken advice and considered many of the challenges facing the sector in detail. Many of you in this room, or online, will have been involved in and contributed to this advice. I am so grateful for your hard work and specialist contributions. Your expertise is invaluable – it enables robust discussion and informed decision-making.
Now is the time to deliver on our coalition commitments. The Act has now been in force for 11 years and we know the current system is not delivering as well as it could for New Zealanders, businesses, or for law enforcement.
This is because the laws and requirements are highly complex and not sufficiently risk based. As a result, they can be repetitive and unnecessarily burdensome. I have heard from many New Zealanders that the requirements are confusing, obstructive, and costly.
Some of the examples they have given me illustrate how absurd these requirements can be. I ’ve heard from mothers who’ve told me they cannot open bank accounts for their child unless they are able to prove where their child lives. I’ve heard from elderly widows, who had relied on their husbands to take care of bills and are now unable to have a bank account in their own name because they have no written proof to say they live in their own home. These are clear indications of how the system is failing to take a properly risk-based approach.
Multiple reviews of the current system have also identified deficiencies that make it harder for the system to effectively deter and combat the criminal activity that we know is taking place in New Zealand.
At New Zealand’s latest mutual evaluation, the Financial Action Task Force (FATF) reported on several strengths in the New Zealand system but also highlighted that there is room for significant improvement.
I know you will be aware that compliance with international standards is incredibly important for New Zealand’s global reputation and financial standing. We know that FATF recommendations are now tougher, and that there are still many actions from our last evaluation that we need to address. Regulatory reform is needed to ensure we do well at our next evaluation.
But let’s not belabour what we already know about the deficiencies. Let’s instead focus on opportunities for the future and what we can achieve through this reform programme. To me, reform presents a great opportunity to enhance the strengths of our system, and to address identified concerns.
We know, for example, that the wider Financial Crime Group do excellent work, especially relating to asset recovery. We only need to cast our eyes to very recent news stories – I’m thinking of the announcement last September of the highly successful operation against the Comanchero gang which saw $5.8 million worth of assets restrained – to know law enforcement across the system is working hard and achieving remarkable successes through their work. A look at the latest Police annual report shows that over $72 million of assets were restrained from organised and financial crime, and 379 money laundering investigations resulted in prosecution.
We also know there is sound domestic cooperation and coordination on monitoring possible terrorist financing – the FATF told us so, at our latest mutual evaluation.
The FATF have also noted that we are known internationally for our high-quality responsiveness to cooperation requests.
In other words, New Zealand already does lots of things well. Our focus is therefore on improving the AML/CFT system to enhance these strengths. Let’s enable the system and its actors to achieve the intended outcomes: to detect and deter money laundering and terrorism financing.
This Government is about quality regulation. We want regulation that achieves intended outcomes, regulation that makes sense and is workable for all. This means getting rid of unnecessary red-tape– if regulation isn’t providing the results we are after, there is no point to it.
In the case of the AML/CFT system, regulation needs to contribute to the fundamental purpose of the system: tackling crime. To do that effectively, we need an agile, streamlined system that is laser focussed on real risk.
A truly risk-based system will better enable law enforcement to crack down on organised crime by providing the financial intelligence needed to go after criminal organisations. A truly risk-based system is more aligned with international obligations and standards. A truly risk-based system will provide regulatory relief for lower risk businesses and the public.
My reform programme, therefore, will be undertaken in three parts. The first phase is already well-advanced and will deliver immediate regulatory relief via two bills – the first, the Statutes Amendment Bill, has already been reported back from Select Committee to the House of Representatives, and is likely to come into effect in the coming months. The second, the Anti-Money Laundering and Countering Terrorism Financing Amendment Bill, is currently before select committee.
The changes made through these bills include removing both address verification requirements for many customers, and relaxing enhanced customer due diligence requirements for lower-risk trusts. This will help make it easier for mums and dads to set up bank accounts for their kids, and easier for vulnerable kiwis – including the elderly – to get access to essential financial services.
This first set of reforms aims to make immediate changes, to make the AML/CFT system more risk-based and ease the regulatory burden on businesses.
These changes alone already represent the most significant regulatory relief in the history of the AML/CFT regime. But we do not intend to stop there.
The second phase of changes focuses on structural reforms for the regime. Cabinet has agreed that, as part of these structural reforms, we will be implementing a single AML/CFT supervisor structure within the Department of Internal Affairs. This will replace the current three-supervisor model.
This move will create a more efficient, effective, and risk-based supervisory structure – one that reduces unnecessary compliance costs for lower-risk businesses and transactions, removes the need for multi-supervisor coordination efforts – thereby reducing costs – and streamlines decision-making.
A single supervisor can be more resource responsive to the ever-changing risk environment. A single supervisor will be better able to deliver consistent and timely guidance to support reporting entities.
This will help to ensure that businesses have the confidence to take a more flexible approach to implementing their AML/CFT obligations and lower the barrier to accessing financial services for low-risk customers.
A single supervisor with overview of the wider AML/CFT environment will also be better able to look for and realise opportunities as they arise. For example, I’m sure we all agree that there are opportunities and benefits to be gained in the digital identity and open banking areas. In addition, the emergence of AI could herald improved, and more cost effective, electronic Know Your Customer (eKYC) functions, risk assessments, and suspicious activity reporting.
Everyone here will be aware that in a world of increasing demands, the AML/CFT system in New Zealand is currently underfunded. My phase two structural reforms will also see us work towards introducing a sustainable funding model for the system.
The new hybrid funding model will establish an industry-levy. I will ensure that this levy is designed in a way that distributes the costs in a risk appropriate and equitable way, so that it targets the highest risk sectors – such as large international banks – and does not place an undue burden on small businesses.
This hybrid funding model will provide sufficient resourcing for core regulatory functions and deliver substantial savings to the Crown. This approach is in line with what has been done in other like-minded jurisdictions, like Australia, the United Kingdom and Canada.
As part of the work on the funding model, a work programme and a National Strategy will be developed in partnership with industry and agreed by Cabinet to ensure that the system is focussed on industry priorities. Any changes to the levy will also need to be informed by the AML/CFT National Strategy.
Now, I know that many of you in this room will have opinions and views on the approach we have taken to these structural reforms. I look forward to engaging with you and drawing on your sector expertise as we get stuck into the detail of this change process.
The structural changes in phase two of my reforms will result in an amendment Bill that I aim to have introduced by the middle of this year. Officials are currently working on the details of developing and implementing the levy, but I expect that the earliest it would be in place is by 2027.
The third phase of these reforms will deliver wider legislative changes to implement international standards outlined by the FATF. This Bill will be introduced later in this Parliamentary term.
Doing this international compliance work will have a natural flow on effect that improves New Zealand entities’ ability to carry on with business and sharpens our law enforcement tools. Importantly, it includes amendments to provide further flexibility for businesses to take a more risk-based approach to their AML/CFT obligations.
The work programme was designed to address specific areas that were identified through robust stakeholder consultation during the 2022 Statutory Review of the AML/CFT Act and further targeted engagement has been undertaken since then.
I am aware there is room for improvement in other areas as well – and some of you may be disappointed that more statutory reforms are not currently being progressed.
In arriving at my current statutory reform programme, I have taken a pragmatic approach – the current fiscal environment dictates that we are smart and outcomes-focused with our reforms. Right now, this means prioritising the changes that will give us the biggest bang for our buck in terms of regulatory relief, while ensuring compliance with international expectations and supporting law enforcement to tackle organised crime and delivering regulatory relief.
We need to prioritise this legislative work programme first to ensure that changes to the law are made and the system is properly set up to take a risk-based approach in time for our next mutual evaluation in 2028. I am excited and proud that this reform programme is on track to deliver the most significant regulatory relief since the Act came into force in 2013.
But, like you, I want to do more, if I can. I am committed to look for opportunities to do just that, not only through reforms to legislation, but also through considering potential exemptions and regulations that will support a more risk-based AML/CFT system.
I look forward to working with you all as we move forward with all the parts of this reform programme. To me, the key to successfully strengthening the AML/CFT system through these reforms is collaboration and leveraging expertise in the sector.
I encourage you all to participate in consultation when these opportunities come up. We need people with experience and knowledge to get involved – we need you. I look forward to hearing your views on how we can make the laws work for you.
Thank you for having me today, it’s a pleasure to be here with you all. Enjoy your time here at the conference.
MIL OSI New Zealand News –
