Financial advice sector ‘medium to high risk’ for money laundering

Financial advisers have a medium to high risk of being targeted by money launderers, according to the Securities Commission’s anti-money laundering Sector Risk Assessment (SRA).

Thursday, March 31st 2011, 5:00AM

by Benn Bathgate

The Securities Commission is responsible for supervising financial advisers for the purposes of the Anti-Money Laundering and Countering the Financing of Terrorism Act 2009, and the SRA report has been compiled by the Commission to "assist in understanding the risks of money laundering in the sector."

According to PricewaterhouseCoopers director of forensic services Alex Tan, while banks and casinos - easier targets for money laundering - are better equipped to deal with the threat, financial advisers would be an area of concern for the Securities Commission.

The Commission estimated there are around 5,000 financial advisers in New Zealand, and just 107 (2%) responded to the Securities Commission questionnaire.

Tan said that while advisers have been preoccupied with the new Financial Advisers Act, most "don't understand that they are captured by the [anti-money laundering] Act, and they don't understand the obligation it will place upon them."

The report estimated that while approximately 5,000 advisers undertake around 20 million transactions annually, with as much as $30 billion passing through the securities sector, "awareness of anti-money laundering and countering the financing of terrorism among financial advisers is generally low."

While Securities Commission research found that the vast majority of advisers do not accept cash, their role as a contact point between investment product providers and customers is highlighted as an area of possible concern.

This intermediary role was also highlighted in a Reserve Bank SRA on money laundering.

"The role of intermediaries, such as insurance brokers, is considered a major risk of involvement in money laundering/terrorist financing. The increased risk stems from the ability of intermediaries to control the arrangement and the sales environment in which they operate. Use of intermediaries may also circumvent some of the due diligence effectiveness by obscuring the source of the funds from third parties."

The role of due diligence - and the advisers position to carry it out - is also highlighted in the Securities Commission report.

"Financial advisers are best placed to undertake customer due diligence and submit suspicious transaction reports. They have an all-round view of a customer's investment transaction behavior that a product provider cannot have."

Benn Bathgate is a business reporter for ASSET and Good Returns, email story ideas to benn@goodreturns.co.nz

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