Islamic fund a challenge

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A planned Islamic fund run out of New Zealand is the first of its kind in this country– and likely to be the only one.

Monday, November 25th 2013, 6:24AM 3 Comments

by Niko Kloeten

It is understood Auckland-based boutique Goldman Henry is working on a fund to cater to Muslims, although it has not yet made any public announcement, and the  firm’s managing director Brian Henry was unavailable for comment.

But those with knowledge of the company’s plans say other New Zealand fund managers won’t be rushing to follow suit.     

According to one investment professional, the stringent investment rules associated with making a fund compliant with Sharia (Islamic) law would be off-putting for other New Zealand managers, given their lack of experience in the space.

“There are lots of hoops you have to go through in terms of who your advisory council is with Sharia law.”

Investing according to Sharia law is not an exact science, but investments in alcohol, tobacco, pork products, conventional financial services  such as banking and insurance,  weapons, defence and entertainment are generally prohibited.

Financial industry consultant Myles Allan from Mosaic Business Solutions says the non-resident customers of New Zealand-based Islamic funds may be subject to extra AML compliance measures depending on fund managers AML/CFT policies, although these funds would be unlikely vehicles for money laundering or the financing of terrorism.  

“The AML/CFT act, regulation and subsequent guidance make provision for enhanced customer due diligence and monitoring in response to higher risk. They provide both specific direction and some latitude in determining the level of scrutiny required in different circumstances.

“Clearly if a country is identified by FATF [Financial Action Taskforce] as lacking in adequate AML/CFT regulation and supervision, then enhanced CDD should be conducted on customers by the reporting entity.”

However, Allan says reporting entities have more discretion around both conducting country assessments as part of the overall risk assessment and how any risk identified is best mitigated, such as by blanket enhanced CDD and monitoring procedures.

“This risk and policy based approach may exceed regulatory requirements and result in inconsistent treatment on the basis of nationality across and within jurisdictions.

“It’s probably reasonable to assume that an Islamic fund and its customers will be subject to the right level of scrutiny driven by both the Sharia requirements and its novelty in the New Zealand market. It is also reasonable to assume that given this profile, these funds would not be the vehicle of choice for AML/CFT activities.”

Niko Kloeten can be contacted at niko@goodreturns.co.nz

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