Sharesies snapped for AML breaches

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Popular online share trading platform Sharesies has been warned to lift its game for failing to have sufficient anti-money laundering procedures, policies, and controls in place.

Monday, August 23rd 2021, 1:00PM 1 Comment

by Matthew Martin

The FMA's James Greig.

The Financial Markets Authority (FMA) issued a formal warning to Sharesies after finding the company had not collected enough information about its customers under the Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) Act.

It is not alleged that Sharesies has allowed or enabled money laundering or the financing of terrorism to take place.

The FMA says Sharesies has; failed to obtain information about the nature and purpose of the proposed business relationship from most customers; has failed to obtain sufficient information to determine whether certain customers should be subject to enhanced customer due diligence, and has failed to 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 several remedial actions (see below) to meet its obligations under the Act and the company must complete all of those actions by May 20, 2022.

If not, Sharesies could face civil penalties of up to $200,000 for individuals, and $2 million for a body corporate, and criminal penalties of up to two years imprisonment or a fine of up to $300,000 for individuals, and $5 million, in the case of a body corporate.

Sharesies must now:

- 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 firm.

The FMA's director of supervision James Greig says he welcomes 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," says Greig.

"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 the FMA does not consider the breaches were deliberate and Sharesies is cooperating with them as well as taking steps to update and strengthen its practices.

“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.”

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.

The FMA expects every reporting entity that it supervises to have an audit of its AML/CFT risk assessment and programme completed every three years or on request.

Tags: AML FMA James Greig Sharesies

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