Sharesies fronts up after AML Act breaches

Online share trading platform Sharesies says it has tightened its client identification processes and says no customer funds were ever at risk after a formal warning by the FMA.

Thursday, September 2nd 2021, 7:17AM

by Matthew Martin

Sharesies chairperson Alison Gerry.

On Monday last week, the Financial Markets Authority (FMA) issued a formal warning to Sharesies after finding the company had not collected enough information about its customers and for failing to have sufficient anti-money laundering procedures, policies, and controls in place.

The issues were identified as part of the FMA's ongoing compliance monitoring under the Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) Act but it was not alleged Sharesies has allowed or enabled money laundering or the financing of terrorism to take place.

Sharesies chairperson Alison Gerry said the matter was being taken very seriously.

“I want to be clear that the FMA has not found evidence that any money laundering has taken place,'' she says.

“What the FMA has identified is ways in which we need to strengthen our customer identification practice."

The FMA found Sharesies failed to obtain information about the nature and purpose of the proposed business relationship from most customers and to determine if some customers should be subject to enhanced customer due diligence, and failed to complete identity verification for up to 7,815 customers who had an account balance of more than $1000.

Gerry says as soon as Sharesies became aware of the FMA's concerns, it put a work programme in place to address the issues.

These include:

- Asking specific questions about the nature and purpose for which a customer plans to use the Sharesies platform, rather than relying on a statement in the terms agreed by the customer.

- Tighter controls to identify if customers are trying to use Sharesies as a trust and implementing enhanced due diligence where this has occurred.

- Improving identification linking, including using biometrics as one of the ways to verify customer identity.

She says the company has completed enhanced due diligence on a small number of customers identified as trusts and that Sharesies does not support or encourage use of the platform by trusts.

The number of customer accounts highlighted as needing stronger identity linking was up to 7,815, under 2% of the Sharesies customer base.

“Sharesies has been in contact with all of these customers to establish a clearer link between them and their identity documentation,“ says Gerry.

“More than half of the relevant customers have now completed the identification process.”

Gerry says at no point have any customer funds been at risk and Sharesies undertakes independent AML/CFT audits to ensure processes meet best practice.

“While Sharesies has seen rapid growth over the last year, we have consistently invested in our compliance function over the years, in terms of both technology and human resources,” says Gerry.

“Our purpose as a business is to make investing accessible to everyone and we know that to do this there needs to be a process of constant improvement.”

Since launching in 2017, Sharesies has amassed more than 400,000 investors with more than $1.5 billion of funds under management.

The FMA requires Sharesies to complete all of its remedial actions by May 20, 2022, otherwise, it 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.

The FMA's director of supervision James Greig said it’s essential fast-growing businesses ensure their compliance processes and policies keep pace.

"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 said 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.

Tags: AML FMA Sharesies