better banking

Anti-money laundering legislation - changes to banking

14 May 2014

New Zealand’s financial institutions and businesses are obliged to help detect and deter the laundering of money and financing of terrorism. The Anti-Money Laundering and Countering Financing of Terrorism Act 2009 requires banks to gather more information about customers. Obtaining this extra information can sometimes cause inconvenience to customers and even disruption of their banking services. This is a cause of complaints to us. 

Obligations on banks

Banks must be stringent when confirming a customer’s identity, and must use independent and reliable sources to obtain authenticating information. This extra information must:

  • ensure a bank’s understanding of a customer’s business with it is accurate
  • help the bank to assess whether the customer’s use of the account accords with its understanding of the customer’s business
  • help the bank to identify suspicious transactions.

A bank must report any transaction it reasonably believes is suspicious to police.

A bank that cannot comply with the Act in its dealings with a customer must do no further business with that person. This means it:

  • may not process certain transactions
  • can withdraw its products and services
  • can decline to take someone as a customer.

Implications for customers

You may have to provide more evidence of your identity and personal details. This relates to all types of accounts, including personal, business and trust accounts.

You may have to supply more information if you want to transfer abroad money over a certain amount.

You may be asked for information to verify some or all of the following:

  • your full name and date of birth
  • your address
  • your relationship to the customer (if you are not the customer)
  • your company’s identifier or registration number
  • the source of your funds
  • the names and dates of birth of beneficiaries of a trust
  • the details of the recipient of your money if making an international payment
  • the nature and purpose of your business with the bank
  • any other information set out in regulations.

Examples of acceptable verification

To verify your identity, you may be asked for:

  • your passport, or
  • your birth certificate and 18+ card, or
  • your driver’s licence and EFTPOS card.

To verify your address you may be asked for:

  • a recent utility bill, bank statement or insurance policy, or
  • a recent letter from the Electoral Commission, a government agency, your employer, or
  • a recent tenancy agreement.

Note that your bank may require different information to that given in the above examples. Check with your bank how recent information verifying your address should be.

How we can help

Each bank has its own policies to comply with the Act, so take your concerns to your bank in the first instance. We cannot compel banks to alter their policies or practices, but we may be able to consider a complaint about a practice or policy that has breached an obligation or duty the bank owes to you, the customer. You can also complain to us if you believe your bank has breached its statutory obligations.

Case 1: Inconvenience found to be minor

Mrs O wanted to transfer funds from her overseas account to her New Zealand bank account. She asked her New Zealand bank for its SWIFT code, the bank’s unique identification code needed for international transfers. The bank provided the code, and also told her what information she would need to carry out the transfer. Two days later, the legislation requiring banks to seek extra information from customers who make transfers came into effect. The bank did not tell Mrs O about the pending changes, and when she transferred the funds but they failed to appear in her New Zealand account she contacted the bank.

The bank said the payment was delayed because it did not meet the new Act’s verification requirements. Specifically, her physical address overseas – a post office box number – was insufficient, and it was taking steps to verify the transfer to ensure it complied with the Act. It offered Mrs O a temporary overdraft in the meantime. A week after initiating the transfer, she received the funds.

Mrs O complained to the bank about its excessive application of the Act, in particular requiring her to provide a physical address when she was already known to the bank. She also complained about poor service, about the bank’s failure to advise her of the impending legislation, and about the delay in responding to her queries after she had made the transfer. The bank offered her $500 to settle the complaint, but she did not accept this and asked us to investigate.

We considered it was reasonable for a bank to take further steps to verify a transfer if it did not have a customer’s physical address – even if the customer was known to the bank. We found the bank’s approach was risk-averse, but that it had acted reasonably and in compliance with the Act.

However, the bank had taken longer than usual to respond to her queries, partly because of the Act’s introduction during the transfer process. This was inconvenient but did not cause an unreasonable delay. Furthermore, the bank’s correspondence was ultimately constructive. 

We found the bank could have warned Mrs O when she first made contact that the requirements of a transfer were about to change. However, this failure did not reach the threshold for recommending compensation. We suggested Mrs O should accept the $500 and she did.

Case 2: Account closure process stood up to scrutiny

Mr H ran a funds remittance business. His bank decided to close the company’s account because of concerns it was in breach of the Act. The bank sent Mr H a letter advising that, because of these concerns, it would close his accounts in 14 days. Mr H believed the bank could not close his accounts unless it could prove its suspicions. He complained to the bank, which stood by its decision. Mr H complained to us.

Our rules of operation did not permit us to consider a complaint about a bank’s decision to close an account, but we could consider whether it had followed the correct process. We found it had done so by giving 14 days’ notice.  We were unable to consider the complaint further.

Case 3: Facility withdrawn on good grounds

Mr A ran a shop, but also transferred money overseas as an agent for a currency exchange service. The transfers were processed through a revolving credit facility the bank had given Mr A in his personal name. The bank asked Mr A to stop using the bank facility in this way, saying transfers worth hundreds of thousands of dollars were passing through the account each month, and it could not be sure the currency exchange service was sufficiently complying with its anti-money laundering obligations. The bank warned it would withdraw the facility if he failed to stop using it in this way.

Mr A disputed the bank’s right to withdraw the facility and continued to process money transfers overseas. He said the facility was for a 25-year term, and the bank could not withdraw it before then. We reviewed the contract for the facility, which stated that the bank could withdraw it before the term expired. We also considered it had a reasonable basis to do so. Mr A did not agree, so we issued a formal decision to that effect.

Case 4: Closure permitted by code and terms and conditions

Mr C was the director of a foreign exchange and international remittance agency. Mr C received a letter from his bank advising it would close the company’s accounts in a month because of the bank’s evaluation of the risk that it was in breach of the Act.

Mr C complained to the bank, saying the accounts had always operated lawfully and closing them was unfair. He wanted the bank to keep the accounts open. The bank stuck by its decision, but gave him another two months to make other banking arrangements. Mr C was not satisfied and complained to us.

We explained that the New Zealand Bankers’ Association’s Code of Banking Practice allows banks to close a customer’s account even if it is operated satisfactorily. A bank will usually give at least 14 days’ notice. The bank’s terms and conditions made clear it could withdraw its products or services in accordance with the code.

We told Mr C we did not have the power to recommend a bank provide someone with banking services, or to make it change its decision. Mr C accepted our explanation and withdrew his complaint.