Throughout the offices of banks and financial advisory firms around New Zealand, the murmurs of exasperated individuals are becoming increasingly commonplace – those tempted to throw their hands up in the air and call it all just “too hard”.
And upon observing the barrage of questions and seemingly endless volumes of paperwork they’re required to fill out each and every day, you’d likely become sympathetic to their plight.
From the other side of the desk, their clients will probably have heard the term “compliance” mentioned by way of an almost apologetic explanation for the ostensibly unreasonable requests made of them, in turn.
But what is compliance and why do financial advisory firms have to be compliant? Is it necessary, or just a red tape tick-the-box exercise?
In recent years, New Zealand’s financial markets have been impacted by a series of significant statutory changes – the largest in at least three decades – and this legislative reform has introduced a series of extensive new responsibilities for financial institutions.
Specifically, the laws govern how financial firms can operate and the standards they must uphold. Prompted by the global financial crisis and the failure of many finance companies, the ultimate purpose is to restore and maintain the integrity of the New Zealand financial system and promote confident and informed participation by businesses, investors and consumers.
When seeking financial advice and other financial services, your advisor (or similar financial services professional) will likely ask a lot of questions. This is to ensure they uphold the required standards of care, diligence and skill that allow them to provide the best possible levels of service.
Advisers must gather sufficient information to ensure that the recommendations they make are suitable in the context of your personal and financial goals, and are most likely to deliver against your objectives.
There are also laws which place obligations on various types of institutions to detect and deter money laundering (the process of transforming the profits of crime into “legitimate” assets). It’s estimated that over NZD$1.5 billion of “dirty” money is being laundered through New Zealand each year. For example, in 2010 two mothers were convicted of helping launder NZD$4.5million from an international drug syndicate being run out of Auckland. Understandably, this kind of activity has significant and negative ramifications on the reputation and efficiency of our economy.
The basic steps to protect against money laundering are centred on the principles of “knowing your customer”. That is, making sure that people are who they say they are and verifying that the money they are investing is derived from legitimate sources and intended for legal purposes.
Satisfying this objective requires the collection and verification of identification documents and evidence of where the funds or overall wealth have come from.
We live in a world where the financial services industry is a highly (and increasingly) scrutinised and regulated industry, with significant penalties for those who break the rules. These rules exist to make sure everyone is able to participate in the market with confidence, knowing that investors interests are being protected. Break them at your peril.
The views expressed in this article are those of Hobson Wealth Partners Limited, an NZX Firm. The disclosure statement for Hobson Wealth is available free of charge by contacting us on 0800 742 737. This article does not consider objectives or situation of any particular investor. It should not be construed as a solicitation to buy or sell any security or product, or to engage in or refrain from engaging in any transaction. We recommend that you consider the appropriateness of information to your situation and obtain financial, legal and taxation advice before making any financial investment decision.