The banking sector remains vulnerable to potential money laundering and terrorism financing risks, said the Reserve Bank of New Zealand (RBNZ) in its latest assessment.
“The banking sector continues to have a relatively high potential risk because money launderers and terrorist financiers are more likely to target financial institutions in that sector rather than targeting in other sectors,” the central bank said in its Sector Risk Assessment, published on April 07.
Non-bank deposit takers and life insurers faced lower risks, it said.
The overall “low” risk rating for the insurance industry remained unchanged and reflected the smaller size and relatively simple life insurance products and services.
The RBNZ stressed the assessment did not take into account the adequacy or effectiveness of any existing money laundering (ML) or terrorism financing (TF) controls.
The study was “an assessment of potential inherent risk across each subsector and the sector as a whole”, it said.
The assessment is the second the central bank has carried out, the first being in 2011. It now expects the institutions supervised by the Reserve Bank to update their own written risk assessments.
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The RBNZ supervises 110 reporting entities including 14 life insurance providers, 24 registered banks, 27 non-bank deposit takers and 45 reporting entities, which are the members of a designated business group.
Toby Fiennes, head of prudential supervision at the RBNZ, said the bank sector risk rating had not changed since the RBNZ’s last assessment, but more detail had been added to the different risks.
On non-bank deposit takers, Fiennes noted more attention had been given to the money laundering and terrorist-financing risks potentially experienced by New Zealand’s credit unions, which have a strong domestic customer focus.
Regarding the scope of the problem, the central bank cited data from the New Zealand Police Financial Intelligence Unit, which estimated that $1.35 billion of domestic criminal proceeds were laundered in New Zealand every year and the “social harm caused by the laundering and its associated offending is estimated at many times this figure.”
The estimate related principally to drug and fraud offending.
The value of money laundering associated with tax evasion had not been established “but is thought to be significant”.
While the terrorism threat that New Zealand itself faced was rated as “low” by the international community, the Financial Intelligence Unit noted it was still exposed to threats relating to terrorism financing overseas, including the potential for financiers of overseas groups within New Zealand and overseas-based groups which might seek to use the country as a conduit for funds.
“Given the global nature of TF and the constantly changing nature of international tensions and conflicts, the risks associated with TF are highly dynamic. As such, reporting entities need to ensure that their CFT measures are current, regularly reviewed and effective,” the RBNZ report said.
According to the RBNZ, the high potential risk in the banking sector was due to its relative size, the large number of customers and the high number and value of transactions compared with other areas.
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