Article written by Anthony Edmonds, InvestNow – 5th September 2022

Last week I flew on a plane.

At airport security, I took off my belt as per instructions. Pleasingly, my trousers didn’t fall down because I’ve gotten so fat during our long wet winter. I also removed the laptop from my bag before heading through the security gate.

An officious airport guard pulled me aside at the barrier.

“Your boots,” he said. “Get them off.”

Gazing down at my beloved pair of classic RM Williams, I asked him why, after I had worn the same boots on hundreds of flights in NZ over the year, they had to come off today.

“Do you have a foot fetish or something?”

But security guards are well-trained in dealing with smart-arse jokers.

He told me, politely and without a smile, that the new rules required any ankle-high boots to be removed at the check-point for surveillance before passengers board.

“You can comply or not fly,” he said.

Strangely, my mind turned immediately to the anti-money laundering (AML) rules that apply across the financial services industry where, like airport security, compliance is non-negotiable, no matter how annoying the process may be.

And, just as in the airport security game, AML regulations are subject to constant changes that can have an irritating, but unavoidable, impact on both InvestNow and our customers.

The FMA regularly updates the industry on AML process expectations via guidance notes and other publications, where new rules – akin to the ankle-boots-off-before-plane-boarding regulation – are announced.

As a compliant financial services organisation, InvestNow takes great care to stay within the regulatory borders and when new AML on-boarding rules arrive it is simple enough to apply them to new clients who are queuing up to join.

However, it is much more challenging to impose fresh AML protocols to existing InvestNow clients who are already on the plane in-flight – and some of them might be wearing ankle-boots.

Regardless of the technical difficulties involved, the FMA has the power to require us to collect the new information from those who have already boarded the InvestNow platform and embarked on their own investment journeys.

In this case we have to push customers to give us the information while they are mid-flight or collect it when they disembark, which in investment terms equates to making a withdrawal.

Clearly, clients are more motivated to provide the extra info at the point of withdrawal, rather than when they are relaxing en route.

But at InvestNow we take both approaches: pestering clients with in-flight announcements if the FMA has requested further AML data; and, requiring supply of any missing compliance information before processing withdrawals.

Unfortunately, just like airport security guards, we have no choice in requesting the customer information. The FMA regularly audits providers such as InvestNow and will happily impose fines or other sanctions if they deem any AML processes fall short of guidance and regulations – no matter how freshly inked those rules might be.

In general, InvestNow clients are well-used to AML and happily comply, given a wide range of businesses including banks, fund managers, accountants, and real estate agents also require similar information.

Occasionally, though, the odd client will refuse to supply extra information and threaten to close their account, which is the airport equivalent of bolting for the exit after the security scanner siren sounds: such behaviour is a serious red flag in the AML game that as regulated providers we are compelled to chase up and report on.

While the majority of people might be bemused by the fuss around AML, the primary objective of the system is to ensure all industry participants do their best to detect and stop money-laundering activity.

The scale of the local money-laundering problem is hard to gauge but there are likely plenty of Walter Whites (Breaking Bad) and Marty and Wendy Byrdes (Ozark) out there, especially given the size and scale of New Zealand’s illegal substances industry!

Accordingly, a lot of money laundering probably does happen in New Zealand, which reinforces the serious nature of AML compliance despite the humorous (or irritating, depending on your point-of-view) side-effects of trying to enforce the rules.

Also, in terms of stopping the financing of terrorism, we only have to think back to recent tragic events to realise this activity can happen in NZ.

As far as the InvestNow AML compliance obligations go, the FMA has recently emphasised the need for us to identify the ‘nature and purpose’ of our business relationships with clients, which explains why we ask questions such as how much you are going to invest, and how regularly you are going to make contributions and withdrawals.

We are then required to monitor our clients’ accounts to make sure what we are seeing is consistent with the information previously provided.

The regulators also want providers to have a reasonably deep understanding of where clients have sourced whatever money they place on InvestNow. For instance, where we can see that someone has sold a house or business it helps explain any large investments that might appear in their accounts.

Under the AML rules, too, we must monitor all accounts for large transactions, or those that don’t appear to have an economic purpose, or where they are complex in nature.

Behind the scenes we use client information collected under AML obligations to carry out this monitoring duty.

Often when a large withdrawal pings on the monitoring system, InvestNow will carry out something called ‘soft due diligence’ – essentially, where we look at publicly available information on the client in question to form a clearer picture of their status.

However, in some cases we do have a mandatory requirement to ask customers for further information, including direct evidence to prove the source of a large payment, for instance.

From a client perspective, this can feel like we are prying unnecessarily into private areas – but again, like airport security, this isn’t optional. We are required to do it by law.

Another particular AML focus for InvestNow centres on where clients link their platform account to a bank account of a different entity or person.

From our perspective, taking a risk-based approach to investigating unrelated account linkages has a dual benefit as many practices followed by money-launderers are similar to those adopted by fraudsters.

For example, where a client tries to withdraw money to a different new account this could be a flag for money-laundering activity or fraud.

We encourage clients, or those thinking of boarding InvestNow, to view these annoying AML checks as serving a greater purpose in minimising fraud directed at them as well as helping prevent broader money-laundering crimes.

As for me, I took off my boots as requested before flying safely home.