New Zealand's banking sector remains vulnerable to potential money laundering and terrorism financing risks, says the Reserve Bank in its latest assessment, reports The New Zealand Herald.
"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 Friday. Non-bank deposit takers and life insurers face lower risks, it said.
The RBNZ underscored the assessment didn't take into account the adequacy or effectiveness of any money laundering or terrorism financing controls that have been put in place. The study is "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.
Toby Fiennes, head of prudential supervision, said the bank sector risk rating hasn't changed since the Reserve Bank's last assessment, but more detail has been added to the different risks. Regarding non-bank deposit takers, he noted more attention has 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 cites data from the New Zealand Police Financial Intelligence Unit that estimates that $1.35 billion of domestic criminal proceeds are laundered in New Zealand on an annual basis and the "social harm caused by the laundering and its associated offending is estimated at many times this figure." The estimate relates principally to drug and fraud offending and the value of money laundering associated with tax evasion has not been established "but is thought to be significant."
While the terrorism threat that New Zealand itself faces is rated as 'low' by the international community, the FIU notes it is 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 may seek to use the country as a conduit for funds.