AML/CFT

Anti-money laundering and countering financing of terrorism

Risk
Assessment
Guideline
May 2018
What is this guideline for
1. This guideline is designed to help you conduct your money laundering and
terrorism financing risk assessment (risk assessment) under the Anti-Money
Laundering and Countering Financing of Terrorism (AML/CFT) Act 2009 (the Act).

2. You understand your business better than anyone else. You are best placed to
identify and determine the level of risks your business faces from money
laundering (ML) and terrorism financing (TF), and to develop appropriate
strategies to manage and control these risks.

3. A risk assessment is the first step you must take before developing your
AML/CFT programme (programme). It involves identifying and assessing the
inherent risks your business reasonably expects to face from ML/TF. Once you
complete your risk assessment, you can then put in place a programme that
minimises or mitigates these risks. Your programme must be based on your risk
assessment.

4. You should keep in mind that an effective AML/CFT regime is risk-based. Your
programme must manage and mitigate the ML/TF risks faced by your business.
For instance, if you are a low-risk business you may only need a simple
programme that is proportionate to your low risk.

5. Following this guideline is not mandatory. However, you must undertake a risk
assessment and must establish a programme.

6. Your risk assessment and programme should reflect a risk-based approach that
allows you some flexibility in the steps you take when meeting your AML/CFT
obligations. A risk-based approach does not stop you from engaging in
transactions/activities or establishing business relationships with higher-risk
customers. Rather, it should help you to effectively manage and prioritise your
response to ML/TF risks. The examples in this guideline are suggestions to help
you meet your obligations under the Act. They are not exhaustive and are
illustrative in nature.

7. This guideline is for information purposes only. It cannot be relied on as evidence

of complying with the requirements of the Act. It does not constitute legal advice
from any of the AML/CFT supervisors and cannot be relied upon as such. After
reading this guideline, if you still do not understand any of your obligations you
should contact your AML/CFT supervisor or seek independent professional
advice.

8. You can access the AML/CFT guidance referenced in this guideline at the
following websites:
 Financial Intelligence Unit (FIU): http://bit.ly/2zpmWPJ
 Department of Internal Affairs (DIA): http://bit.ly/2gQ3Iev
 Reserve Bank of New Zealand (RBNZ): http://bit.ly/2n6RYdp
 Financial Markets Authority (FMA): http://bit.ly/2hV45oJ

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Terms used in this guideline
9. The Act does not define the terms set out below. For the purposes of this
guideline, the following definitions apply.
 Material change – ML/TF risk is not static and can change quickly. A
material change is an event, activity or situation that you identify that could
change the level of ML/TF risk you may encounter.
 Risk-based approach refers to the proportionate AML/CFT measures that
you implement in response to identified risks. An effective risk-based
approach (sometimes called RBA) allows you to exercise informed judgement
when meeting your AML/CFT obligations. Under a risk-based approach, there
is no such thing as “zero risk”.
 Inherent risk is the assessed ML/TF risk before any AML/CFT controls and
measures are in place.
 Residual risk is the assessed ML/TF risk after AML/CFT controls and
measures have been put in place.
 Gatekeepers – The legal, accountancy, real estate, and trust and company
service provider sectors are known as designated non-financial businesses
and professions, or more commonly as “gatekeepers”. Gatekeepers refers to
the role they play in providing services and products that can be used to
facilitate the entry of illicit funds into the legitimate financial system.

10. On 1 July 2018, suspicious transaction reports (STRs) will be replaced by

suspicious activity reports (SARs). The acronym SAR is used to denote both
types of reporting for the purposes of this guideline.

Structure of this guideline

What is this guideline for Page 2
Terms used in this guideline Page 3
Part 1 Introduction Page 4
Part 2 Identifying risk Page 7
Part 3 Assessing risk Page 11
Part 4 Applying a risk assessment Page 13
Part 5 Review and audit of risk assessment Page 14
Part 6 List of abbreviations Page 14

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Part 1: Introduction
The Anti-Money Laundering and Countering Financing of Terrorism Act
2009
11. The purposes of the Act are to:
 detect and deter money laundering (ML) and terrorism financing (TF)
 maintain and enhance New Zealand’s international reputation by adopting,
where appropriate in the New Zealand context, recommendations issued by
the Financial Action Task Force (FATF)
 contribute to public confidence in the financial system.

What you have to do

12. The first things you should do as part of your obligations under the Act are:
 appoint an AML/CFT compliance officer (compliance officer)
 conduct a risk assessment to identify and determine the ML/TF risks you may
encounter in the course of your business
 develop and implement a programme containing the procedures, policies and
controls used to manage and mitigate those risks.

Risk assessment
13. A core element of your AML/CFT regime is an adequate and effective risk
assessment. The risk assessment is the foundation of a proportionate risk-based
AML/CFT framework. Your AML/CFT supervisor expects that you will have a clear
understanding of the ML/TF risks and vulnerabilities you face during the course of
business.

14. You must base your programme on your risk assessment. The risk assessment is
the foundation document for your entire AML/CFT regime. This should be clearly
explained in your risk assessment and programme documentation.

Using AML/CFT guidance

15. You must consider any applicable guidance material produced by your AML/CFT
supervisor or the New Zealand Financial Intelligence Unit (FIU) and any other
information provided in relation to the regulations. We strongly recommend that
you are familiar with the following documents before you undertake your risk
assessment.
 The National Risk Assessment (NRA) and FIU guidance material (accessible
to reporting entities registered with the FIU’s goAML system)1
 Sector risk assessments (SRAs) produced by the AML/CFT supervisors2
 Industry-specific guidance – for example, DIA has produced the Lawyers and
Conveyancers Guideline3

1 http://bit.ly/2zpmWPJ
2 http://bit.ly/2HPNEou
3 http://bit.ly/2GP2Bbi

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  AML/CFT supervisor guidance – for example, the FMA has produced the
AML/CFT Guide for Small Financial Adviser Businesses4 and DIA has
produced Risk Assessment and Programme: Prompts and Notes for DIA
Reporting Entities5

Legal obligations relating to risk assessments

16. As a reporting entity6 you have a number of obligations under the Act in relation to
your risk assessment:
 Your risk assessment must identify the risk of ML/TF you may reasonably
expect to face during your business.
 Your risk assessment must enable you to determine the level of risk involved
in relation to relevant obligations under the Act. This includes the ML/TF risk
presented by your customer, the products and services you offer and the
countries you deal with.
 Your risk assessment must be in writing and include a description of how it
will be kept up to date.
 Your risk assessment must have regard to guidance produced by the
AML/CFT supervisors and the FIU.
 You must use your risk assessment to develop your programme as set out in
the Act. Refer to the AML/CFT Programme Guideline7 for further information.
 You must review your risk assessment to ensure it is up to date, identifies
any deficiencies, and make any changes identified as necessary. 8
 Your risk assessment must be independently audited by an appropriately
qualified person every two years or at any other time at the request of your
AML/CFT supervisor.

17. You must also prepare and submit an annual report to your AML/CFT supervisor.
This must be in the prescribed form and must be provided at a time appointed by
the supervisor. Refer to the User Guide: Annual AML/CFT Report 2016 for further
information.

18. When conducting your risk assessment, you do not have to follow the processes
in this guideline. As long as you comply with your obligations under the Act and
any other applicable laws or regulations, you can choose the method of risk
assessment that best suits your business. For example, large financial institutions
may have their own systems and methodology for conducting a risk assessment.
However, you should be prepared to explain and demonstrate to your AML/CFT
supervisor the adequacy and effectiveness of your procedures, policies and
controls.

4 http://bit.ly/2nb1TyA
5 http://bit.ly/2EBUMXy
6 Except for high-value dealers, who only need to comply with parts of the Act from 1 August 2019.

While high-value dealers are not required to conduct a risk assessment, they should consider industry-
specific guidance for their sector (to be published at a later date).
7 http://bit.ly/2poP4i2

8 The use of version control of your document can help demonstrate that you are keeping your risk

assessment current.
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19. When evaluating your risk assessment (and your programme), supervisors and
auditors will want to explore both adequacy and effectiveness. Adequacy is
described as how compliant your risk assessment is with the various obligations
of the Act. Effectiveness is described as how well the practical application of the
risk assessment meets the obligations of the Act. This will be something you
discuss with your supervisor and auditor.

Background
20. Financial Action Task Force (FATF) recommendations9 - All countries are
exposed to illicit international money flows. The global nature of ML/TF is
reflected in the work of the FATF based on input from international experts. The
FATF 40 Recommendations and 11 Immediate Outcomes represent a global
standard of AML/CFT. Compliance with and demonstrated effective use of these
standards are an important part of New Zealand’s international reputation and
ability to combat ML/TF. New Zealand will be evaluated on these standards and
outcomes in 2020.

21. Domestic and international money laundering threat - The FIU estimates that
NZ$1.35 billion in illicit funds is generated annually for laundering. This figure
excludes transnational laundering of overseas proceeds of crime and laundering
the proceeds of domestic tax evasion. The transactional value of ML and the
harm caused by ML and associated offending is likely to be significantly more
than this figure.

22. New Zealand faces an unknown scale of ML generated from overseas proceeds
of crime. The International Monetary Fund estimates that approximately 2–5% of
global GDP (approximately US$2 trillion) is the proceeds of crime.

Terrorism financing
23. Although TF risk is assessed as low in New Zealand, it is prudent to provide
guidance on the vulnerabilities and risks associated with the global issue of TF.
Please refer to your relevant SRA and the NRA for more information on the
financing of terrorism.10

Stages of money laundering

24. It is worthwhile covering some of the basics of ML/TF before considering ML/TF
risk. ML is generally considered to take place in three phases: placement, layering
and integration. TF shares many of the characteristics of ML but may also involve
legitimate funds and usually involves smaller amounts.

25. Placement occurs when criminals introduce proceeds of crime into the financial
system. This can be done by breaking up large amounts of cash into smaller
sums that are then deposited directly into an account, or by purchasing shares or
by loading credit cards. In some offences, such as fraud or tax evasion,
placement is likely to occur electronically and may be inherent in the offending.

9 http://www.fatf-gafi.org/
10 http://bit.ly/2HPNEou
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26. Layering occurs once proceeds of crime are in the financial system. Layering
involves a series of conversions or movements of funds in order to distance or
disguise them from their criminal origin. The funds might be channelled through
the purchase and sale of investment instruments or high-value goods or be wired
through various accounts across the world. In some instances, the launderer
might disguise the transfers as payments for goods or services, giving them an
appearance of legitimacy.

27. Integration occurs once enough layers have been created to hide the criminal
origin of funds. This stage is the ultimate objective of laundering: funds re-enter
the legitimate economy, such as in real estate, high-value assets, or business
ventures, allowing criminals to use the criminal proceeds of offending.

Predicate offences
28. Predicate offences are the crimes underlying ML/TF activity. It is important that
you understand the various types of predicate offences. Please refer to your
relevant SRA and the NRA for more information on predicate offending.

Part 2: Identifying risk

29. As part of assessing risk, you must address your “inherent risks”. These are the
ML/TF risks present before you apply controls and mitigations. You may wish to
assess your “residual” risk (the risk after your controls and mitigations) as part of
your risk assessment. However, your AML/CFT supervisor will expect that your
risk assessment deals with inherent risk. If your risk assessment covers residual
risk, you will need to document and demonstrate how you arrived at your residual
risk ratings.

30. When you identify how your business may be vulnerable to ML/TF risks, you
must consider all of the following:
 the nature, size and complexity of your business
 the products and services you offer
 the way you deliver your products and services
 the types of customers you deal with
 the countries you deal with
 the institutions you deal with.

The nature, size and complexity of your business

31. The size and complexity of your business plays an important role in how attractive
or susceptible it is for ML/TF. For example, because a large business is less likely
to know its customers personally, it could offer a greater degree of anonymity than
a small business. Likewise, a business that conducts complex transactions across
international jurisdictions could offer greater opportunities to money launderers
than a purely domestic business.

32. Use of corporate data will help you work out what parts of your business are
vulnerable to ML/TF activity. For instance, you may have identified a higher-risk
product, but without knowing how many of those products you have provided to

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 customers, and where they are domiciled, this will result in a flawed assessment
of risk. Using your annual report data will help in this matter.

The products and services your business offers

33. Some products and services are vulnerable to ML/TF by their nature. When
considering whether the products and services your business offers could be
exploited for ML/TF purposes, we recommend you consider issues such as:
 Does the product/service allow for anonymity?
 Does the product/service disguise or conceal the beneficial owner of your
customer?
 Does the product/service disguise or conceal the source of wealth or funds of
your customer?
 Does the product/service allow payments to third parties?
 Does the product/service commonly involve receipt or payment in cash?
 Has the product/service been identified in the NRA, FIU guidance material or
SRAs as presenting a higher ML/TF risk?
 Does the product/service allow for the movement of funds across borders?

34. Many other factors can contribute to the ML/TF risk of your products and services.
It will be your responsibility to identify those factors as part of your risk
assessment. Domestic AML/CFT guidance material will help you in this exercise.
The FATF, the Asia Pacific Group on Money Laundering (APG)11, and other
overseas AML/CFT agencies (such as the Australian Transaction Reports and
Analysis Centre (AUSTRAC)12) also publish documents in relation to the methods
and trends used for ML/TF (these are also called typologies).

The way your business delivers its products and services

35. The way your business on-boards your customers and delivers your products and
services affects its vulnerability to ML/TF. For example:
 Does your business have non-face-to-face customers (via post, telephone,
internet or via intermediaries)?
 Do you provide your products/services via the internet?
 Does your business have indirect relationships with customers (via
intermediaries, pooled accounts, etc)?
 Do you provide your products/services via agents or intermediaries?
 Do you provide your products/services to overseas jurisdictions?

The types of customers your business deals with

36. Some categories of customers pose a higher risk of ML/TF than others, especially
when combined with higher-risk products/services and jurisdictions.

37. The Act sets out circumstances where you must conduct enhanced customer due
diligence (EDD) and where simplified customer due diligence (CDD) applies.

11 http://www.apgml.org/
12 http://www.austrac.gov.au/
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 These sets of circumstances are a useful reference point for the types of
situations that may present a higher or lower risk of ML/TF. Refer to the
Enhanced Customer Due Diligence Guideline13 for further information.

38. Questions you will need to ask yourself about your customers, new and existing,
include:
 Are they a trust or other legal person?
 Have you identified beneficial ownership?
 Are they specified in the Act as requiring EDD?
 Are they involved in occasional or one-off activities/transactions above a
certain threshold?
 Do they use complex business structures that offer no apparent financial
benefits?
 Are they a politically exposed person (PEP)?14
 Are they a cash-intensive business?
 Are they involved in businesses associated with high levels of corruption?
 Do they have an unexplained or hard to verify source of wealth and/or source
of funds?
 Do they conduct business through, or are they introduced by, gatekeepers
such as accountants, lawyers, or other professionals? (Refer to your relevant
SRA for more information on gatekeepers.)
 Are they a non-profit organisation?
 Have they been identified in the NRA, FIU guidance material or SRAs as
presenting a higher ML/TF risk?

39. This list is not exhaustive, and many other factors can contribute to customer
ML/TF risk. As with your products and services it will be your responsibility to
identify those factors as part of your risk assessment. Domestic and international
guidance material will help you in this exercise.

The countries your business deals with

40. It is important to understand that the risks associated with a country are wider
than having insufficient AML/CFT measures in place. It is also important to
recognise the international operation of ML/TF and that New Zealand’s reputation
as a high-integrity, low-corruption jurisdiction makes it vulnerable to abuse.
Country risk can result from:
 ineffective AML/CFT measures
 ineffective rule of law and economic stability
 high levels of organised crime
 prevalence of bribery and corruption
 association with TF

13http://bit.ly/2puaRpm
14A PEP is a person who in the last 12 months has held a prominent overseas position. The term PEP
includes their relatives and close associates, who are sometimes called RCAs. It also includes people
who have beneficial ownership of legal entities or arrangements existing to benefit PEPs. Refer to the
Enhanced Customer Due Diligence Guideline for more information on PEPs.
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  conflict zones and their bordering countries
 production and/or transnational shipment of illicit drugs.

41. To help you determine country risk, the AML/CFT supervisors produced the
Countries Assessment Guideline.15 Other information sources that can help you in
assessing country risk include:
 FATF list of high-risk and non-cooperative jurisdictions16
 FATF mutual evaluation reports
 European Union AML and tax blacklists
 Basel AML Index17
 United Nations Office on Drugs and Crime (UNODC)18 reports
 Transparency International Corruption Perceptions Index19
 trusted and independent media sources.

42. While not directly associated with AML/CFT, you may want to consider checking if
countries are subject to United Nations sanctions, embargoes or similar
measures.

The institutions your business deals with

43. Some institutions present more ML/TF risk than others. This may be due to the
nature of their industry or their association, or the types of business relationships
that they have. For instance, financial institutions that are unregulated or shell
companies and banks are high-risk institutions and are more likely to be used for
ML/TF purposes or operated by criminals to disguise beneficial ownership.

44. Higher-risk entities such as banks, money remitters and gatekeepers are
vulnerable to exploitation for ML/TF purposes and can represent risk to your
business. We recommend that you refer to the NRA and your relevant SRA for
further information.

Other factors to consider when identifying aspects of your business that

may be susceptible to ML/TF
45. The Act also sets out special steps you must take in relation to PEPs, wire
transfers, correspondent banking and new technologies. This information should
help you to identify high-risk areas of your business.

46. The NRA and SRAs are useful sources of information when identifying how your
business could be used for ML/TF. You should also consider emerging trends that
are signalled by the FIU in their guidance when identifying risks in your business.
Information on current ML/TF methods is available on the FATF website. This
website also has links to other internet pages that you could refer to when
assessing the risk your business could be reasonably expected to face.

15 http://bit.ly/2hOTHPk
16 https://bit.ly/1RA355J
17 https://index.baselgovernance.org/

18 http://www.unodc.org/

19 https://bit.ly/2BJaDBF

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Part 3: Assessing risk
47. Risk can be defined in many ways, and there is no one-size-fits-all assessment
model for this process. Once you have identified the ML/TF risk that you face
during business, you must determine the level of that risk. When assessing risk,
you should consider:
 each element of risk you have identified
 your business experience in relation to that risk
 information and guidance published by the AML/CFT supervisors and the FIU
 information and guidance published by international organisations such as
the FATF, APG and UNODC, and AML agencies from equivalent jurisdictions
such as AUSTRAC.

48. You should allow for the different situations that currently arise in your business or
are likely to arise in the near future. For instance, your risk assessment should
consider the impact of new products, services or customer types, as well as new
technology. In addition, ML/TF risks will often operate together and represent
higher risks in combination.

49. Potential ways to assess risk include but are not limited to:
 how likely an event is
 how likely an event is and the consequence of that event
 vulnerability, threat and impact
 the effect of uncertainty on an event

50. Some examples are provided later in this section, but whichever method you use
you will need to explain and demonstrate its adequacy and effectiveness to your
AML/CFT supervisor and ensure it is appropriate and proportionate to your
needs.

51. Your assessment of risk should be informed, logical and clearly recorded. For
instance, if you have identified gatekeepers as presenting higher inherent risk in
relation to the delivery of your product, your risk assessment should indicate how
you arrived at this rating (domestic guidance, case studies, direct experience).

Risk assessment (lower complexity)

52. In line with the previous AML/CFT supervisor guidance, you may want to assess
risk by only considering the likelihood of ML/TF activity. This assessment should
involve considering each risk factor you have identified, combined with your
business experience and information published by regulators and international
organisations such as the FATF. Your likelihood rating could correspond to:

Very unlikely Possible Likely Very likely

There is very little There is a small There is a moderate There is a high chance
chance of ML/FT chance of ML/FT chance of ML/FT of ML/FT occurring in
occurring in this area of occurring in this area of occurring in this area of this area of your
your business. your business your business. business

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53. For example, you may have identified that one of your products is vulnerable to
ML/TF due to the potential for cross-border movement of funds. Your risk
assessment highlights the product is easily accessible, that many customers are
using it, and it is used in higher-risk jurisdictions. Combined with domestic and
international guidance, you assess that the inherent risk rating of this product as
likely.

54. Your programme should then address this likely risk with appropriate control
measures. You will need to do this with each of your identified risks.

Risk assessment (medium complexity)

55. Another way to determine the level of risk is to work out how likely the risk is
going to happen and cross-reference that with the consequence of that risk (see
the example of a risk matrix below).

56. Using likelihood ratings and consequence ratings can provide you with a more
comprehensive understanding of your risk and a robust framework to help you
arrive at a final risk rating. These ratings, in combination with structured
professional opinion and experience, will assist you in applying the appropriate
risk management measures as detailed in your programme.

57. For example, you may have identified that one of your products is vulnerable to
ML/TF and you assess that the likelihood of this product being used in ML/TF
activity is highly probable. You judge the impact of the identified risk happening in
terms of financial loss and assess the consequence as moderate.

58. Cross-referencing highly probable with moderate in the risk matrix below results in
a final inherent risk rating of medium-high. Your programme should then address
this medium-high risk with appropriate control measures. You will need to
undertake this exercise with each of your identified risks. The risk matrix below is
provided as an illustrative example only.

5 Almost certain 11 16 20 23 25
4 Highly probable 7 12 17 21 24
3 Possible 4 8 13 18 22
Likelihood scale

2 Unlikely 2 5 9 14 19
1 Improbable 1 3 6 10 15
1 Minimal 2 Minor 3 Moderate 4 Significant 5 Severe
Consequence scale
Risk
Low Medium Medium-high High
rating

Risk assessment (higher complexity)

59. More complicated and comprehensive assessments of risk may suit larger
businesses with multiple products or services.

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60. You could assess risk likelihood in terms of threat and vulnerability. For example,
you may consider domestic tax evasion criminals as the threat, and your accounts
dealing with cash payments as the vulnerability. Depending on the risk
assessment method you use, this could result in an inherent risk rating of highly
probable. You may then want to assess the impact of this event on your business
and the wider environment.

61. Determining the impact of ML/TF activity can be challenging but can also help you
focus your AML/CFT resources in a more effective and targeted manner. When
determining impact, you may want to consider a number of factors, including:
 nature and size of your business (domestic and international)
 economic impact and financial repercussions
 potential financial and reputational consequences
 terrorism-related impacts
 wider criminal activity and social harm
 political impact
 negative media.

62. You may want to give more weight to certain factors to provide a more nuanced
understanding of your ML/TF risk.

63. In addition, you may want to consider how your risks can compound across the
various risk factors. For example, you may identify that one of your products is
high-risk and is being used in a high-risk jurisdiction that is directly involved in the
production or transnational-shipment of illicit drugs. As such, you assess the
compounded risk of this scenario as presenting an inherent risk rating of severe.
You would be expected to prioritise and allocate your resources accordingly.

Part 4: Applying a risk assessment

64. Your risk assessment should help you rank and prioritise your risks and provide a
framework of how you will manage those risks.

65. Your risk assessment must enable you to prepare a comprehensive programme.
It should enable you to meet your relevant obligations under the Act and
regulations, including your obligations to conduct CDD, monitor accounts and
activities and report suspicious activity.

66. Your risk assessment should help in determining suspicion and consequently
assist in the decision to submit an SAR to the FIU. You must submit an SAR to
the FIU if you think activities or transactions are suspicious. For instance, you
may consider unexpected international activity of a domestic-based customer
unusual, especially if it involves a high-risk jurisdiction, and submit an SAR.

67. You must conduct ongoing CDD. Your risk assessment will help you target and
prioritise the resources needed for ongoing CDD. For instance, you may want to
undertake ongoing CDD on your high-risk customers on a more regular basis than
on your lower-risk customers.

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68. You must undertake account monitoring. Your risk assessment will help you
design the triggers, red flags and scenarios that can form part of your account
monitoring. For instance, you may want the activity of a high-risk customer in a
high-risk jurisdiction (as identified in your risk assessment) to be subject to more
frequent and in-depth scrutiny.

New and developing technologies and products

69. New and developing technologies and products can present unknown ML/TF risks
and vulnerabilities. In addition, new methods of delivery may be able to bypass
existing AML/CFT measures to allow anonymity and disguise beneficial
ownership. Your risk assessment should consider whether your business is, or
may be, exposed to customers involved in new and developing technologies and
products. Your programme should detail the procedures, policies and controls that
you will implement for this type of customer and technology.

Material changes and risk assessment

70. Your risk assessment should adapt when there is a material change in the nature
and purpose of your business or your relationship with a customer. A material
change could present an increase, or decrease, in ML/TF risk.

71. Material change could include circumstances where you introduce new products
or services or have customers (or their beneficial owner) based in new
jurisdictions. Material change can include when you start using new methods of
delivering your services or you have new corporate or organisational structures. It
could result from you deciding to outsource CDD functions or changing your
processes for dealing with PEPs. In these circumstances, you may need to
refresh your risk assessment.

Part 5: Review and audit of risk assessment

Reviewing a risk assessment
72. You must review your risk assessment to:
 ensure it remains current at all times
 identify any deficiencies in its effectiveness
 make any changes that are identified as being necessary in this process.

73. You may want to schedule this annually as part of your annual report process
and/or as a result of a trigger event. A trigger event could be the emergence of
new technology; a new customer base; new services or products; new ML/TF
risks as determined by the FATF, AML/CFT supervisors or the FIU; or updated
regulations. Version control of documents is useful to demonstrate this.

Auditing a risk assessment

74. You must audit your programme (as well as your risk assessment) every two
years, or at any other time at the request of your AML/CFT supervisor. You must
provide a copy of your audit to your AML/CFT supervisor on request.

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75. The auditor must be appropriately qualified – The Act states that your auditor
must be appropriately qualified to conduct the audit. This does not necessarily
mean that the person must be a chartered accountant or qualified to undertake
financial audits. It does mean that the person has to have relevant skills or
experience to conduct the assessment. You should be able to justify to your
AML/CFT supervisor how your auditor is appropriately qualified.

76. The audit must be conducted by an independent person – The Act states that
your auditor must be independent, and not involved in the development of your
risk assessment or the establishment, implementation or maintenance of your
programme. The person/s appointed to undertake the audit may be a member of
your staff (for instance, an internal audit team), provided they are adequately
separated from the AML/CFT area of your business. You should be able to justify
to your AML/CFT supervisor how your auditor is independent.

77. You may choose to appoint an external firm to undertake both the audit and
review provided you are satisfied there are appropriate separation and conflict of
interest arrangements. The annual report that you are required to provide to your
AML/CFT supervisor must consider results and implications of the audit. Refer to
the AML/CFT supervisor guidance Guideline for Audits of Risk Assessments and
AML/CFT Programmes20 for more information.

Part 6: List of abbreviations

The Act Anti-Money Laundering and Countering Financing of Terrorism
Act 2009
AML/CFT Anti-money laundering and countering financing of terrorism
APG Asia Pacific Group on Money Laundering
AUSTRAC Australian Transaction Reports and Analysis Centre
CDD Customer due diligence
DIA Department of Internal Affairs
EDD Enhanced customer due diligence
FATF Financial Action Task Force
FIU New Zealand Financial Intelligence Unit
FMA Financial Markets Authority
ML Money laundering
NRA National Risk Assessment
PEP Politically exposed person
Programme AML/CFT programme
RBA Risk-based approach
RBNZ Reserve Bank of New Zealand

20 http://bit.ly/2u6zb5I
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RCA Relative and close associate
Risk assessment AML/CFT risk assessment
SAR Suspicious activity report
SRA Sector risk assessment
STR Suspicious transaction report
TF Terrorism financing
UNODC United Nations Office on Drugs and Crime

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