CLSA Premium fined for AML breaches following NZ regulatory proceedings

New Zealand’s Financial Markets Authority (FMA) today announces that CLSA Premium New Zealand Limited (CLSAP NZ) has been ordered to pay a total pecuniary penalty of $770,000 for breaches of the Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) Act. The penalty is imposed following proceedings brought by the regulator.

The FMA filed proceedings in June 2020, in the Auckland High Court, alleging CLSAP NZ failed to comply with its obligations under the AML/CFT Act between April 2015 and November 2018. These were the first court proceedings brought by the FMA under the AML/CFT Act.

The case was centred on transactions undertaken by a sample of 10 different CLSAP NZ customers, involving transactions totalling approximately $49.5 million, with $40.8 million of that total relating to deposits made by two customers.

CLSAP NZ and the FMA filed an agreed statement of facts in which CLSAP NZ admitted the following breaches:

  • Failures to conduct enhanced customer due diligence in relation to 12 transactions;
  • Failure to conduct customer due diligence in relation to one customer;
  • Failures to terminate existing business relationships when customer due diligence could not be completed;
  • Failures to report suspicious transactions / activity on nine occasions; and
  • Failure to keep records as required under the AML/CFT Act.

In a judgment determining the penalty, Justice Edwards noted CLSAP NZ’s failure to obtain any evidence of source of wealth or source of funds for some of the transactions where enhanced customer due diligence was required and “the inadequate information obtained when it was sought, is particularly concerning.”

The Judge said although CLSAP NZ had an AML/CFT program, policies, and dedicated compliance staff, the mitigating effect of those features on the penalty was undermined by several factors:

  • CLSAP NZ was warned by the FMA about its substandard AML/CFT programme in 2014 and, despite improvements, the FMA identified further issues in 2018
  • CLSAP NZ’s executive directors interfered with compliance, including by suspending information collected on source of wealth/funds in 2017, and one director vouching for a customer’s source of wealth/funds
  • Two CLSAP NZ compliance officers resigning over the relevant period due to disagreements with CLSAP NZ directors, with one director saying a “bendier” compliance officer was required

CLSAP NZ, formerly KVB Kunlun New Zealand Limited, is the local subsidiary of the Hong Kong parent, CLSA Premium Limited. CLSAP NZ provides derivatives trading services and is licensed by the FMA as a derivatives issuer but conditions imposed by the FMA prevent the firm from offering derivatives to retail investors.

The directors of CLSAP NZ during the relevant times were Rongjun (June) Zhang, Songyuan Huang (Benny Wong), Stefan Liu, Robert Manwarring Noakes and Richard Clive Pearson. The directors were not parties to the proceedings.

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