The upcoming Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) Amendment Regulations, effective from 1 June 2025, represent a significant shift for New Zealand's financial sector.
Financial institutions have long invested in measures to identify customers and meet regulatory standards. However, as financial crime becomes more sophisticated, maintaining accurate risk ratings and managing the associated workload becomes increasingly challenging.
The new regulations require reporting entities to risk-rate each customer during onboarding and continuously update these ratings as part of ongoing Customer Due Diligence (CDD) and account monitoring. This change aims to standardise the approach to assessing customer risk, ensuring consistency and clarity across the financial sector.
What are the impacts of the 2025 Amendment Regulations on assessing customer risk?
- Compliance impacts: The new regulations require financial institutions to implement a structured, evolving risk-rating framework for all customers, impacting all compliance processes and necessitating tiered risk assessments to streamline and enhance Customer Due Diligence (CDD).
- Operational impacts: The biggest operational impact will be during customer onboarding, due to the requirement to use information collected at onboarding more effectively to inform customer risk ratings. Automation can support this by streamlining processes, keeping risk profiles updated, and improving accuracy and consistency.
- Regulatory scrutiny: Regulators will closely scrutinise how institutions implement their customer risk ratingframeworks, requiring models to be genuinely effective and tailored, with strong documentation and audit processes to demonstrate thorough and thoughtful risk identification and management.
Customer risk rating models provide a structured way to assesses the risks associated with customers and transactions. Yet, developing and maintaining effective models comes with its own set of challenges, like inaccurate risk ratings and increased workload.
By creating an effective and efficient customer risk rating model, institutions can not only meet regulatory requirements but also enhance their ability to detect and prevent financial crime, protecting their operations and reputation in the process. Now is the time for institutions to evaluate and innovate their risk assessment strategies to stay ahead of the curve.
To stay ahead of regulatory changes and protect against financial crime, download the full report for a comprehensive overview on enhancing your customer risk assessment strategies and integrating advanced technologies.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
