NZ AML Risk Rating: What Factors Actually Matter?

Feeling lost with NZ's new AML risk rating rules? Learn the key factors you actually need to check. Read our simple guide for clarity.

Understanding AML Risk Rating Requirements

With New Zealand's Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) Act Phase 3 implementation approaching, businesses are required to develop and implement customer risk rating systems by June 1, 2025. But what factors should you actually be considering when assessing customer risk?

Many businesses feel overwhelmed by the complexity of the regulations and are unsure which risk factors are truly important. This guide cuts through the confusion to focus on the factors that actually matter.

The Core Risk Factors You Need to Assess

While AML/CFT regulations can seem complex, customer risk rating can be broken down into five key categories. Focus on these essential risk factors to develop a compliant and effective risk rating system:

1. Customer Type Risk

Different types of customers present different levels of money laundering and terrorism financing risk:

• High-risk customer types: Politically exposed persons (PEPs), non-resident customers, trusts, cash-intensive businesses, charities, and companies with complex ownership structures
• Medium-risk customer types: Companies with multiple shareholders, new business relationships, overseas businesses
• Lower-risk customer types: Well-known local individuals, established businesses with simple ownership structures, regular customers with consistent transaction patterns

2. Geographic Risk

The geographic locations associated with your customers can significantly impact their risk profile:

• High-risk jurisdictions: Countries subject to sanctions, identified by FATF as having AML deficiencies, known tax havens, regions with high levels of corruption or criminal activity
• Medium-risk jurisdictions: Countries with developing AML frameworks, regions with moderate corruption or instability
• Lower-risk jurisdictions: New Zealand and countries with strong AML/CFT frameworks similar to NZ (Australia, UK, Canada, etc.)

3. Product/Service Risk

Certain products and services inherently carry higher risk:

• High-risk products/services: Private banking, international funds transfers, currency exchange, anonymous transactions, high-value asset dealing
• Medium-risk products/services: Business loans, managed investments, insurance products with investment features
• Lower-risk products/services: Basic bank accounts, term deposits, simple insurance products

4. Delivery Channel Risk

How you interact with customers affects risk levels:

• High-risk channels: Non-face-to-face onboarding, third-party referrals, online transactions with minimal verification
• Medium-risk channels: Online onboarding with robust verification measures
• Lower-risk channels: Face-to-face onboarding with physical verification of documents

5. Transaction Pattern Risk

The nature, size, and pattern of transactions provide important risk indicators:

• High-risk patterns: Large cash transactions, transactions just below reporting thresholds, unusual transaction patterns, transactions with high-risk countries
• Medium-risk patterns: Occasional large transactions that differ from normal patterns, irregular transaction frequencies
• Lower-risk patterns: Regular, predictable transaction patterns, transactions consistent with declared business purposes

Documentation Is Key

Regardless of which risk factors you focus on, documenting your methodology is crucial. Your risk assessment documentation should clearly explain:

• Which risk factors you consider
• How you weigh different factors
• The criteria for each risk level
• Your due diligence and monitoring procedures for each risk level
• The process for reviewing and updating risk ratings

How Risk Rater Simplifies the Process

Risk Rater's platform helps businesses implement these risk factors quickly and efficiently:

• Pre-configured risk factors based on NZ regulatory guidance
• Automatic risk scoring using a weighted algorithm
• Built-in documentation that explains your methodology
• Regular updates to reflect changes in risk profiles
• Simple implementation that can be completed in days, not months

Conclusion

Effective AML risk rating doesn't have to be overwhelming. By focusing on these core risk factors and implementing a straightforward risk rating system, your business can achieve compliance with the June 1, 2025 deadline and protect itself from money laundering and terrorism financing risks.

Remember, the goal is not to create the most complex system, but rather a practical and effective one that works for your business type and size.