KEY POINTS:
Proposed money laundering laws based on international recommendations will stifle competition among New Zealand's banks and inhibit the development of electronic commerce, says Kiwibank chief executive Sam Knowles.
The Ministry of Justice is considering submissions on proposals to toughen up existing legislation dealing with identification requirements and reporting
of transactions.
The proposals are intended to bring New Zealand law into line with 40 recommendations from the international Financial Action Task Force which aim to tackle money laundering and the financing of international terrorism.
The Government estimates that $500 million a year is generated in New Zealand by illegal activity including drug manufacturing, distribution and dealing, prostitution, robbery and intimidation. It says measures to address money laundering are "important for making our communities safer".
However, Knowles believes the Government's approach will result in a regime which is far too prescriptive, onerous, costly and inefficient.
Knowles said the Government's proposed regime would favour the established banking heavyweights, who were defending their market share against challengers such as Kiwibank.
"Our concern is that, certainly in some of the money laundering areas, that will push up the identification requirements, making it harder to do transactions and open accounts and over time that increases the barriers to switching," he said.
"Some of us are clearly focused on trying to lower the barriers for customers to move and other banks who have got the customers are obviously happy if they increase."
Kiwibank was also concerned about the effect of the proposal on its payments and transaction operations, which are a large part of its business.
"I'm a very strong believer in the importance of a strong payments system, and the way things are moving on the internet with more virtual payments, some of this is going to inhibit the development of some of those sorts of things."
Knowles said the proposed regime was likely to result in increased compliance costs for lawyers, real estate agents and "everyone who's involved in transactions - it's quite pervasive".
Furthermore, the proposals as they stood were disproportionate to the extent of money laundering problems in New Zealand. He estimated the type of payments the Government was attempting to capture was a tiny percentage of the total, and did not merit the "highly expensive processes" being suggested.
"We've got to find a way that is efficient that doesn't put enormous costs on the economy just to meet international obligations.
"Our problem is not the same as other countries. There's got to be some thinking and debate here in terms of what is the problem or the nature of the problem we're trying to solve, what is the most efficient way of solving it and then making that fit with the international prescriptions."
In its submission, the Bankers Association said the proposals were "likely to represent one of the largest compliance costs ever faced by the New Zealand banking industry generated by domestic legislation".
Associate Justice Minister Clayton Cosgrove said the Government's most recent discussion document on the proposals addressed concerns about compliance costs.
The latest proposal "minimises compliance costs by using existing regulatory frameworks where possible", he said.
The Reserve Bank, the Securities Commission and the Department of Internal Affairs will supervise the businesses they already regulate for other purposes.
The Government intends to pass legislation to effect the new regime next year and financial institutions and casinos will be the first sectors covered. A second stage of new rules will subsequently be introduced for lawyers, accountants and real estate agents, with relevant industry associations possibly assuming the supervisory roles.
NZ falls into line
* New laws to tackle money laundering and terrorism financing will be passed next year.
* The Government wants to bring New Zealand laws into line with a long list of recommendations from the international Financial Action Task Force.
* Proposals include imposing additional obligations on banks to require more information from potential customers, increase levels of customer identification, monitor suspicious transactions and keep more detailed records of transactions.