The Financial Markets Authority has today told rapidly-growing microinvestment platform Sharesies to tighten its anti-money laundering and countering financing of terrorism practices, after it was found thousands of accounts needed stronger identification. The FMA says the formal warning is “for failing to have sufficient anti-money laundering procedures, policies, and controls in place.” The issues were identified as part of the FMA’s ongoing monitoring of compliance with the Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) Act.
The FMA said Sharesies had failed to:
- Obtain information about the nature and purpose of the proposed business relationship from most customers.
- Obtain sufficient information to determine whether certain customers should be subject to enhanced customer due diligence.
- Complete identity verification for up to 7,815 customers who had an account balance of more than $1000 as part of standard customer due diligence.
The FMA said it now requires Sharesies to complete a number of actions to meet its obligations under the Act, and Sharesies must:
- Obtain information from all its current customers to show their reasons for using the platform and amend its onboarding process to capture this information in the future
- Develop and implement a process to complete identity verification at the time of account application and provide training to staff on these processes
- Obtain sufficient information from all customers who used the word ‘trust’ in the account application process and complete enhanced customer due diligence if they are trusts – a requirement under the Act.
No withdrawals or transfers until checks completed
Crucially, the FMA said Sharesies must restrict withdrawals or transfers until the above checks are completed.
FMA Director of Supervision James Greig said while the FMA welcomes how Sharesies has opened up the investing landscape in New Zealand, “We have made this warning public because Sharesies’ contraventions appeared to be symptomatic of a business that has grown quickly without ensuring fully effective processes and controls were in place for AML and CFT.”
“Sharesies has built a significant customer base over a short period and we consider there is a risk of the business being susceptible to money laundering if it continues with current practices.”
“We do not consider the contraventions were deliberate.”
Greig said Sharesies is cooperating with the FMA and has taken steps to update and strengthen its practices.
Sharesies said 7,815 customer accounts were highlighted as needing stronger identity linking, though it said this represents less than 2% of the Sharesies customer base.
The swift-growing company says since 2017 it has amassed 400,000 investors with more than $1.5 billion in funds under management. Sharesies is currently worth around $150m, having grown in value six times since 2018, according to BusinessDesk.
The micro-investing platform was founded in 2016 with a kaupapa of making investment accessible and occasionally free to small businesses with less-than-$50 investments.
Earlier in the month, FMA hosted ‘The Great FMA Debate’ at which Sharesies co-founder Sonya Williams took part.
Meanwhile Sharesies chair Alison Gerry said in a media release the matter is being taken “very seriously.”
“I want to be clear that the FMA has not found evidence that any money laundering has taken place,” Gerry said. “What the FMA has identified is ways in which we need to strengthen our customer identification practice. As soon as we became aware of the concerns raised, we immediately put in place a work programme to address each of the issues outlined.”
Sharesies now includes specific questions about the nature and purpose for which a customer plans to use the Sharesies platform, rather than relying on a statement in the terms agreed by the customer.
Gerry admitted a “very small number of customers” have been identified as being trusts, and Sharesies is not supposed to be used by trusts.