Stocks are popular and have enabled a generation of younger investors to build their wealth. The founders of Sharesies (pictured in 2017) from left were: Leighton Roberts, Ben Crotty, Sonya Williams, Brooke Roberts, Martyn Smith and Richard Clark.
Sharesies has been warned of failing to conduct its anti-money laundering controls and is roughly halfway through the task of properly identifying nearly 8,000 of its customers.
Financial market regulator Te Mana Tātai Hokohoko (FMA) said it had identified the issues with stocks as part of its ongoing monitoring of compliance with the Anti-Money Laundering and Terrorist Financing Act.
Anti-money laundering laws are designed to prevent criminals and terrorists from using banks, real estate, and other financial mechanisms.
They require financial companies to put in place systems to identify customers and identify customers and transactions that needed to be reported to the authorities.
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The FMA said Sharesies had failed to complete the identity verification of up to 7,815 customers with balances greater than $ 1,000 as part of normal customer due diligence.
In addition, she had not obtained any information from most of the customers about the nature and purpose of the intended business relationship.
And it had not received sufficient information to determine whether certain customers should be subject to heightened customer due diligence.
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The FMA has drawn up a plan for Sharesies to improve its anti-money laundering systems, which Sharesies worked through.
This included having Sharesies adequately identifying all customers and asking all current customers to explain their reasons for using the platform, and changing its sign-up process to collect this information in the future.
Sharesies also had to develop and implement a process to complete identity verification at the time of account application and train staff in those processes.
It must also develop a system to identify customers who invest through trusts and, if necessary, to fulfill an increased duty of care for customers, the FMA said.
It also needs to limit withdrawals or transfers until these verifications are completed.
James Greig, Director of Oversight for the FMA, said: “We applaud the way online investment platforms like Sharesies have opened up the investment landscape in New Zealand, but it is important that fast growing companies ensure that their compliance processes and Guidelines keep pace. “
“We made this warning public because the share violations seemed symptomatic of a rapidly growing business without ensuring that fully effective processes and controls were in place,” he said.
“Sharesies has built a significant customer base in a short period of time and we see the risk that the company will be vulnerable to money laundering if it continues with current practices,” he said.
He said the FMA is not claiming that stock corporations have allowed or enabled money laundering or terrorist financing.
Sharesies chairwoman Alison Gerry said the company was taking the warning very seriously.
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Sharesies is an online investment platform that enables people to buy shares in local and overseas companies. It’s very popular with younger investors who are drawn to investing in companies that they think are changing the world, like Tesla and Amazon.
“I want to make it clear that the FMA has not found any evidence of money laundering,” she said.
“What the FMA has identified are ways in which we need to strengthen our customer identification practice. As soon as we became aware of the concerns raised, we immediately set up a work program to address each of the issues outlined. “
The company has conducted advanced due diligence on a very small number of clients who have since been identified as trusts, she said.
“Sharesies does not currently endorse or promote the use of the platform by trusts,” she said.
“The issues raised by the FMA include associating some clients through sharesies with the various forms of identification they provided when registering,” she said.
The percentage of signed-in customers who needed better identity verification was under 2 percent of the company’s customers, she said.
“Sharesies reached out to all of these customers to create a clearer link between them and their identity documents,” she said.
“More than half of the relevant customers have now completed the identification process.”