New Zealand -- AML/CFT Compliance Regulatory Overview

**Anti-Money Laundering and Countering Financing of Terrorism Act 2009**: https://www.legislation.govt.nz/act/public/2009/0035/latest/DLM2140700.html

**Financial Service Provider (FSP) Registration:**

If the crypto-asset being held constitutes a "financial product" (e.g., a security, managed investment product, or a derivative) as defined under the **Financial Markets Conduct Act 2013 (FMC Act)**, then providing custody services for it would likely require FSP registration and compliance with the FMC Act's requirements for custodians of those specific financial products.

If the service involves other regulated financial services (e.g., acting as a trustee or offering managed investment services that include crypto), FSP registration is required.

**Financial Service Providers (Registration and Dispute Resolution) Act 2008**: https://www.legislation.govt.nz/act/public/2008/0088/latest/DLM1419400.html

**FMA Guidance on the Application of Financial Markets Law to Crypto-assets (Dec 2021)**: (You'll need to search the FMA website for the most recent version, typically under "Guidance notes" or "Publications"). The key takeaway is how a crypto-asset maps to existing financial product definitions. Example search result: https://www.fma.govt.nz/news-and-resources/media-releases/fma-releases-new-guidance-on-crypto-assets/ (This links to a media release about the guidance, the full guidance document is usually linked within or discoverable via FMA site search).

Custodial wallet providers and crypto-asset exchanges are explicitly designated as "reporting entities" under the **Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (AML/CFT Act)**. This requires them to register with the Department of Internal Affairs (DIA) and comply with AML/CFT obligations, including customer due diligence, suspicious transaction reporting, and maintaining a robust AML/CFT programme.

**DIA Guidance for Cryptoasset Reporting Entities**: https://www.dia.govt.nz/AML-CFT-Reporting-Entities-Cryptoasset-Reporting-Entities

**FMC Act Custodians (if applicable):** If a crypto-asset service falls under the definition of a "managed investment scheme" (MIS) or other regulated financial product under the FMC Act, then the custodian requirements of that Act would apply. These requirements mandate strict segregation of client assets from the custodian's own assets, independent oversight, and clear trust arrangements.

**Best Practice:** Even where not explicitly mandated by law (e.g., for pure cryptocurrencies not deemed financial products), the FMA strongly advocates for robust client asset protection and segregation as a best practice for any entity holding assets on behalf of others. Failure to do so exposes clients to significant risks in case of insolvency or fraud.

**Financial Markets Conduct Act 2013 (Part 4, relating to Managed Investment Schemes and custodians)**: https://www.legislation.govt.nz/act/public/2013/0069/latest/DLM2996906.html

**FMA Guidance on Crypto-assets**: Reiterates the importance of good governance and client asset protection principles.

**No specific crypto custody insurance/bonding mandate.**

**FMC Act (if applicable):** For entities regulated under the FMC Act (e.g., licensed MIS managers or custodians), there are general requirements for having adequate professional indemnity insurance and robust internal controls, but not a specific "bonding" requirement for crypto assets.

**FSP Dispute Resolution Schemes:** All registered FSPs must belong to an approved external dispute resolution scheme, which provides a mechanism for consumers to resolve disputes with the financial service provider. This is a form of consumer protection but not insurance for assets.

**FMA Guidance on Crypto-assets**: Encourages providers to consider their insurance coverage as part of robust risk management.

**No specific cold storage mandate.**

**FMA Guidance / Best Practice:** The FMA's guidance emphasizes the importance of robust cybersecurity, internal controls, and risk management for any entity holding digital assets. This implicitly includes the appropriate use of hot and cold storage solutions, multi-signature wallets, hardware security modules (HSMs), and secure key management practices to mitigate the risks of theft, loss, or unauthorised access. These are generally considered industry best practices rather than legal mandates.

**FMA Guidance on Crypto-assets**: Discusses operational risks and the need for robust security.

**No specific "qualified custodian" definition for crypto-assets.**

**FMC Act Custodians:** The closest equivalent in traditional finance is a "custodian" for a managed investment scheme (MIS) under the FMC Act. These custodians have specific duties, including independence from the manager of the MIS, oversight functions, and stringent regulatory requirements. Whether a crypto custody service would need to meet this standard depends on whether the underlying crypto-asset is deemed part of an MIS or another regulated financial product.

The FMA's guidance explores the functions of a traditional custodian under the FMC Act and how they *might* apply to crypto custody, particularly if the crypto-asset itself is considered a financial product.

**Financial Markets Conduct Act 2013 (Part 4, Subpart 5 - Duties of custodians of MIS)**: https://www.legislation.govt.nz/act/public/2013/0069/latest/DLM2996906.html

**Government Work Programme on Digital Assets:** The New Zealand government, through various agencies including the Ministry of Business, Innovation and Employment (MBIE), Treasury, the Reserve Bank of New Zealand (RBNZ), and the FMA, is actively monitoring and considering policy responses to digital assets and the evolving financial landscape. This includes discussions around the future of money, central bank digital currencies (CBDCs), and potential prudential supervision frameworks for novel financial instruments and services.

**RBNZ's Future of Money Programme:** The RBNZ has been consulting on the future of money, including issues related to digital currencies and stablecoins. While not directly focused on custody, any changes to the definition of money or prudential regulation could indirectly impact how custody of digital assets is regulated.

*Reference:* **RBNZ Future of Money Programme**: https://www.rbnz.govt.nz/future-of-money

**FMA's Ongoing Monitoring:** The FMA regularly updates its guidance and may issue new warnings or take enforcement action as the market evolves. They maintain a watching brief on international developments.

**Regulator:** Department of Internal Affairs (DIA)

**Violation Type:** Significant breaches of the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (AML/CFT Act), including failures in customer due diligence, risk assessments, suspicious transaction reporting, and compliance programme.

**Penalty Amount:** NZD $2.3 million

**Date:** Infringement notice issued March 2024; public announcement May 2024.

**Outcome:** Coinstash admitted to the breaches and agreed to pay the penalty. The DIA noted this was the largest financial penalty issued under the AML/CFT Act for a single infringement notice.

**Entity Targeted:** **Dasset Limited** (now in liquidation)

**Penalty Amount:** NZD $1 million

**Date:** Infringement notice issued July 2023; public announcement August 2023.

**Outcome:** Dasset admitted to the breaches and agreed to pay the penalty. The company subsequently went into liquidation in October 2023, though the DIA noted the penalty was not the direct cause.

**Regulator:** Financial Markets Authority (FMA)

**Entity Targeted:** **James Malcolm Allan** (individual)

**Violation Type:** Operating an unregistered financial service provider, making misleading representations about financial products (including crypto-assets), and breaches of the Fair Trading Act 1986 and the Financial Service Providers (Registration and Dispute Resolution) Act 2008. Allan had been promoting investments via social media, purporting to offer high returns from trading shares and crypto-assets.

**Penalty Amount:** Permanent ban from providing financial services and from acting as a director or manager of any financial service provider. A pecuniary penalty of NZD $50,000 was also ordered.

**Date:** Decision issued and announced November 2022.

**Outcome:** The FMA successfully obtained orders from the High Court against Allan, resulting in the ban and penalty. This was a significant action against an individual promoting crypto-related investments without proper registration or disclosure.

The **Financial Markets Authority (FMA)** would regulate such stablecoins, requiring compliance with disclosure obligations, fair dealing provisions, and potentially issuer licensing.

**Reference:** Financial Markets Conduct Act 2013

New Zealand does not have a dedicated e-money or payment token legal framework distinct from general banking regulation.

The RBNZ's ongoing "Future of Money" work is actively exploring whether new legislation is needed for a specific **"digital cash"** framework (which could encompass well-backed stablecoins meeting certain criteria) or other forms of private digital money.

Currently, for a stablecoin to be considered "money" in a regulatory sense, it would likely need to fall under the **Reserve Bank of New Zealand Act 2021** if it constitutes a systemic payment system or if its issuer were to become a licensed bank (which is a very high bar).

The RBNZ differentiates between commercial bank money, central bank money (potential CBDC), and "private digital money" (which includes stablecoins). They are considering regulating "private digital money" if it becomes systemic.

**Reference:** RBNZ - The Future of Money – A phased approach to a CBDC in New Zealand

Regardless of their classification under financial markets or banking law, entities dealing with stablecoins (e.g., exchanges, custodians) are generally considered **Virtual Asset Service Providers (VASPs)** and fall under the **Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (AML/CFT Act)**.

This requires them to implement AML/CFT programmes, conduct customer due diligence, report suspicious transactions, and be supervised by the Department of Internal Affairs (DIA).

**Reference:** Anti-Money Laundering and Countering Financing of Terrorism Act 2009

**No specific stablecoin reserve requirements** exist under current New Zealand law, as there is no dedicated stablecoin regulation.

However, if a stablecoin were classified as a financial product under the FMC Act, the issuer would be subject to **disclosure obligations** regarding its backing assets, their custody, and auditing. This would ensure transparency for investors but does not impose a specific reserve ratio or type.

The RBNZ's "Future of Money" discussions strongly advocate for **robust reserve requirements** for any form of regulated private digital money. They emphasise 1:1 backing with high-quality, liquid assets, ring-fenced or held in trust, and subject to regular independent audits to ensure stability and liquidity. This indicates a likely direction for future regulation.

**Reference:** RBNZ - The Future of Money - Key policy considerations for stablecoins and other private digital money

**No specific stablecoin issuer license** currently exists.

However, licensing requirements depend on how the stablecoin is classified:

**Banking License:** If a stablecoin issuer were to engage in activities akin to deposit-taking and lending, they would likely require a **registered bank license** under the **Reserve Bank of New Zealand Act 2021**, which is an extremely stringent requirement.

**AML/CFT Reporting Entity:** All entities providing services related to virtual assets, including stablecoins, must register as a **reporting entity** with the DIA for AML/CFT compliance.

The RBNZ is considering a new **licensing regime for "digital cash" issuers** (which could include certain stablecoins) as part of its future framework, which would likely include specific prudential requirements.

**No specific statutory redemption rights** for stablecoins currently exist. Redemption rights are generally governed by the stablecoin's **terms and conditions** set by the issuer.

If classified as a financial product, general consumer protection laws and contract law would apply, potentially allowing recourse for breach of contract or misleading conduct (e.g., under the **Fair Trading Act 1986**).

The RBNZ's "Future of Money" work strongly advocates for **guaranteed 1:1 redemption on demand** for any regulated private digital money or "digital cash" to ensure public trust and stability. This would likely be a core component of any future dedicated stablecoin regulation.

**No specific rules or regulations for algorithmic stablecoins.**

The RBNZ and FMA are generally **highly cautious** regarding algorithmic stablecoins due to their inherent volatility and susceptibility to "bank runs," as demonstrated by past failures (e.g., Terra/LUNA).

It is highly unlikely that an algorithmic stablecoin would be considered suitable for any "digital cash" or "e-money" framework the RBNZ might develop, as they inherently lack the stable backing mechanisms central to the RBNZ's vision for reliable digital money.

Such stablecoins would likely face intense scrutiny and would almost certainly be classified as **high-risk financial products** (possibly derivatives or managed investment schemes) under the FMC Act, triggering significant disclosure and conduct obligations, or even prohibitions if deemed too risky for retail investors.

New Zealand does **not** currently have a Central Bank Digital Currency (CBDC). However, the RBNZ is actively researching and consulting on the potential introduction of a **"digital cash"** (a retail CBDC for New Zealand).

**Complementary vs. Competitive:** The RBNZ sees a potential digital cash as complementing, rather than replacing, private forms of money, including stablecoins. A CBDC would offer a risk-free, central bank-backed option alongside private innovations.

**Regulatory Benchmark:** The RBNZ's exploration of a digital cash provides a **framework for evaluating and potentially regulating private stablecoins.** The principles of stability, interoperability, consumer protection, privacy, and financial integrity being developed for a CBDC would likely heavily influence any future stablecoin regulatory framework.

**Future of Payments:** The RBNZ views both a potential CBDC and well-regulated private stablecoins as part of a broader evolution of New Zealand's payment landscape, aiming to enhance resilience, innovation, and competition.