Reducing AML compliance burden for gift cards

We heard about problems a business was experiencing caused by the rules for gift cards under the Anti-Money Laundering and Counter Financing of Terrorism Act (AML/CFT) 2009 and associated regulations.

Gift cards are considered low-risk in an AML/CFT context because they are not reloadable, cannot give cash refunds, do not have access to the global ATM network, and are used for purchases at a single or limited network of merchants.  

A specific issue is that AML/CFT regulations require businesses to monitor when purchases of their gift cards ‘appear to be linked’ to the purchase of other gift cards. For a business with millions of customers across hundreds of physical and digital locations like a supermarket, it is challenging to assess whether purchases of these closed-loop gift cards ‘appear to be linked’ or not. 

The submitter told us the associated AML/CFT regulations were difficult to apply, and there was uncertainty about how to comply, as there was no best practice guidance to support their interpretation. This resulted in wasted time and costs for their business.

We completed a rapid review which included meeting with Police and the Department of Internal Affairs. 

Police told us suspicious activity reports on cards like these were practically non-existent, and the Department of Internal Affairs (DIA) officials consider closed-loop gift cards to be at the low end of AML/CFT risk. 

We found that the wording of the regulation related to closed-loop gift cards was unclear and this was compounded by the lack of best practice guidance. 

We recommended to Regulation Minister David Seymour that these regulations needed to be reviewed by the Ministry of Justice, and that best practice guidance should be developed by the Department of Internal Affairs to assist businesses to better understand the regulation and improve their compliance.  

Minister Seymour agreed. Following our recommendations, the Ministry of Justice is considering a review of the regulations. 

And we are pleased that DIA has recently published new best practice guidance – helping businesses to understand and apply appropriate policies, procedures and controls (including by reducing overcompliance) in these situations.  

See more on this new guidance on the DIA websiteopen_in_new

What is the benefit for New Zealanders?  

Reducing unnecessary compliance for businesses who sell gift cards – keeping prices down for consumers, while also ensuring risks in the AML/CFT system are managed appropriately.