The Reserve Bank has released an updated assessment of the money laundering and terrorism financing risks that face the financial sector.

It says the banking sector continues to have a relatively high potential risk because money launderers and terrorist financiers are more likely to target financial institutions in that sector, rather than targeting in other sectors.

The risk rating to the banking sector is in line with similar international assessments, says Head of Prudential Supervision Toby Fiennes. He says it is rated high risk largely due to factors such as the wide accessibility and availability of banks, the global nature of some banking products, and the volume of transactions (including cash) that banks handle.

The Reserve Bank is responsible for supervising compliance by registered banks, non-bank deposit takers and life insurers with the Anti-Money Laundering and Countering Financing of Terrorism Act 2009, and requires supervised institutions to put processes and systems in place to manage risks that are identified.

“The bank sector risk rating hasn’t changed since the Reserve Bank’s last assessment, but more detail has been added about the different risks potentially experienced by New Zealand’s retail-focused banks compared with commercial and business banking or wholesale and institutional banking,” Mr Fiennes says.

The non-bank deposit taker sector is rated as having an overall "medium" potential risk, while the life insurance sector is rated low risk.

The Reserve Bank assessment updates work previously published in 2011. The bank says the ratings don’t reflect on the financial stability of these sectors or the institutions within them, but provide an overview of the relative inherent risk of money laundering and terrorist financing. The assessment covers inherent risk and doesn’t take into account any work done by each financial institution to reduce its own individual risks.