South Africa faces another ‘incompetence tax’ – what you should know

The South African Reserve Bank has flagged an upcoming Financial Action Task Force meeting as an emerging risk, with the outcome important for how the rest of the financial world sees the country.

The Financial Action Task Force (FATF) is the global money laundering and terrorist financing watchdog. In October 2021 it published an evaluation report focusing on South Africa’s measures to combat money laundering and terrorist financing.

While the report was not overtly negative, it did flag ‘significant shortcomings’ with the current system which it said regulators in South Africa urgently need to address.

South Africa subsequently met the criteria for a FATF International Co-operation Review Group (ICRG) review and entered a one-year observation period, which will end in October 2022.

The progress South Africa has made in deficiencies over the last year will be determined by the end of October when the observation period ends, with a meeting scheduled to take place in February 2023.

If the findings are positive South Africa will be removed from the ICRG review list and normal monitoring will continue. Conversely, failure to demonstrate sufficient progress could mean that South Africa is subjected to further monitoring and is placed on what is colloquially known as the ‘grey list’.

“This could have wide-reaching consequences for the South African financial system from a broader reputational risk perspective, and for the banking sector in particular in terms of funding costs and the ability to maintain correspondent banking relationships,” the Reserve Bank said.

Incompetence tax

Ninety-One chief executive Hendrik Du Toit said his biggest worry is the possibility of South Africa joining the global money-laundering watchdog’s ‘grey list’.

Speaking to News24 this month, the boss of South Africa’s biggest asset manager said that regulators need to move with haste in prosecuting financial crimes and ensuring requirements are met.

Failure to do so could add another “tax” on South Africa’s incompetence, just like load shedding and a lack of policing do, he said.

“It’s just another tax on our own incompetence. It’s what the electricity thing is. It’s what this is. It’s what the water situation is going to become. It’s what the security thing is. It’s time in this country that competent people stand together and actually do something,” Du Toit said.

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South Africa faces another ‘incompetence tax’ – what you should know