South Africa’s biggest bank hit with sanctions

The South African Reserve Bank (SARB) has imposed administrative sanctions on Capitec, the country’s biggest bank by subscribers.

The sanctions are due to Capitec Bank’s failure to comply with certain provisions of the Financial Intelligence Centre Act 38 of 2001 (FIC Act).

The Prudential Authority (PA), operating within the administration of the SARB, is mandated to supervise and enforce compliance with the provisions of the FIC Act.

It inspected Capitec Bank in 2021, focused on the retail banking segment, and the 2022 inspection focused on the business banking segment.

It found that Capitec failed to adequately conduct, enhance, and perform ongoing customer due diligence on the sampled client files. 

It did not verify clients’ identities, identify the beneficial owners of legal entities, or obtain and verify the address and source of funds.

It also failed to comply with cash threshold reporting (CTRs) to the Financial Intelligence Centre (FIC) with missed deadlines.

Another problem was that Capitec did not timeously report suspicious transaction reports (STRs) and suspicious activity reports (SARs).

It also failed to attend to Automated Transaction Monitoring System alerts within the required 48 hours.

Capitec further neglected to adhere to the risk management and compliance programme (RMCP).

The sanctions consist of seven cautions, one reprimand and a financial penalty totalling R56.25 million.

The Prudential Authority conditionally suspended R10.5 million for 36 months from 30 July 2024.

It said Capitec cooperated with it and has undertaken the necessary remedial action to address the identified compliance deficiencies and control weaknesses. 

These sanctions followed numerous reports of criminals using Capitec accounts as part of SIM swap fraud.

Criminals often targeted clients from large banks like Absa and FNB. They typically transferred their victims’ funds to Capitec accounts.

Capitec was seen as the ‘go-to bank’ for criminals, and it was initially unclear why. The Reserve Bank sanctions may explain it.

Capitec’s lackluster controls regarding verifying clients’ identities would have made it easy for criminals to use the bank for nefarious purposes.

Capitec responds

Capitec confirmed that it received administrative sanctions from the Prudential Authority (PA) on 20 December 2024.

These sanctions result from two inspections conducted in May 2021 and March 2022. The inspections formed part of the PA’s regular supervisory process under the Financial Intelligence Centre (FIC) Act. 

The inspections assessed Capitec’s compliance with the FIC Act, in relation to specifically customer due diligence, transaction monitoring and reporting obligations covering the years 2017 to 2022. As a result of these inspections, Capitec received a financial penalty of R56.25 million, of which R10.5 million was conditionally suspended for 36 months.

“Capitec has cooperated fully with the Prudential Authority during these inspections and is committed to resolving all compliance and control matters identified,” said the bank.