New target in South Africa’s greylisting battle

 ·29 Mar 2024

South Africa’s Financial Sector Conduct Authority (FSCA) is targeting non-compliant financial services providers (FSPs) to meet the criteria for being removed from the Financial Action Task Force’s (FATF) grey list.

Recently, the FSCA imposed hefty fines on two FSPs in South Africa, amounting to R400,000 and R16 million respectively – which experts say raises a red flag for non-compliant FSPs as this is expected to mark the first of a slew of fines for those who are non-compliant.

These penalties were levied against the two FSPs due to their failure to adhere to specific requirements of the Financial Intelligence Centre Act (FICA).

Non-compliance of this act is partly responsible for South Africa’s inclusion on the Financial Action Task Force’s (FATF) grey list in February 2023.

The fines imposed were primarily for similar reasons, including that:

  • The FSPs had Anti-Money Laundering and Combating Financing of Terrorism (AML/CFT) Risk Management and Compliance Programs (RMCP) in place, however these were deemed insufficient as they failed to adequately outline procedures for compliance with the FICA. This includes the monitoring of complex transactions, conducting due diligence, reporting suspicious activities, and implementing the RMCP effectively.
  • Not properly identifying some clients and their beneficial owners, as well as not screening them against the United Nations Security Council’s Targeted Financial Sanctions Lists (TFSL).

Renewed focus on enforcement

Experts are saying that this action represents a new found focus of the FSCA on the enforcement of its policies, with more fines expected for FSPs.

Director at Werksmans Attorneys, Hilah Laskov, said that “this reveals… that the expectations of the FSCA on FSPs have increased.”

“It is inadequate that an FSP ticks the box and merely has an RMCP in place; Failure to fully comply [now] carries serious consequences,” she added.

Commenting on the critique by some that the penalties imposed on the penalised FSPs seem steep in the context of their contraventions, Laskov said that “the FSCA has made it plain that they regard the contraventions to be serious.”

This is what FSPs must look out for

Laskov said that with the renewed focus on enforcement, “FSPs must ensure not only that they have an RMCP, but that it is up to date with current regulations, that it is complete and that it provides for the means by which it will be implemented within the organisation.”

Afterwards, the RMCP should be effectively implemented.

“FSPs must prioritise engendering a culture of widespread AML/CFT awareness within their organisations and meaningful AML/CFT compliance if they wish to avoid undesirable attention from the FSCA,” said Laskov.

Progress getting off the list

South Africa has to meet all 22 of its requirements in its Action Plan in order to exit the grey listing.

However, Laskov positively said that South Africa had addressed technical deficiencies in its AML/CFT regime owing to the grey listing.

These include the adopting of the the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act (GLAA), and amending five pieces of legislation which requires gathering beneficial ownership information and submitting this beneficial ownership information to the relevant regulators, explained Laskov.

The FATF has said that South Africa should continue to work on implementing its Action Plan to address its strategic deficiencies, which includes (amongst others)

  • Improve risk-based supervision and demonstrating that all AML/CFT supervisors apply effective, proportionate, and effective sanctions for noncompliance;
  • Ensure that competent authorities have timely access to accurate and up-to-date beneficial ownership information and apply sanctions for breaches of violation;
  • Ensuring the effective implementation of targeted financial sanctions.

The renewed focus from the FSCA has shown that through the enforcement of strict penalties to non-compliant FSPs, it attempts to deal with some of these strategic deficiencies.

Read: Kganyago banking on South Africa exiting the grey list in 2025

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