Non-banking groups looking to access the national payments system (NPS) as part of major reforms being introduced by the Reserve Bank will not have a free lunch, with the central bank looking to put in place stringent measures to safeguard the system and consumers.
SA is preparing to usher in a new era with the imminent overhaul of the payments regime, which will include non-banks entering the clearing and settlement system and see fintech further challenge the hegemony of traditional banks.
The Bank, to which Prudential Authority reports, has the legal responsibility for the NPS, the backbone of SA’s financial system.
The Bank is putting in place robust checks and balances, as it drafts reforms, and entities looking to participate in the NPS will be asked to provide it with detailed information on their governance, capital, risk controls, data protection and how they will keep client funds safe.
With SA on the verge of being removed from the global financial crime watchdog Financial Action Task Force’s (FATF) greylist, the Bank will also demand that non-banks with aspirations to participate in the NPS are held to the same standard as traditional banks.
To this end, companies that intend to apply to participate in the NPS will be required to provide confirmation whether the applicant and/or its parent company were ever subject to a money laundering, terrorism financing and proliferation financing investigation. If so, the applicant must provide details of such an investigation.
The applicant will also have to outline its internal control mechanisms established to ensure compliance with the relevant anti-money laundering, combating the financing of terrorism and counter-proliferation financing measures.
The FAFT greylisted SA in February 2023 for noncompliance with international standards around the prevention of money laundering, terrorist financing and proliferation financing.
It is an unwanted tag that the Treasury is eager to shed, with indications that the country will exit the list in October when the FATF has its next plenary. The FATF said in June SA had substantially completed all 22 action items contained in the plan to remedy defects identified.
Payments companies will also be asked to provide detailed business plans that include payment activity offerings, fees or commission to be charged and a forecast budget for the first three financial years.
This forecast must demonstrate that the applicant has the necessary and appropriate systems, resources and procedures to conduct business safely and effectively.
To ensure fit and proper people run these entities, the Bank will demand that the outfits provide identities of individuals who own or hold shares in the applicant, both directly and indirectly, and demonstrate that these individuals possess the appropriate knowledge and experience to perform payment activities as determined by the Bank.
Payments companies will also have to provide details of internal controls and tools to ensure pricing transparency, with disclosures made available on the applicant’s website, and provide authorities with information on how the business model is funded, including own funds, loan funding and other sources of funding.
“Though exempted entities will avoid Banks Act regulation, they will still face Reserve Bank supervision, on-site inspections and regular reporting requirements. The Bank may order corrective steps, vary or cancel authorisations, or withdraw the exemption entirely,” banking and finance experts at law firm ENS said.
“In short, even small, specialised payment businesses will need strong governance and risk management frameworks, and will be subject to rigorous regulatory oversight.”
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