Low-risk small businesses will be excluded from onerous compliance obligations contained in proposed amendments to the schedules of the Financial Intelligence Centre (FIC) Act, National Treasury acting DG Ismail Momoniat said.
Still, he acknowledged the amendments would have cost implications for high-risk businesses.
The amendments expand the scope of accountable institutions that must register with the FIC. They are required to identify and verify clients, retain client and transactional records, and in some cases undertake other forms of customer due diligence.
The amendments are part of attempts by Treasury to prevent SA from being greylisted by the Paris-based Financial Action Task Force (FATF), an intergovernmental body which has deemed the country’s financial system to have inadequate protections against money laundering and terrorist financing.
The FIC adopts a risk-based approach to compliance, which means that there are not one-size fits all requirements for compliance by accountable institutions. Firms have to assess the level of risk of money laundering and the financing of terrorism for the different aspects of their business and apply a level of compliance that is proportionate to this risk. Banks for example face high risks and have to have a very high level of compliance.
Momoniat told a briefing on Wednesday to parliament’s finance committee the proposed amendments would have significant economic implications for small businesses if enforced in a draconian way.
The amendments would include credit providers, dealers in goods valued at more than R100,000 and dealers in crypto-assets, Krugerrands, and motor vehicles as accountable institutions. Also on the list would be estate agents, gambling institutions, trust and company service providers and legal practitioners, as well as providers of certain life insurance policies. The FIC estimates that about 50,000 new registrations will flow from the amendments.
Pieter Smit, the FIC’s executive manager for legal and policy said “the application of a risk-based approach that is required by the FIC Act, allows for a business to manage their own risks. The FIC Act does not contemplate a rules-based approach where a small business must deal with anti-money laundering/combating the financing of terrorism compliance in the same manner as a large business. There is no prescription on what measures should be adopted.
“The nature of the business determines to a very, very large extent how businesses will comply with the FIC Act, what it needs to do and how it would approach protecting itself from being exploited by its customers who have ill-intent in mind,” Smit added. For example, a simplified measure for a low-risk business could involve verifying the identities of customers and having their contact details.
Smit said the FIC would provide guidance on the obligations of new registrants and would engage with industry bodies, sectors and individual firms on this. It would also conduct preliminary assessments to determine the risks of the new sectors and high-risk entities. The FIC will also monitor the new sectors to determine risk-sensitive trends. Inspections and enforcement will start after 12 to 18 months which will allow businesses to bed down their compliance.
Smit said the FIC did not accept the exemptions from the amendments requested by several sectors including the retail, minerals, life insurance and agricultural sectors. Their objections had already been raised during ministerial consultation process on the proposals and had been well considered, he said.
Momoniat believes greylisting is likely but is confident that SA will be able to show FATF that significant progress had been made. He noted that SA was in “real trouble” in terms of the grip that criminal syndicates had over sectors of the economy. There were “deeply worrying trends”, he said.
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