FNB CEO Jacques Celliers says an extension from the Financial Action Task Force (FATF) could help SA dodge the greylisting bullet, and there is an expectation that the country’s efforts to comply will be recognised.
In an interview on Thursday after the results presentation of parent company FirstRand, Celliers said an FATF greylisting would be another own goal after the civil unrest in July last year and a subsequent ratings downgrade. However, much work had been done to avert it.
“Maybe we might be lucky and get a bit of grace to remedy some of the gaps that have been identified by the investigators.
“There is an expectation that we will be recognised for the hard work the country has put in — not just the banks, all the sectors, the regulators and law enforcement. We hope that those will go a long way to prove that we could get an extension before they take their final decision.”
SA faces being greylisted by the FATF after weaknesses were identified in its mechanisms to tackle terrorism financing and money laundering.
Approached for comment on whether SA could be granted an extension, the FATF said on Friday that the discussions of the FATF plenary, the body’s decision-making body, were confidential and the outcomes would be announced in October.
The FATF placed SA on greylist notice and put it under an observation period for a year after poor ratings in its “Mutual Evaluation Report” published in October 2021. SA has until next month to implement the FATF’s recommendations or face being greylisted in February.
SA failed in 20 out of 40 FATF standards and recommendations. In terms of the effective implementation of laws, SA failed all 11 outcomes. The evaluation was made soon after SA began to grapple with state capture and weaknesses in the National Prosecuting Authority (NPA).
Celliers said that if SA did not get an extension, the focus would turn to how quickly the country could reverse greylisting.
“There are some examples around the world where countries get back from greylisting quickly. That will be the next focus for us. We cannot afford to be a long-term greylisted participant — we have to ensure we concentrate on that.”
There is an expectation we will be recognised for the hard work the country has put in; not just the banks, all the sectors, the regulators and law enforcement.
— Jacques Celliers, CEO of FNB
Costa Natsas, PwC Africa’s financial services leader, said there was no certainty as yet regarding greylisting.
“There are mixed views, with some believing that the country will have a grace period to improve on some of the measures that could impact the final decision, while others say greylisting is inevitable,” Natsas said after the release of PWC’s analyses of the four major banks.
PwC said in a report released on Friday on the financial results of Standard Bank, Nedbank, FirstRand and Absa that the potential greylisting was worrying.
“Implications of a greylisting are broad, including increased monitoring by the FATF and more onerous reporting requirements by banks, possible restrictions on correspondent banking relationships and adverse impacts on funding costs,” said the report.
The National Treasury did not respond to requests for comment on whether it had applied to the FATF for an extension.
But acting director-general Ismail Momoniat told parliament’s standing committee on finance at the end of August that SA would probably encounter difficulties in proving to the FATF that it was implementing its laws.
“That is where it is going to be tough. We will have to show as a country we are investigating the crimes. It does not matter who is responsible — whether you are a minister, president, public servant or whether you are Tongaat and Steinhoff.
“In all of those cases there needs to be a sense that they are getting investigated without fear or favour and, second, that people are prosecuted and cases are generally successfully done and there are asset forfeitures.”
One is concerned that greylisting by the FATF would certainly deepen if not enhance our well-documented structural inequalities. This will affect the costs of borrowing and of raising capital for our country
— Justice & correctional services minister Ronald Lamola
Justice & correctional services minister Ronald Lamola said this week, in a speech at the RMB Morgan Stanley Big Five Investor Conference, that greylisting would reduce investor confidence and have negative consequences for the financial wellbeing of South Africans.
“One is concerned that greylisting by the FATF would certainly deepen if not enhance our well-documented structural inequalities. This will affect the costs of borrowing and of raising capital for our country,” said Lamola.
He said SA was making progress in response to the FATF’s findings with several interventions, including the Anti-Money Laundering and Combating Terrorism Financing Amendment Bill, focused on addressing deficiencies raised by the FATF, which was now before cabinet, and other legislation.
Lamola said the NPA had also created an anti-money laundering desk.
He said the Financial Intelligence Centre and the Hawks had agreed to fast-track criminal and financial investigations into money laundering matters and had six cases on their radar.
Last week the Banking Association SA (Basa) warned that SA’s inclusion on the FATF greylist would be worse than an investment downgrade.
Basa MD Bongiwe Kunene told Business Times that greylisting would make it difficult for international investors to bring funds into SA.
“If we do get greylisted, the impacts are varied, but it will be worse than an investment downgrade because it is system-wide. It speaks to the cost of capital and how we are funded internationally because most banks will have to do enhanced due diligence. The prospects of greylisting give us real anxiety, it is not imagined,” said Kunene.
With the prospect of greylisting looming, other issues also cloud the outlook for SA.
Finance minister Enoch Godongwana said in a speech this week at the Government Employees Pension Fund Annual Thought Leadership Conference that downside risks to the local economy were intensifying.
These include the impact of the KwaZulu-Natal flooding, frequent load-shedding, rising inflationary pressures and escalating global pressures.
In part due to the war in Ukraine, the IMF revised its GDP forecast for SA downward to 2.1% in 2022.
“The conflict, as well as other risks which are beginning to materialise, will put pressure on the fiscal space in developing countries such as South Africa.”
Godongwana, who will present the medium-term budget next month, said the IMF cautioned that tighter global financial conditions could induce debt distress in emerging markets and developing economies.
“More aggressive interest rate hikes by major central banks have already prompted capital outflows from emerging markets, raising fears of economic contraction in the near term.
“Slower growth in China’s economy, as well as lower global growth, mean lower external demand, threatening the pace of economic recovery in South Africa. The Russia-Ukraine conflict has also highlighted the pressing need for our economic and fiscal policy to be responsive to changes in the geopolitical landscape.”
Commenting on the outlook for the banking sector, Natsas said the risks facing banks included microeconomic conditions, geopolitical tensions which SA was not immune to, and slow economic growth.
The economy was expected to grow at around 2% but “global growth is much higher than that. We have to drive growth faster. All the structural reforms need to be implemented urgently,” he said.
PWC said geopolitical risks remained acute and would add to supply chain pressures in the developed world. A dramatic rise in inflation, coupled with recessionary risks across several economies, is serving as the basis for the most rapid monetary policy tightening in decades.
“This fraught macroeconomic environment increases risk aversion in global financial markets and generates a material headwind for developing economies,” it said.
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