The Financial Sector Conduct Authority (FSCA) says its “risk-based” approach for financial institutions fighting money laundering and terror financing is preferable to additional compliance hurdles as the country begins its journey to escape the Financial Action Task Force (FATF) greylist.
The FATF announced last week that it would add South Africa to its list of jurisdictions subjected to increased monitoring after it found shortcomings in its legislative and enforcement measures aimed at fighting money laundering and terror financing.
The greylisting will increase monitoring of South Africa’s financial system as foreign institutions may introduce more controls, raising the cost of transactions. This might dampen their appetite to invest.
The FSCA, the South African Reserve Bank and the Financial Intelligence Centre (FIC) will not step up due diligence but will adopt a “risk-based approach” instead, the authority said.
This includes off-site supervision, more compliance reporting and meetings with and inspections of financial institutions determined to be at high risk of transactions that facilitate money laundering and terror financing.
Financial Intelligence Centre spokesperson Panna Kassan told Business Times on Friday that the body would support institutions to ensure they had an appropriate understanding of their customers’ identities and the nature of their business to manage the risk of criminals exploiting their products and services to launder criminal proceeds or finance terrorism.
"It requires that institutions understand the relative risks for money laundering and terrorist financing that flow from their relationships with their customers and apply stricter controls in cases where these risks are higher, and less strict controls where the risks are lower," said Kassan.
We are satisfied that our systems and processes are rigorous enough to monitor local players as required by the FATF
— FSCA commissioner Unathi Kamlana
Financial Intelligence Centre spokesperson Panna Kassan told Business Times on Friday that the body would support institutions to ensure they had an appropriate understanding of their customers’ identities and the nature of their business to manage the risk of criminals exploiting their products and services to launder criminal proceeds or finance terrorism.
"It requires that institutions understand the relative risks for money laundering and terrorist financing that flow from their relationships with their customers and apply stricter controls in cases where these risks are higher, and less strict controls where the risks are lower," said Kassan.
The government has indicated that it is targeting January 2025 as a soft deadline to exit the greylist.
The FATF said South Africa had made progress in tightening financial controls but needed to improve in eight areas.
FSCA commissioner Unathi Kamlana said the authority’s work could only succeed if all partner institutions worked together to address the gaps.
“As an authority in charge of supervising the conduct of financial players in South Africa, we are satisfied that our systems and processes are rigorous enough to monitor local players as required by the FATF,” said Kamlana.
The authority would bolster “the breadth and depth of its anti-money laundering and counter-terror financing supervisory capacity” and reinforce sanctions and the enforcement framework for breaches, working with the interdepartmental committee led by the National Treasury.
Institutions that fall under the FSCA’s supervision would regularly review their risk management and compliance programmes, update their understanding of money laundering and terror financing risks and implement effective controls.
The authority also expects institutions to increase their reporting of suspicious or unusual transactions to the FIC.
Minister in the Presidency Mondli Gungubele said the government was impatient to have the deficiencies identified by the FATF resolved so that South Africa could exit the greylist as soon as possible.
The sooner the better, we want to move at a huge speed on this matter. If you remember the minister’s speech, there are deficiencies and we dealt with 15 of them, but there are eight remaining. All interventions are moving with a speed, so the sooner the better.
— Minister in the Presidency Mondli Gungubele.
He said the government was committed to working swiftly to strengthen measures against money laundering and terrorist financing.
Santam spokesperson Thabo Mabaso said: “To mitigate against any fallout from the FATF decision, Santam, with its holding company, Sanlam, initiated a group-wide programme in 2021 to further enhance our already robust internal processes to combat money laundering, the financing of terrorism and proliferation financing processes and controls.”
Santam “will continue to screen our international clients against global sanctions lists ... [and] improve the assessment of our clients’ bona fides”, said Mabaso.
Old Mutual CEO Ian Williamson said he was confident that the company’s processes and policies to prevent financial crime were in line with international best practice and it was critical that the greylisting did not become permanent.
“Old Mutual’s proactive risk-based approach should ensure minimal disruption for our customers, and business activities will continue as normal.
“We are encouraged by the recognition from FATF of the progress made by the Prudential Authority in the application of a risk-based approach to supervision. As a result, there are no action plans that relate directly to preventive measures in respect of the financial and insurance sectors,” said Williamson.
He said Old Mutual supported the government’s efforts to rebuild institutions weakened during state capture.
Absa said in a statement that it supported the implementation of the FATF reforms to strengthen measures aimed at fighting money laundering, terrorist financing, and other threats to the financial system.
“The greylisting action ultimately raises the cost of transactions as foreign financial institutions will, at least in some instances, apply additional controls to transactions that involve South African entities and individuals,” it said.
Issues raised by the FATF are legal assistance for money laundering and terror financing investigations; risk-based supervision of designated nonfinancial entities; giving authorities up-to-date information on breaches by beneficial owners; increased law enforcement agency requests for financial intelligence from the FIC; stepped up investigations of serious money laundering and terror financing; updated terror financing risk assessments; targeted financial sanctions; and an effective mechanism to identify individuals and entities that meet the criteria for domestic designation.
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