Why a failure to amend FICA could see disinvestment in South Africa’s financial institutions

Businessmen holding pens in hand reading documents on the desk,Businessmen holding pens in hand reading contract documents before signing.
By Era Gunning

South Africa has until 30 February 2023 to meet a tight deadline to amend its Financial Intelligence Centre Act, 2001 (“FICA”) or face the consequences of its financial institutions being added to a grey list alongside countries such as Yemen, South Sudan and Haiti.

The Financial Action Task Force (“FATF”) is an independent inter-governmental body that develops and promotes policies to protect the global financial system against money laundering, terrorist financing and the financing of the proliferation of weapons of mass destruction. FATF recommendations are recognised as the global anti-money laundering (“AML”) and counter-terrorist financing (“CTF”) standards.

Through a peer-reviewed process facilitated by the FATF, South Africa was evaluated in 2019 on its AML and CTF legal framework including FICA and the efficiency of its implementation. Out of 40 ratings on legislation adequacy, half of South Africa’s ratings scored as only partially compliant or non-compliant.

Following its mutual evaluation report in October 2021, the FATF is due to visit South Africa at the end of October 2022 to ascertain whether sufficient progress has been made after a one-year observation period. If not, South Africa may be grey-listed by the FATF as early as February 2023.

Should South Africa not comply with the FATF’s rules by the deadline, it could mean the country will be added to the non-compliance list and disinvestment could occur in the country’s financial institutions. The FATF’s grey-listed countries include Cambodia, Cayman Islands, Burkina Faso, Albania, Yemen, Pakistan and Syria.

On 15 June 2022 , in the hope that National Treasury’s report and proposed amendments to the Schedules to FICA would be rubberstamped to avoid a grey-listing by the FATF, National Treasury and the Financial Intelligence Centre briefed the National Assembly’s Standing Committee on Finance and the National Council of Provinces Select Committee on Finance on proposed amendments to Schedules 1, 2 and 3 of FICA.

Speaking virtually from Berlin, where he attended a FATF meeting, National Treasury’s acting Director General Ismail Momoniat stated during the brief:

“Given the [grey-listing] we face, the sooner we do things, the better for us”.

However, in an unexpected turn of events, members of parliament criticised Treasury for not having given parliament more time to follow “due process” rather than attempt to force parliament’s hand in making a “rushed” decision.

In response, the acting DG reminded parliament that the process of aligning South Africa with international standards had started in 2015 and “has been a slow [process] with lots of consultation”.

FICA places numerous obligations on “accountable institutions”, as defined in Schedule 1 of  FICA, such as banks and certain financial services providers. These obligations include:

  • registration with the Financial Intelligence Centre;
  • conducting customer due diligence;
  • record-keeping of client information and transaction records;
  • developing, documenting, maintaining and implementing a Risk Management and Compliance Programme (“RMCP”);
  • ongoing training of employees on FICA and the institution’s RMCP;
  • appointment of a compliance officer; and
  • reporting obligations such as the submission of cash threshold reports suspicious transactions reports and terrorist property reports.

Furthermore, FICA imposes cash threshold reporting obligations on reporting institutions which also includes motor vehicle dealers. If the proposed amendments were to be approved by parliament, the accountable institution’s net would be cast much wider to include credit providers as contemplated under the National Credit Act, 2005, any person who carries on a business of dealing in high-value goods, where in respect of such transaction or a series of transactions, payment in an amount of ZAR100 000 or more, trust and company service providers (which will include accountants who prepare or carry out transactions for clients relating to specific types of activities) and crypto asset service providers.

This article was first published by ENSafrica (www.ENSafrica.com) on 19 July 2022.

No information provided herein may in any way be construed as legal advice from ENSafrica and/or any of its personnel. Professional advice must be sought from ENSafrica before any action is taken based on the information provided herein, and consent must be obtained from ENSafrica before the information provided herein is reproduced in any way. ENSafrica disclaims any responsibility for positions taken without due consultation and/or information reproduced without due consent, and no person shall have any claim of any nature whatsoever arising out of, or in connection with, the information provided herein against ENSafrica and/or any of its personnel. Any values, such as currency (and their indicators), and/or dates provided herein are indicative and for information purposes only, and ENSafrica does not warrant the correctness, completeness or accuracy of the information provided herein in any way.