The State of AML Regulations in South Africa
#AML #SouthAfrica # Regulation
October 12, 2022
8 Minutes
English
In recent years, South Africa has experienced an economic boom. This is particularly true in the financial services industry, which has seen a sharp growth in new businesses and regulations. With this growth comes an increased need for compliance with AML regulations.
In this blog post, we will touch on South Africa’s economic trajectory, the landscape of AML Regulations in the country, the regulatory body that enforces the AML legislation, and the increasing importance of AML compliance for South African reporting entities.
South Africa's economy is growing rapidly, with a GDP increase of 3.2% in 2021. This is primarily due to the boom of the financial services industry, which now accounts for 3.5% of GDP and employs over 400,000 people, and the upsurge in real estate activity, which is now worth over R1 trillion (US$48 billion).
South Africa is now the second largest financial centre in Africa and is home to some of the world's leading banks and financial institutions. According to a recent report by Deloitte, the number of financial services jobs will increase to 4.5% in 2022, making it one of the fastest-growing sectors in the country. Between 2017 and 2022, financial services exports are forecast to grow by an average of 9.6% per year, reaching R208 billion (US$15.7 billion) by 2023. This expansion is likely to continue in the coming years, as South Africa's financial services sector is well-positioned to take advantage of the continued global growth of the industry.
The real estate sector, on the other hand, has been one of the fastest-growing industries in the country, and this growth is expected to continue in the coming years. Several factors have contributed to the industry’s expansion, including a growing population, an increase in urbanisation, and a rising middle class.
The thriving development in both sectors underlines why it is so essential to ensure that businesses within financial services and real estate are conducting themselves according to their AML/CFT obligations and the key requirements set by the FIC.
The Financial Intelligence Centre(FIC) is South Africa’s national body responsible for the gathering, analysis, and distribution of financial intelligence. The FIC is mandated by the Prevention of Organised Crime Act (POCA) and works together with the Protection of Constitutional Democracy Against Terrorist And Related Activities Act (POCDATARA Act), the South African Police Service Act (SAPS Act), and the National Strategic Intelligence Act to combat money laundering and the financing of terrorism.
The FIC requires reporting entities to provide certain information and documentation. Information reporting entities must provide includes details on beneficial ownership, shareholding structures, and directorships. Documentation that maybe required includes company registration documents, tax clearance certificates, and bank statements. The FIC may also request additional information or documents as needed in order to fulfil its AML/CFT mandate.
In turn, the FIC may disclose financial intelligence to specific local and foreign agencies, provided that such disclosure is in terms of an agreement regulating the exchange of information or where disclosure is required in terms of a court order.
The key requirements under FIC are that:
1. All reporting entities must register with the FIC.
2. Every entity must appoint a reporting officer who will be responsible for ensuring compliance with FIC.
3. All transactions above a prescribed threshold must be reported to the FIC. The prescribed threshold is currently R24,999.99 (meaning transactions from and above R25,000 must be reported), but this may be increased or decreased in line with changes in the National Risk Assessment (NRA).
4. All suspicious and unusual transactions must be reported to the FIC.
5. Specific categories of persons and entities (e.g., bankers, estate agents, etc.) must verify the identity of their clients before entering into a transaction with them.
The FIC plays a vital role in AML/CFT regulation in South Africa. By working closely with accountable institutions and other government agencies, the FIC is able to collect, analyse and distribute critical financial intelligence that helps to detect, disrupt and prosecute criminal activity.
AML is heavily regulated in South Africa. The AML Act requires financial institutions to have AML compliance programs in place and to report suspicious transactions. In addition, the FICis responsible for receiving, analysing, and distributing financial intelligence to assist in the detection and prevention of money laundering and terrorist financing.
The FIC also has the power to impose administrative penalties on financial institutions that fail to comply with their AML obligations. All organisations are required to have robust AML/CFT policies and procedures in place, and they must be audited on a regular basis to ensure compliance. The FIC does not stipulate how often audits must be conducted, but it is generally recommended that they be carried out at least annually. By conducting frequent audits, organisations can identify any weaknesses in their AML/CFT controls and take steps to mitigate the risks. In doing so, they can protect themselves from potential financial penalties and reputational damage.
Anti-money laundering and combatting the financing of terrorism are top priorities for reporting entities in South Africa. South Africa's AML/CFT framework is continually being updated and enhanced in accordance with international practise, despite the fact that successful AML/CFT compliance has long been a challenge, not just for the FIC in South Africa, but also for its international counterparts.
A number of high-profile cases in the country have highlighted the need for stronger AML/CTF regulation, leading to a series of sweeping changes being introduced over the past few years. The most recent of these changes took place in 2019, with the launch of the Financial Services Board's (FSB) Regulatory Framework for AML/CFT. This new framework aims to close some of the gaps that existed in previous AML regulations and include several new requirements for financial institutions.
These include Enhanced Customer Due Diligence (ECDD) measures, increased reporting requirements, and more stringent record-keeping obligations. By implementing these changes, the FSB is hoping to create a more robust AML/CFT regime in South Africa, which will better protect against financial crime.
All reporting organisations and entities must comply with the FIC’s regulations; however, financial services and real estate are two of the top industries that are prioritised for AML compliance in South Africa. Financial services are required to have robust AML compliance programmes in place, and real estate agents must also take strict measures to prevent money laundering. As a result, businesses in these industries must take compliance seriously to avoid costly penalties.
AML/CFT regulation in South Africa is currently limited to financial services, real estate, and a few other industries. The scope of AML/CFT regulation is due to expand to include other professions and businesses, such as lawyers, accountants, and real estate brokers. The AML/CFT Act requires the Minister of Justice and Correctional Services to review the Act every five years and make recommendations for changes.
The most recent review was conducted in 2020, and the Minister has suggested that several additional industries be brought under AML/CFT regulation. These include the jewellery industry, estate agents, trusts and companies that manage high-value assets. It is possible that these industries will be regulated for AML/CFT compliance in the near future.
In recent years, there have been a number of cases in South Africa where organisations have been heavily fined for not complying with AML regulations.
In March 2021, the South African Reserve Bank fined Standard Bank R199 million (US$1.1 million) for breaching the Bank’s AML and CFT Framework. Standard Bank had failed to monitor and report suspicious transactions and had also failed to maintain adequate records. In January 2021, Nedbank was fined R1.5 billion (US$82 million) for similar offences. These cases highlight the importance of compliance with AML regulations.
South Africa has strict AML regulations in place, and organisations that fail to comply with these regulations face severe penalties. AML compliance is critical for all reporting entities operating in South Africa.
The Financial Action Task Force(FATF) is an international organisation that works to combat money laundering and terrorist financing. Each year, the FATF issues a list of countries that it believes are not doing enough to prevent these crimes.
The so-called "grey list" includes countries that have been identified as having weak AML and CFT regimes. In October 2019, South Africa was placed on the grey list by the FATF. This means that the country will be closely monitored and subject to increased scrutiny by the organisation over the next two years. If South Africa does not improve its AML and CFT regulations by 2022, it could be placed on the FATF's "blacklist."
This would have severe consequences for the economy and international reputation of South Africa, as it would make it more difficult for the country to have easy and affordable access to global financial markets. The most immediate effect will be felt by the financial services sector, which will face increased costs and decreased access to international financing. Overseas businesses would be required to carry out additional due diligence when dealing with South African counterparts, making it harder to attract foreign investment.
As a result, being placed on the FTAF grey list could have a significant negative impact on the economy of South Africa, which could ultimately lead to slower economic growth and reduced job creation.
South Africa’s economic growth has been impressive. This high growth renders to an increased need for all reporting entities to uphold the high standards of AML/CFT regulations set out by the FIC and FTAF. As the country’s AML landscape continues to evolve and change over time, it’s now more important than ever to comply with South Africa’s AML/CTF legislation.
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