The Financial Intelligence Centre Amendment Act, 2017 (FIC Amendment Act) came into effect on 2 October 2017 and has forced FSPs to move to a risk-based (rather than a rules-based) approach, which modernises the way institutions conduct customer due diligence in relation to financial transactions.
The FIC amendment Act introduced new processes to determine if there are specific Money Laundering or Terrorist Financing (ML/TF) risks associated with new client relationships. This has implications for your client onboarding process.
The onboarding process starts when you welcome new clients into your business and establish a business relationship with them. You want them to understand the services you can offer them and at the same time you want to ‘get to know’ them. FICA requires that you gather sufficient information to mitigate the potential risks they could impose on your business.
It is thus important to implement a documented onboarding process, which your Risk Management and Compliance Programme (RMCP) will make provision for.
According to Section 20A of the FIC Act, you may not deal with an anonymous client. You therefore need to establish and verify a client’s identity and complete a client due diligence to ensure you know your client (KYC).
An important change to the onboarding process, and ultimately the RMCP, is how you establish and verify new clients’ identities. Prescriptive methods, such as asking for a utility bill and an ID, no longer apply. As an Accountable Institution, you can choose how to establish and verify clients’ identities. Your approach must consider the assessed ML/TF risks associated with each client. This applies whether you are establishing a business relationship with a client or only concluding a single transaction.
In your onboarding process, you should obtain client consent to verify information using third party data sources. To comply with the Protection of Personal Information Act, 2013, a client needs to be aware of this and/or give consent for you to obtain this information.
Another new feature is a requirement for institutions to determine whether there are specific ML/TF risks associated with clients who have relationships with prominent business persons or who do business above a certain value with the State.
In your onboarding process, it is important to define prominent influential persons and the process of verifying whether a person is a domestic prominent influential person (Schedule 3A to the FIC Act) or a foreign prominent public official. You also need to know what actions to take if your client falls under either of these definitions.
A successful onboarding process will meet both your clients’ and business’ needs, therefore reducing your risk exposure. To feel confident about your client onboarding process, familiarise yourself with the FIC Amendment Act and incorporate it in your RMCP.
Masthead offers a workshop on FICA and Risk Management, taking advisors through a step-by-step process to identify the regulatory and business risks in all areas of their business. These include strategic, operational, human resource, financial, marketing, advice and customer risks. The workshop also provides guidance on how to rate the severity of a risk and calculate the impact on the business.
To register for a workshop, click here.