The Financial Intelligence Centre (FIC) released its 2021/22 Annual Report which contains an overview of the work that the FIC has been involved in during the reporting period.
Below we discuss some of the highlights from the Report:
Compliance Inspections
Supervisory bodies are responsible for overseeing FIC Act compliance of accountable institutions in the business sectors under their supervision. Inspections are conducted by the FIC and supervisory bodies to assess the level of institutions’ compliance with the FIC Act.
In 2021/22, supervisory bodies issued 739 inspection reports (an increase from the previous reporting period which was 368), while the FIC issued 404 inspection reports (also an increase from the previous year at 381). The business sectors with the highest FIC inspection reports issued include legal practitioners (223), motor vehicle dealers (102), and trust companies and administrators (36). The Property Practitioners Regulatory Authority, a supervisory body, issued 201 inspection reports for the property sector while the FSCA issued 42 reports on the FSP division.
Off-site inspections were introduced during the second quarter of 2020/21 due to the national lockdown and its accompanying restrictions at the height of the COVID-19 pandemic. During 2021/22 the FIC conducted most inspections offsite. The hybrid model for off- and on-site inspections was also used and resulted in excellent inspection coverage as well as financial savings and effective use of time. The off-site inspections proved to be as stringent and thorough as on-site inspections and will be continued in the foreseeable future.
Sanctions for non-compliance
The FIC and other supervisory bodies may impose a penalty, which is referred to as an administrative sanction, if it finds that an institution or person has failed to comply with the FIC Act and its directives. A total of 37 sanctions were imposed for the reporting period by the FIC and supervisory bodies, of which seven went on appeal. Excluding those under appeal, the total penalty of the sanctions was valued at more than R41.68m.
The FIC imposed sanctions on 23 entities that were not subject to appeal, 21 of these sanctions were issued against non-compliant motor vehicle dealers.
Sector risk assessments
The FIC is required to assess the money laundering and financing of terrorism risks faced by the various sectors that are regulated under the FIC Act. Over the two previous financial years, the FIC conducted sector risk assessments on designated non-financial businesses and professions (DNFBPs), namely:
- Property practitioners[1]
- Legal practitioners
- Trust service providers
- Lenders of money against the security of securities
- Gambling institutions
- Motor vehicle dealers
- Kruger rand dealers
Questionnaires were sent to businesses and professionals in these sectors. Their responses were collated and analysed, and the FIC subsequently drafted reports on the money laundering risks inherent to these sectors and also touched on risks associated with the financing of terrorism. Factors such as international experience and the FIC’s own knowledge and experience relating to the submission of intelligence reports by these sectors were also included in the reports. During the 2021/22 financial year, the FIC finalised the reports and made them widely available to assist the DNFBPs to manage and mitigate their risks. The reports include examples of alerts to be taken into consideration in respect of client risk, product and services risk, delivery channel risks, transaction risk and geographic risk.
Key policy developments and legislative changes
Draft amendments to Schedules 1, 2 and 3 of the FIC Act were initially proposed during 2020. During the 2021/22 reporting period these were presented to the Minister of Finance for approval, after which the draft Government Notices to bring about these amendments were tabled at Parliament just outside the reporting period, on 17 May 2022. Parliament must first approve the amendments before the Minister of Finance can promulgate them.
Once these amendments are implemented, the revised Schedules will see business sectors such as crypto asset service providers, high-value goods dealers and others added to the list of accountable institutions under the scope of the FIC Act. The revised Schedules will also bring about a rearrangement of supervisory responsibilities where the FIC will subsequently supervise compliance with the FIC Act by non-financial businesses and professions such as legal practitioners.
[1] The FIC Act refers to property practitioners as estate agents, however, the Property Practitioners Act 2019, which came into effect on 1 February 2022, refers to a broad range of institutions including but not limited to estate agent.