The Financial Intelligence Centre (FIC) recently issued Draft Guidance Note 7B for consultation. The draft provides additional guidance and clarification on certain areas of Guidance Note 7A on the implementation of various aspects of the Financial Intelligence Centre Act (FICA). The proposed changes particularly relate to proliferation financing (PF), risk assessments and customer due diligence.
There are four proposed additions. These include:
- Paragraph 7A – Adds a definition of proliferation financing (PF) to the Guidance Note, explaining that it is any activity which involves providing funds, financial services, property or other support that may contribute to the development, acquisition, transport or use of nuclear, chemical or biological weapons. PF may also include any activity that constitutes an offence in terms of section 49A of FICA.
- Paragraph 37A – Highlights risk assessment requirements, clarifying that accountable institutions should identify and assess money laundering (ML), terrorist financing (TF) and proliferation financing risks arising from new products, new business practices, new delivery mechanisms and new or developing technologies for new and pre-existing products. These risks should be reflected in the institution’s risk assessment processes and its Risk Management and Compliance Programme (RMCP).
- Paragraph 40A – Clarification regarding low-risk customers, stating that under-served or low-income persons should not automatically be regarded as presenting a lower risk of ML, TF, or PF. Institutions must conduct a comprehensive risk assessment before concluding that certain business relationships or single transactions with clients or category of clients present a low risk.
- Paragraph 58A – Addresses the use of simplified due diligence (SDD). It states that SDD includes a basic level of identification and verification that is applied when a business relationship or single transaction poses a low risk of ML, TF, and PF. It clarifies that SDD must not be applied where there is any suspicion of ML, TF, or PF. In such cases, the business relationship or single transaction would automatically pose a high risk and accountable institutions must conduct enhanced due diligence and file a section 29 suspicious and unusual transaction or activity report.
The FIC has also proposed broader technical updates throughout the guidance to ensure that references to proliferation financing are incorporated alongside money laundering and terrorist financing obligations. These amendments reflect the evolving regulatory landscape and increasing expectations placed on accountable institutions to identify, assess and mitigate PF risks as part of their overall compliance programmes.
The draft guidance demonstrates the FIC’s continued commitment to strengthening South Africa’s risk-based approach to combating financial crime and ensuring that accountable institutions maintain effective systems and controls in an increasingly complex risk environment.