FICA Amendment Bill

FICA Amendment Bill

The Financial Intelligence Centre Act has been in existence since 2001 and is at the core of compliance requirements in South Africa. The main objective of the Financial Intelligence Centre (FIC) and the Act is to assist in the identification of proceeds of unlawful activities and the combating of money laundering activities and the financing of terrorist and related activities.

Draft amendments were published earlier this year. These amendments focus on a more risk-based approach regarding the monitoring and verification of clients and have been proposed in order to meet international standards. This approach will simplify the current system of compliance by providing financial institutions with flexibility to determine how they verify their clients’ identity, taking into account the particular circumstances of each client. On Tuesday, 27 October 2015, the Minister of Finance, Nhlanhla Nene, tabled the Financial Intelligence Centre Amendment Bill in Parliament.

Impact on clients

In the case of juristic persons, client due diligence and identification will drill down to beneficial ownership as opposed to only applying to the first level of the identification process. A “beneficial owner’ is a natural person who directly or indirectly owns the juristic person or exercises effective control of the juristic person. This means that once the Bill is passed, accountable institutions will need to establish the beneficial owner(s) of a juristic client and then take steps to verify his/her/their identity so that the institution is satisfied that they know who owns and is in control of the client.

Impact on accountable institutions

The responsibility of accountable institutions (AIs) to obtain proper identification and verification documents will become more stringent. This may force accountable institutions to relook and possibly change their current systems and process of obtaining and storing such documentation.

According to the Bill, there are two key definitions that are amended:

• the definition of “non-compliance” is amended to make a distinction between what constitutes non-compliance resulting in an administrative sanction from non-compliance that is subject to a criminal sanction.
• A definition of “Risk Management and Compliance Programme” is inserted in the FIC Act, which is further detailed in Clause 25 (which amends section 42 of the FIC Act).  This Programme will replace the requirement to formulate and implement Internal Rules and will mean a re-structure to their current processes.

FICA internal rules and staff training – common areas of transgression

FICA investigations of Accountable Institutions conducted by the FIC and appointed statutory bodies such as the FSB, have highlighted the most common areas of transgressions as being training of staff and FICA Internal Rules.

Training of staff

Questioning of relevant staff members reveals that training given by AIs is not adequate or frequent enough and staff do not understand the Know Your Client principles. They also do not have sufficient knowledge of what and how to report. A large number of employees do not know what a “suspicious transaction” is.

Training should be provided to all new staff members within 30 days of their appointment and existing staff members should receive training, at least, on an annual basis. The FICA training register needs to be kept up to date and copies of tests must be kept on file. Testing enables the FSP to gain an understanding of the level of knowledge of staff and identify areas which may require further training. The identification of suspicious transactions has also been highlighted by the FIC as a very common area where employees do not have sufficient knowledge.

Masthead provides an online FICA assessment which can be used as a training method to test your staff’s level of knowledge on the Act.

FICA Internal Rules

It is a requirement of FICA that FSPs have Internal Rules in place and that these rules are personalised and applicable to the specific FSP. All staff must be aware not only of the existence of the rules but also of the content.

Masthead provides a template for Internal Rules but it is the responsibility of each FSP to customise the document in order for it to be relevant for that FSP.

We will keep you updated on the new FICA Amendment Bill and which regulatory requirements it sets out for FSPs. Please contact your Masthead Compliance Officer should you require more clarity of how to apply the FICA requirements to your business.