In the last issue of Mastering Compliance, we published the developments of the FIC Amendment Bill by looking at the Issue Papers published by the FIC. This week, we provide you with a status update of the Bill, where it currently stands and an overview of the changes it will bring. In the coming weeks, in a series of articles, we will be unpacking each part of the Bill to assist you in understanding what the impact will be on your business and on your clients.
South Africa is committed to the fight against money laundering, terrorist financing (ML/TF) and related activities by developing the Financial Intelligence Centre Act, 2001 (FICA). As a result of its commitment to the recommendations of the Financial Action Task Force (FATF), South Africa became the first African country to become a fully-fledged member of FATF in 2003. FATF is an inter-governmental body which was set up to evaluate the effectiveness of local and international money laundering control structures, to set standards and to promote effective control measures to combat money laundering and financing of terrorist activities.
Based on the revised FATF Standards which reinforce a risk-based approach as an “essential foundation” of a country’s Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT) framework, the FIC Amendment Bill (the Bill) was drafted with the primary objective to build a stronger framework against money laundering and terrorist financing which includes enhancing the existing customer due diligence requirements as well as extending the objectives and functions of the FIC regarding the sharing of information.
Status of the Bill
The Bill has been approved by Parliament and was referred to the President for signature in June 2016. Once the Bill has been signed it will be brought into operation of law by the Minister of Finance. It is expected that the implementation period could be early next year, depending on whether or not the Bill is signed. It appears that National Treasury could be looking at a staggered implementation period with a possible extension for the private sector and Banks, especially those dealing with government contracts, as they will have to bring their Due Diligence processes in line with the new provisions. Media reports indicate that the President has been petitioned not to sign the Bill which could result in the Bill being referred back to Parliament for further consideration.
Importance of reading the Bill
The Bill contains changes regarding the requirements placed on accountable institutions relating to combating of money-laundering and terrorist financing. It is therefore important that accountable institutions and their directors, senior management, risk and compliance managers and other staff within the business are properly informed of the proposed changes. The impact of the changes must be fully understood by the business itself and its personal responsibilities and liabilities in terms of the Bill. Accountable institutions must therefore be in a position to develop their systems, processes and structures to effectively deal with their statutory duties and to protect themselves from liability for non-compliance.
Key Changes by the Bill
1. Director Duties: The responsibility for ensuring that an accountable institution and its employees comply with the requirements of the Act is put directly on the highest level of authority of that institution, being the board of directors, the senior management or the other persons exercising the highest level of authority of that institution. Failure to ensure compliance can have serious consequences such as administrative sanctions by the regulator and/or financial liability.
2. Client Due Diligence: The Bill introduces a risk based approach to customer due diligence. This means that accountable institutions should identify, assess and understand its ML/TF risks in line with the products and services that they offer to their clients. Accountable institutions should then apply their knowledge and understanding of ML/TF risks when developing control measures to manage and mitigate any identified risks. Higher risks identified will require more enhanced controls. Section 21 as amended by the Bill requires an accountable institution to establish and verify certain information in the course of concluding a single transaction or establishing a business relationship with a prospective client. The Bill also introduces a new section requiring accountable institutions to conduct ‘Ongoing Due Diligence’ in respect of its business relationships.
Another key change regarding customer due diligence is the insertion of ‘Foreign Prominent Public Officials’ and ‘Domestic Prominent Influential Persons’ replacing the term and definition of ‘Politically Exposed Persons’. The reason for this is that internationally, financial sector regulation requires greater due diligence when dealing with persons who are prominent and influential. The detail of these enhanced due diligence requirements will be discussed in a follow-up article.
3. Risk Management and Compliance Programme: The Bill replaces the current ‘Internal Rules’ by introducing a ‘Risk Management and Compliance Programme’. This will require the formulation of extensive provisions dealing with the requirements concerning a programme for risk management and compliance with respect to money laundering and terrorist financing.
4. UN Imposed Financial Sanctions: Apart from director duties, customer due diligence requirements and risk, and compliance management programme requirements, the Amendment Bill also provides measures for the implementation of United Security Council Resolutions relating to the freezing of assets. These measures will apply when the Security Council adopts a resolution under the UN Charter providing for financial sanctions. This is a new stance which will be introduced by the Bill and the details thereof will be set out in a follow-up article.
Masthead will ensure that you are provided with the key changes which the Bill will bring and the impact it will have on your business as an accountable institution. Please ensure that you stay up to date with our series of articles which will assist you in this regard.