The Minister of Finance has amended the Money Laundering and Terrorist Financing Control (MLTFC) Regulations and withdrawn Exemptions made in terms of the Financial Intelligence Centre Act, 2001 (FIC Act).
The following regulations have been withdrawn:
- R1596 of 20 December 2002
- 1353 19 November 2004
- 560 25 June 2010
- 461 5 June 2015
The exemptions for financial institutions, insurers and banks having to go through the FICA process for clients at the commencement of the business relationship is no longer applicable.
These amendments to the MLTFC Regulations and the withdrawal of exemptions coincide with the commencement of a number of amendments to the FIC Act.
This provides the legal basis for a shift in the measures to protect the integrity of the South African financial system to a risk-based approach, which modernises the manner in which institutions undertake customer due diligence (CDD) and encourages innovation in the way they deal with their customers.
While the withdrawal of exemptions may impact institutions’ compliance approach to the customer due diligence requirements of the FIC Act, institutions nevertheless may continue to be guided by the content of the withdrawn exemptions in the implementation of their compliance approaches.
The exemptions below have been withdrawn as these are now included implicitly in the Amendment Act with the introduction of a risk-based approach which allows an accountable institution to determine which business relationships or transactions pose a lower Money Laundering/Terrorist Financing (ML/TF) risk and apply the necessary CDD requirements as described in the institution’s Risk Management and Compliance Programme (RMCP).[1]
Timing Verification Exemption
The exemption was intended to allow an accountable institution to accept a mandate from a prospective client to establish a business relationship before the institution could complete the verification of identity.
Partnerships
The exemption was intended to allow for the centralisation of compliance within a partnership of professionals practising as accountable institutions.
Reliance on primary accountable institution
The exemption was intended to avoid a duplication of CDD obligations where one accountable institution refers a client to another. The manner and processes for the identification of clients and verification of their identities described in an accountable institution’s RMCP must also provide for the extent to which the institution relies on CDD performed by another accountable institution which has referred a client.
Where AML/CFT laws are equivalent
This exemption was intended to facilitate compliance with section 21 in as far as it requires the verification of the identity of a client situated in a country where, to the satisfaction of the relevant supervisory body, anti-money laundering regulation and supervision is equivalent to that which applies to the accountable institution by allowing that a person/institution in that country confirms in writing to the satisfaction of the accountable institution that they have verified the particulars concerning the client which the accountable institution has identified.
Public companies listed on recognised securities exchanges and exemption for tax information
This exemption was intended to simplify identification, verification and record keeping requirements in respect of clients which are public companies, the securities of which are listed on a recognised securities exchange. The regulations require accountable institutions to obtain the client’s tax number and to verify this against a South African Revenue Service (SARS) document. Paragraph 6(2) exempts them from these obligations.
Exemption for insurance and investment providers
This exemption was intended to relieve the compliance burden in respect of certain types of business activities that pose little risk of money laundering.
Exemptions for members of exchanges
The exemption exempts a financial instrument trader and a member of the Johannesburg Stock Exchange (JSE) from the identification and verification requirements and record keeping requirements in respect of foreign brokers from countries recognised for this purpose on certain conditions.
Exemption for members of exchanges for legal persons and noncontrolled clients
The rules of the JSE provide for the members of the JSE to obtain sufficient information concerning each client to identify the beneficiary of the account. The majority of non-controlled clients are legal persons such as insurance and investment houses. This exemption was granted as there is a relatively low risk of money laundering in respect of trades on the JSE by legal persons who are non-controlled clients.
Exemption for Attorneys and Administrators of property
This exemption focused on both the high-risk and low-risk services performed by an attorney in relation to the facilitation of money laundering. A withdrawal of the exemption would mean that services performed by an attorney that had previously fallen outside the scope of the FIC Act will now be included in the scope of the Act. This implies that an attorney would have to determine for itself which services pose a lower or higher risk for money laundering and apply the necessary CDD requirements in accordance with its RMCP.
The definition of “estate agent” in the Estate Agency Affairs Act includes
Exemption for estate agents who render services to body corporates of sectional title schemes and share block companies. This exemption was initiated as the business of a managing agent does not hold a risk of being abused for money laundering purposes.
Exemption for entertainment activities in gambling institutions
Schedule 1 specifically refers to a gambling activity which makes this exemption superfluous.
Exemption for gambling institutions in respect of single transactions
This exemption was intended to relieve the compliance burden for gambling institutions in relation to certain circumscribed single transactions.
Exemption for gambling institutions for single transactions
This exemption applies to all other single transactions that do not fall under the above exemption.
Exemption for banks for unsecured loans
This exemption relates to unsecured loans of relatively small amounts.
Exemption for foreign banks
This exemption was to simplify identification and verification requirements intended for banks in relation to transactions with banks from foreign countries where the institutions are subject to anti-money laundering measures which, to the satisfaction of a supervisory body, are equivalent to those of the FIC Act.
Exemption for banks for low value products
The exemption was intended to simplify identification and verification requirements for low value products.
Exemption on prepaid instruments (25 June 2010)
The exemption was intended to simplify identification and verification requirements for low value products.
Exemption on cross border remittance
The exemption was intended to simplify identification and verification requirements for low value products.