Consumers face Fica-compliance drive
THE GOVERNMENT is on a mission to reverse South Africa’s greylisting in the international financial services sector, and consumers of financial services are likely to be on the receiving end of tightened compliance.
Among the areas under the spotlight are compliance with the Financial Intelligence Centre Act (Fica) and cross-border cash transfers.
Just over a year ago, in February 2023, South Africa was greylisted by the Financial Action Task Force (FATF), a global entity dedicated to combating money laundering and the financing of terrorism.
The FATF required 22 actions to be taken by South Africa before it could be removed from the greylist, the deadlines of which fell between January 2024 and January 2025.
In a statement released in February, National Treasury reported: “The February 2024 FATF Plenary confirmed that five of the 22 action items are now addressed or largely addressed.
“These relate to the legal provisions criminalising terrorist financing and underpinning South Africa’s targeted financial sanction regimes related to terrorism financing and proliferation financing, increasing the use of financial intelligence from the Financial Intelligence Centre (FIC) to support money laundering investigations, and increasing the resources of supervisors.
“Two further action items that were previously not addressed have now been partly addressed, confirming that 14 of the 17 outstanding action items have now been partly addressed. Three action items still have not been addressed as yet.”
Fica compliance
In a recent article in the Werksmans Attorneys newsletter, director Hilah Laskov said recent penalties imposed by the Financial Sector Conduct Authority (FSCA) on financial services
ALL TRUSTEES are the guardians of the trust assets and have a duty to manage these assets in the best interests of the beneficiaries, as outlined in the trust deed.
The Trust Property Control Act (“the act”) clearly stipulates the duties of trustees. Section 9(1) of the Act states that a trustee shall, in the performance of their duties and exercise of their powers, act with the “care, diligence and skill” which can reasonably be expected of a person who manages the affairs of another person.
All trustees owe a fiduciary duty to the beneficiaries of the trust and may not act in a way that violates this duty or is outside the parameters of the trust deed.
A fiduciary duty is an onerous, legal obligation (a duty of loyalty and care) of a person managing property or money belonging to another person to act in the best interests of such a person.
All trustees must act jointly in respect of trust matters, as they share a common fiduciary obligation towards the fulfilment of the objects of the trust (Hoosen v Deedat case of 1999).
Can trustees be held personally liable?
If trustees’ actions (alone or with other trustees) contravene either the provisions of the act or the trust deed, they could find themselves personally liable for losses suffered by the trust.
The courts will enquire what any person who takes care of people’s affairs would have done under similar circumstances. A court will ignore that the trustee, for example, was a family member and was, therefore, deemed to be acting within the family’s best
providers (FSPs) non-compliant with Fica show the seriousness with which the government is pursuing compliance.
Fines ranged from R400 000 to R16 million. In each case risk management and compliance programmes were in place, but were found to be inadequate.
“What this reveals is that the expectations of the FSCA on FSPs have increased. It is inadequate that an FSP ticks the box and merely has risk management and compliance programmes in place. Failure to fully comply carries serious consequences,” Laskov said.
In essence, FSPs are required to better know their customers, verify
their identities, including those of “beneficial owners” of assets, who try to hide behind trusts and front companies, screen customers against lists of sanctioned entities, and conduct ongoing due diligence on them.
This may mean increased paperwork and administrative hurdles, potentially causing delays in financial transactions.
Hawken McEwan, director of risk and compliance at DocFox, which provides Fica-compliance software, said Fica aims to ensure that “accountable institutions have sufficient and accurate knowledge of their clients’ true identities and motivations, empowering them to alert authorities about any
suspicious activities or transactions”.
Accountable institutions include banks, asset managers, financial intermediaries, credit providers, legal practitioners, estate agents, and dealers of high-value goods.
“These industries are at a higher risk simply because of the products and services they offer, whether they are moving money through bank accounts, changing currency, sending money offshore or selling luxury cars, jewellery or properties,” McEwan says.
For some of these industries, compliance remains a challenge. “Legal practitioners and estate agents are two categories of accountable institutions that have been consistently declared non-compliant,” said McEwan. According to the FIC, about 80% of law firms fail to adhere to Fica requirements.
The outcome for consumers, whether they are dealing with a lawyer, financial adviser, estate agent or luxury car dealer, is likely to be increased scrutiny in the way of probing questionnaires and increased supporting documentation required.
Cross-border cash flows
According to Moonstone Information Refinery, proposed revisions to the Money Laundering and Terrorist Financing Control Regulations could compel individuals carrying R25 000 or more in cash or bearer-negotiable instruments across South Africa’s borders to report this to the FIC.
On April 8, Finance Minister Enoch Godongwana invited written submissions on the draft amendments to these regulations.
The FIC currently receives reports on cross-border electronic funds transfers, large cash transactions, suspicious transactions, and property linked to people or entities subject to targeted financial sanctions. Section 30 of Fica empowers the minister to prescribe a threshold amount on reporting, and the minister is proposing that this threshold be set at R24 999.
This means that anyone carrying R25 000 or more in cash into or out of the country will be required to report it.
Cash, said Moonstone, is defined in Fica to include coin and paper money of the Republic or of any other country, as well as travellers’ cheques. A bearernegotiable instrument is defined as “an instrument that is not legal tender, but which can be exchanged upon its presentation for an amount of money that is specified in the instrument, and which entitles the holder of the instrument to the funds it represents”.
Examples are bills of exchange, letters of credit, money orders, postal orders, and promissory notes.