FICA Amendments: What you need to know

• South Africa

• Financial services and markets regulation - Briefings and articles

13-12-2017

What is FICA?

FICA is an attempt by South Africa to conform to international standards set by the Financial Action Task Force (FATF) requiring financial and other entities to know the customers they provide services to (i.e. Know-Your-Customer (KYC) or Customer Due Diligence (CDD)). Every person in SA is subject to standard CDD/KYC.

What is the Financial Action Task Force (FATF)?

FATF is an international body of countries tasked with setting best practices to combat money laundering and terrorism financing. SA has been a member of FATF since 2003 and is also a signatory to the United Nations (UN) Convention Against Corruption in 2004.

What changes have taken place?

The Financial Intelligence Centre Act 38 of 2001 (FICA) has been amended by the Financial Intelligence Centre Amendment Act 1 of 2017 (FICAA).

Are all the provisions of FICAA immediately operative?

Certain provisions became operative on 13 June 2017, others on 2 October 2017, and yet others are still to become operative by no later than the end of 2018. Exemptions were withdrawn, and Attorneys are now fully within the FICA fold.

Purpose of FICA and FICAA

FICA aimed to establish a Financial Intelligence Centre (FIC) and a Counter-Money Laundering Advisory Council (CMLAC) to assist in identifying the proceeds of unlawful activities, to combat money laundering activities and the financing of terrorist related activities. FICAA put an end to CMLAC, but its purposes set out above essentially remain with additional purposes being added (for example due diligence measures, a risk-based approach, financial sanctions and compliance programmes).

Key elements and changes introduced by FICAA

FICAA is aimed at strengthening and modernising SA’s regulatory framework to prevent criminals from using its financial system to commit crime or hide proceeds, to combat financing of terrorism, corruption and tax evasion. It ensures that the SA framework is more closely aligned to the FATF Recommendations as well as material from many countries striving to counter money laundering and terrorist financing.

The most significant amendment is the introduction of the risk-based approach to identifying and assessing money laundering and terrorist financing risks as opposed to the former rule-based approach. The risk-based system of KYC should make it easier for clients, who pose less risk to committing financial crimes, to comply with the FIC Act.

The scope of the amendments introduced by FICAA can mostly be categorised as relating to client due diligence (CDD). The purpose of CDD is for an accountable institution (AI) to know who its clients are and to understand their business with it through identification, verification and on-going due diligence. This on-going due diligence would include monitoring, periodically obtaining fresh client information and regularly reviewing certain categories of clients.

Included in the scope of CDD is the identification of beneficial owners which requires the identification of natural persons (who ultimately own and use legal structures, e.g. companies, trusts) to make tax evasion more difficult. CDD in business relationships with foreign prominent public officials and domestic prominent influential persons, is also required.

FICAA extends the list of persons and institutions with whom the FIC will share information - especially noteworthy is the inclusion of the supervisory bodies and the Public Protector.

Amendments were also introduced to provide for the implementation of the UN Security Council Resolutions on the freezing of assets relating to persons associated with terrorism, the safeguarding of personal information in line with the requirements of the Protection of Personal Information Act, inspection powers for regulatory compliance purposes and enhanced administrative and enforcement mechanisms.

Guidance Notes

FIC has provided extensive guidance in respect of reporting duties in the form of Guidance Notes that may be accessed at https://www.fic.gov.za/Compliance/Pages/Guidance-Notes.aspx

Guidance Note 4A deals with Reporting of suspicious and unusual transactions and activities in terms of section 29.

Guidance Note 5B deals with cash threshold reporting to FIC in terms of section 28.

Guidance Note 6 assists accountable institutions to implement terrorist financing and terrorist property reporting obligations in terms of section 28A and section 29.

Guidance Note 7 deals with the implementation of various aspects of FICA and the adoption of a risk-based approach (general principles, risk assessment and understanding of risk, risk mitigation), customer due diligence measures, recordkeeping, risk management and compliance programme, implementation of the United Nations Security Council Resolutions relating to the freezing of assets.