Enoch Godongwana, Finance Minister, has amended the Financial Intelligence Centre Act (FICA), which affects a variety of financial and non-financial institutions.
The National Treasury attempted to patch up legislative gaps in a slew of recent amendments and promulgations after an international watchdog, the Financial Action Task Force (FATF), discovered gaps allowing terrorist financing and money laundering.
If the legislative gaps are not closed, South Africa may face greylisting, which could harm and complicate business relationships with other jurisdictions.
The amendments to the Financial Intelligence Centre Act are part of the Treasury’s efforts to amend five different pieces of legislation.
FICA changes are divided into the five sections listed below:
expanded sectoral coverage
According to the Financial Intelligence Centre (FIC), under the amendment Schedule 1 of the Act, more institutions will now be listed as “accountable institutions,” which will then be scrutinised, monitored, and supervised more stringently.
The amendments advocate for the inclusion of the following entities as “accountable institutions”:
- Certain legal practitioners;
- Credit providers;
- Boards of executors or a trust company;
- Estate agents;
- Long-term life insurance businesses
- Dealers in motor vehicles;
- Dealer in goods over R100,000;
- Dealers in crypto assets;
- Dealers in Krugerrands, and;
- Gambling institutions.
According to the FIC, the increased sector coverage will “enhance anti-money laundering, combat terrorism financing, and counter proliferation financing supervision and monitoring.”
These amendments, however, have a catch in that they add more compliance steps that must be completed before business transactions can be completed.
Notably, the new changes include the regulation of crypto asset service providers as well as a definition of the term “crypto asset.”
Despite some excitement in the crypto space about tighter regulation, financial services firm KPMG warned that changes to fundamental financial regulation could be detrimental to the country’s businesses.
According to KPMG’s latest insights into the sentiment and concerns of 50 top CEOs from various industries, regulatory amendment risks are one of the top concerns of business leaders.
KPMG noted that minor changes to specific pieces of key legislation could have an impact on day-to-day operations.
Insurance and accounting executives are among those who have spoken out against the amendments. Outsurance spokesperson Keigan Hart stated that the draught amendments could have an impact on insurance processes, with the extra cost of compliance ultimately falling on the consumer.
The South African Institute of Chartered Accountants (SAICA) also criticised the amendments, which were still in draught form at the time, and warned that the accounting industry could face additional costs.
broader scope
A few amendments to specific schedules broaden the scope of business activities, bringing the Act even closer to the FATF standards.
According to the FIC, trust and company service providers, credit providers, money transfer providers, and others will now be required to fulfil FICA risk and compliance obligations.
According to the centre, these types of assessments are used to implement a risk-based approach to combating money laundering and terrorist financing.
Certain reporting entities have been removed
High-value goods dealers are now included as a category of accountable institutions under the new amendments. Dealers in high-value goods include those who deal in valuable automobiles or Kruger rands.
“High-value goods dealers” are defined as “businesses dealing in high-value goods that receive payments in any form of R100,000 or more per item, whether payment is made in a single transaction or multiple transactions.”
Dealers in valuable goods will now be required to adhere to similar reporting standards as institutions such as legal practitioners or accountants.
Modifications to supervision and enforcement
Any violations or deviations from compliance measures will be dealt with by the FIC.
According to the FIC, “the FIC will oversee and enforce FIC Act risk and compliance adherence among non-financial sectors, including trust and company service providers, legal practitioners, high-value goods dealers, South African Mint Company, CASPs, and credit providers.
The grace period
Over the first 18 months, beginning on December 19, the FIC, in collaboration with other supervisory bodies, will inspect specific business practises and, if necessary, impose administrative sanctions.
According to the FIC, the sanctions will be imposed based on a risk-based approach to correct identified areas of noncompliance.
Although the FIC intends to crack down on noncompliance, it has stated that it does not intend to issue penalties for noncompliance in the newly added sectors during the first 18 months of the new law changes.
