South Africa has two items remaining of a list of 22 financial regulatory and compliance deficiencies that it needs to comply with, so that it can removed from the so-called Grey List by the 40-country member Financial Action Task Force (FATF).
Image: AI Lab
The Financial Services Conduct Authority (FSCA) is confident South Africa will be brought off the 40-country member Financial Action Task Force (FATF) greylist this year and will clear the hurdle of a new evaluation next year, delegates at the FSCA Industry conference heard on Wednesday.
South Africa was placed on the FATF greylist in February 2023 due to deficiencies in its anti-money laundering (AML) and counter-terrorism financing (CTF) frameworks.
Ismail Momoniat, from the National Treasury and has been actively involved in addressing these issues, said at the conference that in a sense the greylisting was good thing in that "it forced us to do things that are good for South Africa."
Significant changes were also made at the FSCA to help address the deficiencies that were identified by the FATF. These had included insufficient capacity and resources at the FSCA, said the FSCA's FICA supervision department head, Charl Geel.
Momoniat said the pace and extent of the changes had become the baseline for a new normal of oversight on financial institutions and regulations.
Geel said changes included a 257% increase in the number of staff at the FSCA over the period of 18 months to provide better capacity, and a steep increase in the number of FICA compliance inspections of financial institutions to 100 in the past financial year, a figure that would rise to 140 in the new financial year.
“Please expect us to come down hard when we find you are not compliant,” he said.
The FSCA had also begun pre-licensing inspections for AML and CTF compliance frameworks at crypto asset service providers, 260 of whom had now been licensed by the FSCA, while there had also been a 197% increase in the monetary value of various financial penalties issued by the FSCA, and a 366% increase in the value of non-financial penalties.
“If you don’t meet the AML and CTF requirements you now run the risk of losing your license,” he said.
Momoniat said of 22 deficiencies that South Africa was required to improve in its financial system and that led to the grey-listing, only two remained, one that says a sustained increase in investigation and prosecutions for serious and complex money laundering was required, while the other related to effective investigation and prosecution of terrorism financing.
He said they hoped to be able to report that they had fully addressed the last two items by June this year, and if the measures are approved by the FATF, the FATF would conduct an onsite investigation in South Africa later this year, which would involve also meeting with some financial institutions. The entire financial system would be re-evaluated by the FATF again next year.
FSCA Commissioner, Unathi Kamlana, said climate-related financial risks were real and material, and financial institutions needed to integrate ESG (environmental, social, governance principles) into their decision-making processes, and areas of “greenwashing” had become an area of focus of the FSCA, even though there are no FSCA requirements on this yet.
He said the FSCA was working on new standards and reporting requirements for ESG, “watch this space,” he said. Stakeholders were being engaged on the matter.
He said that there was some R88 billion of unclaimed assets being held among South Africa’s financial institutions, funds that could potentially make a big difference on the lives of their rightful owners, and the FSCA was “prioritising” a solution for this.
On the Two-Pot pension fund payments that were announced last year to allow an early limited withdrawal of pension funds, Kamlana said it was important to realise that the billions of rands that were paid out represent a cost in terms of reduced future saving for retirement.
He said regulators needed to ensure that the compulsory component of the retirement fund remained “locked in and not reversed” so that the integrity of the entire retirement system was undermined by this shrt-term change.
“This highlights the urgent need for urgent financial education. Over the past year we have advanced our strategic focus on financial education,” said Kamlana.
BUSINESS REPORT