You may wonder why is your ID and other documentation required almost every time you wish to conclude a transaction? What is used for? Is it really necessary? What happens to your information after concluding that transaction? Well to put you out of your misery, the answer to all of your questions is simply FICA.
FICA stands for the Financial Intelligence Centre Act (FICA) has been in existence since 2001 and is at the core of compliance requirements in South Africa
Why do we need FICA?
The main reason why we need FICA is to fight against financial crimes such as money laundering and terrorist financing.
The FIC Amendment Act was signed into law by the President on 26 April 2017 and gazetted on 2 May 2017 so existing requirements and controls were amended to provide for a sturdy approach in our fight against money laundering and terrorist financing.
The reason for this could possibly be the rise of corruption that we see almost on a daily basis happening in our country right under our noses.
The FIC Amendment Act will therefore enable South Africa to fight against money laundering schemes and it will bring South Africa in line with international standards set by the global Financial Action Task Force.
How does this affect you?
It means that every time you wish to conclude a financial transaction with an accountable institution such as a financial institution and others such as attorneys and accountants, certain documentation will be required from you. This is to make sure that the institution knows who they are doing business with and essentially where the money to fund the transaction comes from or whether the money being borrowed will be used for a legitimate purpose. They want to make sure that their business is not being used to “clean” dirty money or that the funds will not be used, for example, to fund a drug operation.
You may be wondering what accountable institutions are, an ‘accountable institution’ is any person defined in schedule 1 of the Act, these include attorneys, trustees and executors, estate agents, stock brokers, management companies, bankers and those involved in the remittance of currency, but this is not an exhaustive but just to give you an idea of what is meant when one says accountable institution.
Some concepts and approaches were introduced by the recent FIC Amendment Act and they are as follows:
The introduction of customer due diligence (CDD) requirements. Customer due diligence is what was previously referred to as Know Your Client (KYC). This is when accountable institutions request your ID and proof of address and verify the information given against them. CDD however is now focused on understanding customers rather than simply identifying and verifying their identities. This means that possibly more documentation could be required from you as a way of the institution trying to understand you.
The Amendment Act introduces a shift from a rules based approach to a risk based system of conducting CDD. A rules based approach was more of a tick box approach whereas the rules based approach aims to make compliance with the act much easier as this approach is more flexible. To illustrate this, the old system dictated what documents should be obtained and these would more or less be the same for every customer. The new system however states that any institution can decide for itself what further document they require, in any, in addition to the standard identity document and proof of address. This new approach gives accountable institutions discretion in terms of which methods they use to conduct CDD as the Amendment Act does not give guidelines on how CDD should be conducted.
The Amendment Act also introduces the concept of beneficial ownership, which requires institutions to know and understand the natural persons who ultimately own or exercise control over legal entities or structures. Accountable institutions will now be required to identify such individuals in order to know the people behind the company structure. The Amendment Act provides an elimination process to be followed as the ultimate goal is to get to the person who actually who actually exercises effective control and gets benefits from the legal entity.
The most significant concept introduced is that accountable institutions are now obliged to develop, document, implement and maintain a Risk Management and Compliance Programme (RMCP). The Amendment Act dictates that the RMCP replaces the formerly required FICA internal rules of the organisation. The RMCP is an all-encompassing document which sets out how accountable institutions will comply with its obligations in terms of the Amendment Act. The RMCP has to be approved by the Board of Directors and has to be regularly reviewed.
The other significant concept is the introduction of foreign prominent public officials (PPO) and domestic prominent influential persons (PIPs) who were previously referred to as Politically Exposed Persons (PEPs). The Amendment Act provides that business relationships with PPO’s are automatically deemed high risk therefore stringent processes are to be applied when conducting CDD whereas business relationships with PPIs are not automatically deemed high risk and are not required to undergo stringent CDD when conducting CDD unless after conducting CDD such business relationship is to be deemed as high risk. In addition to the above the legislation will lead to the scrutiny of family members and close associates of PPOs and PIPs. The reason for the high scrutiny when it comes to these individuals is that they are exposed to much resources and dealings than the average Joe and these days you can never be too sure if such dealings and affiliations are on the straight and narrow.
The Amendment Act also introduces the concept of Enhanced Due Diligence. Enhanced due diligence requires clients regarded as high risk to provide information about their source of wealth and income and it also requires obtaining senior management approval prior to entering into or continuing any business relationship with them. In addition to the above on-going monitoring of the business relationship is to be conducted by the responsible institution.
The concept of ongoing due monitoring is also introduced by the Amendment Act. This requires accountable institutions to scrutinize transactions taken throughout the business relationship in order to ensure that client information is accurate and that actions taken throughout the business relationship are consistent with the information that the accountable institution has about the client. The Amendment Act has not issued a guideline in terms of how and when ongoing monitoring is to be conducted. The FIC gives discretion to the accountable institutions as to how this is to be conducted. This basically means that they institution will not just conduct CDD at the beginning of the business relationship, institutions are now required to conduct CDD on an ongoing basis so don’t be surprised if your bank or other accountable institution contacts you stating they want to “FICA” you yet again.
The Amendment Act also introduces a requirement in that if there are any doubts about the veracity of previously obtained information, the accountable institution is required to take certain measures to address this.
Accountable Institutions have a duty to keep customers’ due diligence records including documentation relating to transactions for five years from the date on which the business was terminated. This means that if you finish paying for your mortgage bond today the financial institution which financed your bond has a duty to keep all your records, financial transactions and correspondence for a further five years from today. In addition to the FICA Amendment Act, accountable institutions also have a duty to safeguard such records in terms of POPI which stands for Protection of Personal Information.
Freezing of assets, in terms of targeted financial sanctions against persons identified by United Nations Security Council in terms of various sanctions regimes.
The implementation of various provisions of the Amendment Act commenced on different dates, namely, 13 June 2017, 2 October 2017 and 11 April 2019.
Who will the Amendment Act affect?
The Amendment Act will affect all accountable institutions therefore all entities which are classified as “accountable institutions” are required to adhere to their FICA obligations in terms of FICA which includes the latest amendments thereto.
The Amendment Act will also affect all prospective customers and current customers of accountable institutions is that they may be subjected to much more stricter controls if they are classified as high risk or if they are legal entities. This means that the controls applied to person A might be different to the controls applied to person B because the risk they pose is not the same.
Another concept which was emphasized in the Amendment Act was the requirement of training. Accountable Institutions are encouraged to continuously train staff in respect of FICA and what their FICA obligations are.
It is a criminal offence if accountable institutions and individuals do not comply with any of the above and, upon conviction they could find themselves penalized by a fine of up to R10 million for individuals and R50 million for companies or even time behind bars.
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