By now we all know about or have been affected by FICA, The Financial Intelligence Centre Act, 38 of 2001, which came into effect on 1 July 2003. FICA was introduced to make it more difficult for criminals to benefit from the illicit proceeds of their crime and aimed to conform South Africa (SA) to international best practice for anti-money laundering and counter-terrorist financing set by the Financial Action Task Force (FATF).
As with any Act, The Financial Intelligence Centre Act 38 of 2001 (FICA) has been amended and now has become known as the Financial Intelligence Centre Amendment Act 1 of 2017 (FICAA).
In an effort to align and combat money laundering globally, FICA was amended with the goal of strengthening and modernising SA’s regulatory framework so that it is more closely aligned to the FATF recommendations. Under the Act, the Financial Intelligence Centre (FIC) aim to enhance economic growth and promote compliance. With this being said, a noteworthy amendment was the establishment of taking a risk-based approach. The purpose of this approach is to allow organisations to make better use of resources by focusing attention where there is higher risk.
The implementation of a risk based approach gives Accountable Institutions (AIs) a framework to follow when onboarding and transacting with clients. This should include a customer identification and verification program (CIV) which helps an AI assess the level of risk posed by an individual or business. The thinking is that AIs need to gather fundamental information about a client and their intentions, validate the information provided and use it to create a risk profile of that client.
Based on the CIV checks, some clients will meet low risk criteria whereas clients that fall into higher risk categories should undergo Enhanced Due Diligence (EDD). The Financial Action Task Force (FATF) recommends that in order to have a successful risk-based approach, “the amount and type of information obtained, and the extent to which this information is verified, must be increased where the risk associated with the business relationship is higher.”
This means, based on the clients risk profile, AI’s may need to gather additional information and supporting documentation about a customer to attempt to gain, where possible, a level of comfort against the risk presented.
Included in the scope of enhanced due diligence is identifying and verifying related parties and Ultimate Beneficial Owners (UBOs). According to the FATF, “beneficial owner” refers to the natural person who ultimately owns or controls a legal entity and/or the natural person on whose behalf a business is being conducted. It also includes those persons who exercise ultimate effective control over a legal entity or who ultimately enjoy a share of its profits.
EDD is also required for business relationships with foreign prominent public officials (FPPO) and domestic prominent influential persons (DPIP), their family members and close associates who may be at a higher risk of being targeted by criminals because of their positions of influence or control.
Although the amended FIC act has been around for a couple of years, there is still some uncertainty regarding the associated terminology and how it impacts businesses. You can have a look here to gain better understanding of some FICAA terminology. A noteworthy amendment to the Act is the concept of Accountable Institutions taking a risk based approach. This risk based approach doesn’t need to be time consuming for your clients or staff.
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