FICA AMENDMENT ACT

UNDERSTANDING THE FICA AMENDMENT ACT:

The Financial Intelligence Centre Amendment Act 1 of 2017 (“the Amendment Act”) which was signed into law in our Country during the latter half of 2017 represents a further attempt by Government to protect the integrity and ensure transparency within the South African financial system. The key amendment is a shift from a rule – based approach to a risk – based approach which requires that accountable institutions must consider the potential risk involved when establishing a business relationship or concluding a single transaction with a particular client. The Amendment Act provides for a system whereby an accountable institution has a discretion to determine what the appropriate compliance steps to be taken in a given instance are. Accountable institutions are therefore no longer obliged to follow the r igid steps of identification but now have flexibility to choose the type of information by means of which it will establish clients’ identities

RISK MANAGEMENT AND COMPLIANCE PROGRAMME:

Under the Amendment Act accountable institutions are obliged to develop, document, implement and maintain a Risk Management and Compliance Programme. In terms of S42(2) of the Amendment Act accountable institutions must implement a Risk Management and Compliance Programme which must enable such institution to:

1. Identify;
2. Assess;
3. Monitor;
4. Mitigate; and
5. Manage, the risk that the provision by the accountable institution of products or services may involve or facilitate money laundering activities or the financing of terrorist and related activities.

In accordance with its risk – based approach, the Amendment Act places an emphasis on ensuring that accountable institutions obtain sufficient information to properly understand the business relationship that they are entering into with their prospective clients. Included in this is information describing:

1. The nature of the business relationship concerned;
2. The intended purpose of the business relationship concerned; and
3. The source of the funds which that prospective client expects to use in concluding transactions in the course of the business relationship concerned.

CUSTOMER DUE DILIGENCE:

The phrase “customer due diligence” refers to the knowledge that an accountable institution has about its client as well as the institutions understanding of the business that the client is conducting with it. When properly implemented, the customer due diligence should enable the institution to better manage its relationships with its clients and to better identify possible attempts by clients to exploit the institutions products and services for illicit purposes.

In so far as ongoing business relationships are concerned, the Amendment Act places an obligation on accountable institutions to ensure that their due diligence is an ongoing process and that they monitor all transactions undertaken throughout the course of the relationship, including:

1. The source of funds, to ensure that the transactions are consistent with the accountable institutions knowledge of the client and the client’s business and risk profile; and

2. The background and purpose of all complex, unusual large transactions, and all unusual patterns of transactions, which have no apparent business or lawful purpose.

RECORDKEEPING REQUIREMENTS:

The Amendment Act recognizes that recordkeeping is an essential component of a successful system to combat money laundering and terrorist financing and for this reason the Act requires accountable institutions to retain records concerning client identification and transaction activity. The transaction records must be sufficient to enable the transaction to be reconstructed, and must include:

1. The amount;
2. The currency;
3. The date of the transaction;
4. The parties to the transaction;
5. The nature of the transaction;
6. Pertinent or relevant business correspondence; and
7. The identifying particulars of all accounts and account files related to the transaction if the accountable institutions provides account facilities.

Whilst the Amendment Act does not set out requirements as to the manner in which records must be kept, the following principles must be met:

1. The accountable institution must have free and easy access to the relevant records;
2. The records must be readily available to the Centre and the relevant supervisory body when required;
3. The records must be capable of being reproduced in a legible format; and
4. If the records are stored off-site, the Centre and the relevant supervisory body must be provided with the details of the third party storing the documents.

The abovementioned records must be kept for a period of at least five years from the date on which the business relationship is terminated.

CONCLUSION:

It is vitally important that accountable institutions make themselves aware of the obligations placed on them by the Amendment Act as the penalties for failing to meet the standards are severe. Business owners are called upon to be proactive in ensuring that they are aware of the money laundering and terror finance risks that their respective businesses face and must put in steps to effectively mitigate such risk.

Article by David Campbell supplied via Meumann & White