An introduction to the key amendments in the Financial Intelligence Centre Amendment Act, No 1 of 2017 (‘the FIC Amendment Act’)

A. Introduction:

Industry, and specifically accountable institutions under the Financial Intelligence Centre Act, No. 38 of 2001, as amended (FICA), often raise the question what the key amendments are under the FIC Amendment Act and what exactly the affect are on these institutions. In a series of articles, the latest FICA amendments and its impact will be explored. This is the first in a series of these articles and we trust that this will add value to our readers and provide a better understanding of specifically the FIC Amendment Act, but also in respect of Anti-Money Laundering (“AML”) and Combatting of the Financing of Terrorism (“CFT”) in general.

The President has signed the FIC Amendment Act into law on 26 April 2017 and it was gazetted on 2 May 2017. The responsibility to determine the effective dates of these amendments have been allocated to the Minister of Finance. In Notice 563, Government Gazette 40916 of 13 June 2017, the Minister announced the incremental implementation of the amendments. Some of the provisions became effective on 13 June 2017 and some will become effective on 02 October 2017. When one has regard for the implementation dates it is clear that there are a remainder of sections that will be proclaimed at a future date. The first set of implementations on 13 June 2017 don’t require changes to existing regulations, exemptions or internal systems of the accountable institutions. Draft regulations, exemptions and guidance have been published for public comment.

The Financial Intelligence Centre (FIC) has stated that the implementation of the last set of dates in respect of outstanding amendments will occur no later than by the end of 2018. The FIC has indicated that the existing Regulations and Exemptions will require extensive amendments in order to align with the FIC Amendment Act. The draft amendments to these documents have been issued for public comment.

A further development over the last year that must not escape institutions, is the intention of the FIC to expand the ambit and obligations of FICA to other accountable institutions not presently mentioned in Schedule 1 of FICA. The FIC issued a Notice “Amendment of the Schedules to the Financial Intelligence Centre Act,2001(Act 38 of 2001” in September 2016. The FIC has had numerous consultations with the certain industries and this process to expand the items listed in Schedule 1 of FICA is very much active and in process. The list of institutions that the FIC seeks to include as accountable institutions are available in the said Notice and are as follows:

  • Professional accountants
  • Persons who provide trust and/or company services
  • Dealers in high value goods (including, amongst others, precious metals and stones, motor vehicles and coins)
  • Co-operatives which provide financial services, as defined in the Co-operatives Banks Act, 2007 (Act 40 of 2007)
  • Short-term insurers as defined in the Short-Term Insurance Act, 1998 (Act 53 of 1998)
  • Credit providers who are required to register as contemplated in section 40 of the National Credit Act, 2005 (Act 34 of 2005)
  • Money or value transfer providers
  • Providers of private security boxes or security vaults for the safekeeping of valuables
  • Auctioneers, including sheriffs, as defined in the Sheriff’s Act, 1986 (Act 90 of 1986) when performing the job of an auctioneer at a public auction
  • Dealers in copper material
  • Virtual currency exchanges where virtual currency is bought and sold for fiat currency (money that government has declared to be legal tender).

Institutions who are on this list and who have not yet engaged the FIC should firstly obtain the Notice from the FIC website and secondly ensure that they engage the FIC in the consultation process.

B. Key Amendments to FICA:

It is not the intention to deal with the amendments in detail in this article but merely to identify some of the key amendments and to provide a brief explanation of these. In further articles in this series we will probe further into these amendments and provide greater context to specific amendments:

  1. Accountable Institutions must adopt a Risk Based Approach. In our view, the move is not from a Rules Based Approach to purely a Risk Based Approach, but rather to a hybrid of Risk and Rules Based Approach. Nonetheless this is a major departure from the previous position and one that will be explored in greater depth in future articles. For now, accept that accountable institutions must ensure that they have a proper understanding of how their products and services can be used for purposes of money laundering and for the financing of terrorism and how they will mitigate that risk. The measures used to mitigate or prevent money laundering and terrorist financing must be proportionate with the risks identified.
  2. Customer Due Diligence (“CDD”): The FIC Amendment Act has included a new concept. Previously FICA referred to Client Identification and Verification (“CIV”) which has a much narrower interpretation than CDD. Naturally accountable institutions must still identify and verify their clients but with CDD there is a greater responsibility to know who you are doing business with. Obligations such as additional due diligence, establishing beneficial ownership, ongoing due diligence, what to do when you doubt the veracity of previously obtained information and what to do when your customers are Domestic Prominent Influential Persons or Foreign Prominent Public Officials, or family and known associates, resort under CDD. Much, much more on this topic in the anticipated future articles.
  3.  Amendments have been made to the record-keeping provisions.
  4.  Targeted Financial Sanctions: This is a completely new obligation and quite an onerous one on accountable institutions. The obligations are detailed, but essentially accountable institutions must do sanctions screening and in certain circumstances will be required to report to the FIC, in terms of section 28A as amended.
  5.  Risk Management and Compliance Programme (“RMCP”): The RMCP replaces the Internal rules. The FIC states that, “An accountable institution’s ability to apply a risk-based approach effectively is largely dependent on the quality of its RMCP.”. The RMCP comprises of policy documents, procedures, systems and controls that must be implemented within the accountable institution. This RMCP, with the Risk Based Approach, Customer Due Diligence and Sanctions screening are probably the most important amendments.
  6.  There is however a last one for purposes of this discussion that is a fundamental change to the previous position. It relates to the question who is responsible for compliance with FICA and it is clearly the Directors in the case of a legal entity or senior management. This decreases the substantial risk that compliance officers had under the previous version of FICA.

       C. Conclusions:

As previously mentioned this is simply an introduction to articles which will explore the key amendments in more depth. From the above discussion, it must be evident that the amendments to FICA through the FIC Amendment Act are certain to have an impact on how accountable institutions adapt and how they comply to these amendments.

Advocate Jan Augustyn has been a Regulator, and specifically an enforcer of compliance for over 15 years He has also witnessed the compliance challenges that industry faces through his consultation and legal representation over the last 3 years. Jan writes and conducts presentations on FICA and related issues. Jan has been appointed by Consumer Profile Bureau as their FICA Compliance counsel specialist.

Consumer Profile Bureau (CPB) has taken the market by storm with their unique “paperless” FICA solution that allows Accountable Institutions to ensure compliance and risk mitigation in terms of their Risk Based Compliance Programme.

Contact us @ kyc@cpbonline.co.za for more information.