As attention shifts to Parliament’s processing of the omnibus “anti-grey-listing bill”, the equally important amendments to the schedules to the Financial Intelligence Centre Act (Fica) have probably slipped from public view.
However, the Fica amendments are not “done and dusted” insofar as the committee stage of the parliamentary process is concerned.
The amendments are with the National Council of Province’s Select Committee on Finance, which postponed voting on them last month because of an impasse between National Treasury and the National Clothing Retail Federation of South Africa (NCRF).
The Select Committee is next scheduled to meet on 11 October.
The NCRF, which represents the country’s major clothing retailers – the likes of Mr Price, Truworths and The Foschini Group – lobbied for a carve-out to the draft amendment of Item 11 of Schedule 1 of Fica. The carve-out would exempt credit providers that provide credit facilities in the form of retail store cards from becoming accountable institutions.
As it is currently worded, the proposed amendment to Item 11(a) will make credit providers, as defined in the National Credit Act (NCA), accountable institutions.
In Treasury’s view, one of the Financial Action Task Force’s standards requires that the “act of lending” is included in the country’s measures against money laundering and terrorist financing.
The NCRF raised its concerns about the blanket inclusion of credit providers during a presentation to the Select Committee on 20 September. The NCRF says it will have drastic and adverse unintended consequences on both credit retailers and retail credit consumers.
The organisation also objected to the blanket inclusion of credit providers when the amendments were before the National Assembly’s Standing Committee on Finance.
During its presentation to the Select Committee, the NCRF suggested that retailers be excluded by the addition of the words in italics: “A person who carries on the business of a credit provider as defined in the National Credit Act, 2005 (Act 34 of 2005), excluding credit providers who offer credit as provided for in section 8(1)(a) read with section 8(3) in circumstances where the credit facility in question constitutes a closed-loop, revolving credit store card where a limit is available to the consumer and an instalment is payable monthly.”
Treasury and the Financial Intelligence Centre (FIC) are of view that the NCRF’s proposal could create unintended uncertainty and bring vagueness into the description of item 11. A carve-out would undermine the overall application of a proportionate risk-based approach that the FIC sought to achieve.
At the conclusion of the committee’s meeting on 20 September, the chairperson, Yunus Carrim, suggested that Treasury, the FIC and the NCRF meet to see whether they could reach an agreement.
The parties met on 22 September but did not reach an agreement. They outlined their positions when they appeared before the Select Committee the following day.
Implications of compliance
One of the main sticking points are the implications for credit providers and consumers of the FIC’s risk-based approach to identifying and verifying the identities of customers who apply for credit.
In Treasury and the FIC’s view, the “proper application” of the risk-based approach gives retailers the flexibility to choose the type of information used to establish and verify consumers’ identities.
The NCRF says although proof of residence might not necessarily be a requirement in law, in its experience, this was something the FIC looked at in investigations and enforcement matters.
It said 30% to 40% of consumers seeking retail credit would not be able to produce or provide proof of residence, which would result in the exclusion of between 3.399 million and 4.532 million consumers from the credit market.
The NCRF submitted that the cost of compliance will be at least R25 to R30 per credit applicant, which would translate into R275 million to R330 million for clothing retailers.
Treasury questioned how the NCRF arrived at these potential costs. It said there should not be any additional compliance costs, because retailers would not have to obtain significant additional information from customers beyond what they are already obtaining to comply with the NCA.
During the committee’s meeting on 23 September, the NCRF, the FIC and Treasury indicated that they would continue to engage.
The deadline for passing the Fica amendments is the end of October.
