As Maya Angelou said, “If you don’t know where you’ve come from, you don’t know where you’re going.”
South Africa is close to exiting the FATF grey list, having resolved 20 of 22 deficiencies. National Treasury expects the final two to be addressed by June, with delisting possible by October.
However, Charl Geel (pictured), the head of FICA supervision at the FSCA, cautioned at the regulator’s Industry Conference that enforcement efforts must not wane. “We need to sustain – and increase – our enforcement efforts,” he said.
South Africa’s fight to stay off the grey list began in 2019 when the Financial Action Task Force (FATF) flagged major anti-money laundering and countering the financing of terrorism (AML/CFT) weaknesses. The October 2021 Mutual Evaluation Report rated the country poorly, triggering a 12-month observation period from March 2022. Despite significant progress, 22 key deficiencies remained, leading to grey-listing in February 2023.
The FSCA and other regulators were tasked with addressing seven key issues, including strengthening the “fit and proper” requirements, improving risk assessments, prioritising risk-based inspections, and enhancing enforcement powers – particularly the ability to impose financial penalties.
For the FSCA, the key priorities included enhancing oversight of Category II FSPs and CIS managers in line with their money laundering and terrorism financing risk profiles and bolstering supervisory capacity. Additionally, the regulator was urged to enforce stricter penalties – using a full suite of enforcement measures, including monetary penalties – for AML/CFT breaches, ensuring sanctions are proportionate and dissuasive.
Despite progress, two key issues remained. Assessors acknowledged the FSCA’s steps to establish a dedicated AML/CFT unit and implement risk-based supervision but emphasised the need for greater capacity at both the FSCA and the Financial Intelligence Centre (FIC). They also flagged concerns over enforcement, noting that sanctions were often inadequate and follow-up on remedial actions was inconsistent.
As a result, two grey-listing action items were identified:
- South Africa should strengthen the AML/CFT supervisory capacity (human and financial resources) of the FSCA and the FIC.
- South Africa should demonstrate that all AML/CFT supervisors apply and monitor implementation of follow-up remedial actions, and that effective, proportionate, and dissuasive sanctions are applied.
Capacity-building
By the time South Africa was grey-listed on 24 February 2023, the FSCA’s AML/CFT unit had only seven staff members. Two years later, that number has grown to 27.
Geel credited the FSCA’s leadership for prioritising resources.
“There’s a high level of commitment within the FSCA to address these action items, as can be seen. So, our staff complement increased by 257%, and that’s basically in a year-and-a-half’s time that we appointed all these people.”
New staff undergo intensive three-month induction training, supplemented by World Bank training in 2024 for FSCA and other supervisory bodies. This expansion has strengthened inspection efforts.
FIC Act inspections rose from 38 in 2022/23 to 60 in 2023/24 and are set to reach 100 in 2024/25. The goal for the next financial year is 140 inspections. The unit also follows up on remediation efforts.
“We’ll make certain findings during the inspection. We will see if you have remediated those findings… And then we also do some thematic inspections.”
The unit has conducted 87 pre-licensing inspections on crypto asset FSPs alongside conduct of business and licensing teams.
“That’s where we go with our licensing team and look at whether they already have some AML/CFT framework when they apply for their FSP licence.” Additionally, 10 inspections focused specifically on crypto asset service providers. “They are in the spotlight. They can expect a lot of attention from the FSCA.”
Joint inspections with the Prudential Authority have also been introduced. The increased resources have enabled off-site supervision to track non-compliance, engage with accountable institutions, reissue directives, update risk assessments, and expand awareness initiatives through conferences, webinars, and newsletters.
Geel highlighted the importance of off-site supervision.
“We also started to issue what we call introductory letters to newly authorised FSPs (including CASPs), as well as existing FSPs approved for amendments to their financial product authorisation.” A total of 468 such letters were issued in 2023/24.
As a result, the action item was upgraded to largely addressed in February 2024, ahead of the May 2024 deadline.
Remedial and enforcement action
“With regards to enforcement. How did we do with enforcement? Very well,” Geel told delegates.
Since 2021, the monetary value of financial penalties issued by the FSCA has surged by 197%, from R11.98 million to R35.58m.
“We had to do it. That’s what FATF wants us to do. Are we going to stop? Are we just doing it because of grey-listing? No, this has become the norm. So please expect us to come down hard on you when you are not compliant.”
Non-financial penalties also saw a sharp increase, rising by 366% from only three in 2021 to 14 in 2024.
“We are also the only supervisor that withdrew a licence because of AML/CFT non-compliance. So, I mean, it’s as bad as that. We are looking at your licensing conditions. If you don’t meet the AML/CFT requirements, you run a risk of losing your licence,” Geel warned.
The FSCA has also been successful in appeals.
“The Appeal Board has found in favour of the FSCA where we were challenged.”
To enhance awareness and deterrence, the FSCA published media releases on all sanctions issued that were not subject to appeal. The number of sanctions imposed fluctuated over the years: eight in 2021, four in 2022, two in 2023, and eight in early 2024. Geel noted that this figure would likely increase for this year.
Geel noted that the FSCA was on track to exceed the eight sanctions issued earlier in 2024.
“These are the stats that FATF was looking for. These are the stats that were used in getting the tick that we’ve met this action item,” he said.
Future of grey-listing
South Africa still has two outstanding action items to address: a sustained increase in prosecutions for serious and complex money laundering and an increase in investigations and prosecutions of terrorist financing activities.
As a result, the country will not exit the grey list in June as originally hoped. The earliest possible exit has now been pushed to October, pending an on-site review by assessors in September. For that review to proceed, the remaining action items must be met by June.
During the visit, the FSCA will need to demonstrate that it continues to issue remedial actions and enforce effective, proportionate, and dissuasive sanctions.
Geel noted that the private sector would also be interviewed during the review.
“One of the things that you may expect, and we will communicate that maybe closer to the time, is that they may also, when assessors come here for the on-site visit… they will consult some of you as the private sector, especially those that have been sanctioned, to understand did the sanction lead to or was it the sanction dissuasive enough, did you change some of your processes as a result of the sanction?”
Meanwhile, National Treasury has begun high-level preparations for South Africa’s next mutual evaluation, expected in 2026/27. Geel said various working groups, of which the FSCA is part, have started assessing the country’s technical compliance with AML/CFT regulations to identify and address potential deficiencies.
The FSCA has already started preparing for the next evaluation.
“We certainly don’t want to get back onto the grey list. This is led by National Treasury, and we hope the next mutual evaluation goes well, but I’m very confident that it will go well, because this grey-listing has been a great process to enhance our processes.”
Geel added that South Africa’s AML/CFT framework is far stronger than it was in 2019.
“We are positive that, together with the private sector, we will pass the next test with flying colours.”
