The Financial Intelligence Centre (FIC) and the National Payment System Department (NPSD) of the South African Reserve Bank (Sarb) have published a guidance note on the conduct of accountable institutions relating to electronic funds transfers (EFTs), as required in Directive 1 of 2022.
Before executing an EFT, the ordering financial institution and the beneficiary financial institution must have conducted a customer due diligence (CDD) on their respective clients in compliance with the Financial Intelligence Centre Act (Fica) and in terms of their risk management and compliance programmes, Guidance Note 8 says.
Directive 1 deals with the requirements for processing EFTs per Recommendation 16 of the Financial Action Task Force (FATF).
The directive applies to accountable institutions that facilitate or enable the origination or receipt of domestic and cross-border EFTs and/or act as an intermediary in receiving or transmitting EFTs.
It applies to domestic and cross-border EFTs initiated or processed through:
- An immediate settlement payment clearing house (PCH);
- An ETF credit PCH;
- A real-time clearing PCH;
- The SWIFT network;
- A credit, debit, or prepaid card; and
- Any other arrangement, system and/or product that can initiate or process domestic and cross-border electronic funds transfers, as may be determined by the Sarb from time to time.
Directive 1 does not apply to:
- A payment clearing house system operator as defined in the National Payment System (NPS) Act;
- A settlement system as defined in the NPS Act;
- Any transfer that flows from a transaction carried out using a credit, debit or prepaid card for purchasing goods or services, so long as the credit, debit or prepaid card number accompanies all transfers flowing from the transaction;
- Any transfers and settlements between financial institutions, where both the originator and the beneficiary are financial institutions acting on their own behalf; and
- EFT debits.
Some of the issues addressed by Guidance Note 8
Verifying client information
Paragraph 4.7 of Directive 1 prescribes the minimum information that an accountable institution must include in an inward cross-border EFT that is a single transaction of less than R10 000.
An accountable institution does not have to verify its client’s information unless there is a suspicion of money laundering or terrorist financing (paragraph 4.8). The accountable institution must verify the accuracy of the beneficiary information where the originator is in a high-risk or other monitored jurisdiction as listed by the FATF (paragraph 4.9).
Guidance Note 8 says that “verify the accuracy” in paragraphs 4.8 and 4.9 means the accountable institution must verify the client’s required and associated information captured in the EFT.
Given that an accountable institution must identify and verify client information before concluding a single transaction of R5 000 and above, the FIC is of the view that the information verified in this CDD process would meet the verification requirements set in Directive 1. Information that is not identified and verified as part of the CDD process would have to be verified through a process determined by the accountable institution.
For purposes of Directive 1, it would not be necessary to re-verify CDD information for every transaction, unless there are doubts about the veracity of previously obtained information or where a suspicious transaction report has been submitted to the FIC.
The threshold, verification and CDD
In terms of Directive 1, a “qualifying EFT” is a cross-border EFT that is a single transaction and is above R10 000.
The threshold for CDD requirements in Fica, read with Money Laundering and Terrorist Financing Control Regulation 1A, is R5 000. Directive 1 does not supersede the CDD obligations in Fica. As such, CDD processes remain an obligation on clients who enter a single transaction of R5 000 and above, Guidance Note 8 says.
Although Directive 1 only requires the verification of information for transactions above R10 000, an accountable institution “has readily available access” to verified client information obtained through its CDD processes. Accountable institutions are therefore “strongly encouraged” to capture verified information, irrespective of the value of the transaction, that is accessible to them.
It is the Centre’s understanding that verified information will be available for all transactions above R5 000 and transactions concluded within a business relationship, irrespective of the transaction value, Guidance Note 8 says.
In the case of a single once-off transaction of less than R5 000, an accountable institution must still obtain and record all the required information per Directive 1 and Fica, although the information would not be subject to verification. Similarly, where this information has been verified, the Centre “strongly encourages” the verified information to be captured.
Where a cross-border EFT raises a suspicion of money laundering or terrorist financing, irrespective of the transaction value, an accountable institution is required to conduct a CDD.
As with incoming cross-border EFTs (paragraph 4.9), where an outgoing cross-border EFT is a single transaction of less than R10 000 to a beneficiary in a high-risk or other monitored jurisdiction listed by the FATF, an ordering financial institution is “strongly urged” to verify the accuracy of the originator information as part of the mitigation of money laundering, terrorist financing and proliferation financing risks, Guidance Note 8 says.
