Nedbank has blamed delays in the promulgation of amendments to the Financial Intelligence Centre Act (Fica) for the effective fine of R20 million and other administrative sanctions imposed by the Prudential Authority (PA) for non-compliance with Fica.
In a statement, Nedbank said the compliance inspection was conducted in May and June 2019, which was less than two months after “fundamental” amendments to Fica were required to be implemented by 2 April 2019.
The bank said the “lengthy” delays in the promulgation of the amended Act had adverse implications, because the extended delays in the “requirements definitions” affected the timeous finalisation of system changes, “in conjunction with Nedbank’s comprehensive information technology transformation programme that was already well under way”.
Last week, the South African Reserve Bank (SARB) said the administrative sanctions were imposed because of Nedbank’s failure to comply with certain of the administrative provisions of Fica. There was no evidence of Nedbank’s involvement in, or facilitating of, transactions involving money laundering or the financing of terrorism.
The sanctions included cautions, reprimands and a total financial penalty of R35m, of which R15m has been conditionally suspended (see below for details).
Nedbank said it has remedied all the compliance deficiencies identified by the PA.
It added that since the 2019 inspection, its compliance and risk management, including its Fica reporting obligations, have “matured extensively”, and the bank has made “significant” investments in new systems to enhance end-to-end control and compliance.
The bank paid the R20m fine in April this year. “The amount was covered by central provisions raised by Nedbank over time.”
According to Nedbank, of the total R20m fine paid, R15m (excluding R10m conditionally suspended for 12 months) related to reporting gaps that it had identified and disclosed to the PA before the Authority’s inspection in 2019.
The implementation of a new financial industry-wide reporting system in 2016 resulted in Nedbank’s reporting processes failing timeously to identify a number of reportable cash transactions. These have subsequently been reported in full by Nedbank, the bank said.
Grey-listing too close to call, says Nedbank CEO
Although the sanctions were imposed as a result of an inspection conducted in 2019, they come at a time when South Africa faces the prospect of being grey-listed by the Financial Action Task Force (FATF) in February next year.
The FATF is an intergovernmental organisation founded on the initiative of the G7 countries to develop policies to combat money laundering and, later, terrorism financing.
Nedbank chief executive Mike Brown told Business Day on 10 August that he thought it was still possible for South Africa to avoid grey-listing, but the prospect was “too close to call”.
The publication quoted Brown as saying that much of the work required to avoid grey-listing fell outside National Treasury’s domain.
Most of the hurdles South Africa needs to clear require legislation to be passed by Parliament, while Brown said there was also an investigative and prosecutorial component that depended on action from the Financial Intelligence Centre, the Hawks and the National Prosecuting Authority, Business Day reported.
“I’m sure that FATF sits there and says, ‘here’s a country that has just been through state capture and no-one is in jail – it’s obvious the system doesn’t work’,” Brown was quoted as saying.
Unlike Standard Bank chief executive Sim Tshabalala, Brown does not believe the effect of South Africa’s potential grey-listing will be as bad as a sovereign ratings downgrade.
Read: Too soon to panic about grey-listing?
“If we are grey-listed, my personal view is that the impact will not be as dramatic as a sovereign ratings downgrade below investment grade,” Brown was quoted as saying. “It will make the frictional cost of transactions cross-border materially more expensive because there will be more due diligence required by all our correspondent banks.”
Other potential consequences identified by Nedbank were the likelihood of the United Kingdom and the European Union adding South Africa to their lists of countries with high financial risk, which could have adverse consequences on trade and financial flows. The United States, EU and UK could also place restrictions on their lenders’ ability to transact with South African banks.
However, Brown said many of these potential risks have already been priced in by financial markets, Business Day reported.
Details of Nedbank’s non-compliance
The SARB said the sanctions imposed on Nedbank stemmed from the following non-compliance with Fica:
1. Nedbank failed to comply with its risk management and compliance programme (RMCP) obligations in terms of sections 42(1), 42(2) and 42(2A) of Fica in that it failed to:
- Apply a risk-based approach across its business clusters in accordance with its RMCP;
- Apply enhanced due diligence controls;
- Risk-rate its clients;
- Provide evidence that it had developed and documented end-to-end procedures and working methods relating to its systems and processes used to onboard clients; and
- Provide evidence that its controls and/or oversight measures were able to extract the correct data that would allow it to accurately risk-rate its clients.
The PA imposed a caution, a reprimand, and a fine of R5m, of which R2m has been conditionally suspended for 12 months.
2. Nedbank failed to comply with its record-keeping obligations in terms of sections 22, 23 and 24.
The PA imposed a reprimand and a fine of R5m, of which R3m has been conditionally suspended for 24 months.
3. Nedbank failed to comply with its reporting obligations in terms of section 28 in that it failed to report a significant number of cash transactions that exceeded the threshold of R24 999.99.
The PA imposed a caution, a reprimand, and a fine of R25m, of which R10m has been conditionally suspended for 12 months.
4. Nedbank failed to comply with section 42(2)(o) of Fica and Financial Intelligence Centre Directive 5/2019 in that it was unable to determine timeously when a transaction was reportable in terms of section 29.
The PA imposed a caution, a reprimand, and a directive to take remedial action.
5. Nedbank failed to comply with its anti-money laundering and counter-financing of terrorism governance-related obligations in terms of sections 42A(1), 42A(2), 42A(3), 42(2)(b), 42(2)(d) and 42(2)(f), because the bank was unable to provide evidence that senior management’s approval was obtained for its customer due diligence requirements before they were implemented.
The PA cautioned Nedbank not to repeat the conduct that led to the non-compliance.
