Will your business be an accountable institution from 19 December?

The amended schedules to the Financial Intelligence Centre Act (Fica), which significantly increase the number of sectors included as accountable institutions, will come into effect on 19 December.

Minister of Finance Enoch Godongwana published the amended schedules in the Government Gazette on 29 November.

The amendments are among the legislative measures designed to prevent South Africa from being grey-listed by the Financial Action Task Force (FATF) in February next year. The other two measures are the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Bill and the Constitutional Democracy against Terrorist and Related Activities Amendment Bill.

The amendments add the following sectors or types of business activity to the list of accountable institutions in Schedule 1:

Item 2(a) and (b): Company service providers, which includes those who assist clients with transactions designed to establish, manage a company or a close corporation, as well as those who act for a client as a nominee as defined in the Companies Act.

Item 7A: Co-operative banks.

Item 20: High-value goods dealers, which means any business that receives payments in any form of R100 000 or more per item, whether payment is made a single transaction or more transactions.

Item 21: South African Mint Company. The South African Reserve Bank and the SA Mint asked that the SA Mint be listed separately, instead of falling under Item 20, to remove uncertainty about its need to comply with the Act.

Item 22: Crypto asset service providers (Casps), such as crypto exchanges and providers that enable people to store their crypto assets.

Item 23: Clearing system participants for the facilitation of electronic fund transfers. This is to enable the capture of electronic payments made through non-bank clearing houses.

Wider scope of activities

The definitions of certain sectors already listed in Schedule 1 were amended to widen the scope of activities that may result in an individual or entity becoming an accountable institution, while some amendments were technical in nature:

Item 1: Legal practitioners. The provision has been updated to take account of the repeal of the Attorneys Act and the introduction of the Legal Practice Act, to make it clear that advocates who practise in the same way as attorneys (dealing directly with the public) are also accountable institutions.

Item 2(c) and (d): Trust service providers. The amendment clarifies that anyone who provides trust services (setting up a trust, managing trust property, acting as professional trustees), regardless of their profession, is an accountable institution.

Item 4: Authorised user of an exchange. The reference to the repealed Securities Services Act has been replaced by the Financial Markets Act.

Item 8: Long-term insurance business, as defined in the Insurance Act, instead of the Long-term Insurance Act, but excluding reinsurance business.

Item 11: Credit providers. These now include credit providers as defined in the National Credit Act (NCA), as well as anyone who carries on the business of providing credit in terms of any credit agreement that is excluded from the NCA by virtue of section 4(1)(a) or (b) of the Act.

Item 12: Financial services providers. The amendment clarifies that this item covers a person who is required to be authorised in terms of the FAIS Act to provide either intermediary services or advice, instead of intermediary services and advice, in respect of the investment of a financial product. However, this excludes a non-life insurance policy, reinsurance business as defined in the Insurance Act, and the business of a medical scheme as defined in the Medical Schemes Act.

Item 16: The reference to the Ithala Development Finance Corporation has been deleted, because its business is mainly the provision of credit, so it is covered by the amended Item 11, which includes similar institutions, such as the Land Bank.

Item 19: Money remitters. The wording has been changed to clarify that it also covers businesses involved in the transfer of “value” without funds actually being sent from one location to another.

No reporting institutions listed

As a result of the inclusion of high-value goods dealers as a category of accountable institutions, the sectors listed as reporting institutions in Schedule 3 have been removed. Schedule 3 listed motor vehicle dealers and Krugerrand dealers as reporting institutions. Certain entities that fall under these two categories of reporting institutions will now be included in the new category of high-value goods dealers in Schedule 1.

Changes to supervisory bodies

The amendments also change the supervisory bodies listed in Schedule 2. The Independent Regulatory Board for Auditors, the National Gambling Board, and the law societies have been deleted from the schedule.

The FIC will oversee and enforce Fica risk and compliance adherence among non-financial sectors, including trust and company service providers, legal practitioners, high-value goods dealers, the SA Mint, Casps, and credit providers.

No fines for the first 18 months

In a statement, the FIC said that in the first 18 months from the date of commencement of the amendments, the FIC and supervisory bodies will focus on entrenching Fica’s risk and compliance provisions and implementation among the new sectors in Schedule 1.

“Supervisory bodies will conduct inspections and, where warranted, issue remedial administrative sanctions, based on a risk-based approach, to correct identified areas of non-compliance.”

In respect of the new sectors, the FIC and supervisory bodies “do not envisage” issuing financial penalties for non-compliance with the Fica during the transitional 18-month period, the statement said.

Compliance obligations of accountable institutions

The sectors that have been added to Schedule 1 will have to register with the FIC as accountable institutions and fulfil certain regulatory obligations. These include implementing customer identification and verification, customer due diligence, appointing a compliance officer, training employees on Fica compliance and money laundering/terrorism financing/proliferation financing (ML/TF/PF) risk exposure, undertaking business risk assessments for ML/TF/PF, and maintaining and implementing a risk management and compliance programme.

Accountable institutions are also required to file regulatory reports relating to suspicious and unusual transactions, cash transactions exceeding the prescribed threshold, and on property that is linked to sanctioned persons, terrorist activity or terrorist organisations.

Alignment with FATF standards

The FIC said the inclusion of new sectors as accountable institutions will align South Africa’s anti-money laundering, anti-terrorism financing and counter-proliferation financing framework more closely with the standards set by the FATF, thereby addressing the coverage weaknesses identified in the FATF’s 2009 and 2019 mutual evaluations of South Africa.

In meeting their Fica risk and compliance obligations, the additional sectors will improve the FIC’s ability to obtain information about the financial activities of customers from a wider range of financial and non-financial institutions, and Casps. This will “enrich and help augment the quality of financial intelligence reports the FIC provides to law enforcement, supervisory bodies, and policy-formulating entities”, the Centre said.

Click here to download the amended schedules.

If you are unsure what your Fica obligations are, your first step should be to complete a rudimentary training course. Click here for information on what Moonstone offers in this regard.