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Risk approach will strengthen fight against money-laundering

South African accountable institutions need to adopt a risk-based approach to manage money laundering and terrorist financing risks, warns PwC. This comes in the wake of proposed amendments to South Africa’s anti-money laundering law – the Financial Intelligence Centre Act (FICA). The proposed amendments were discussed at a meeting of anti-money laundering professionals held in Centurion yesterday hosted by the South African Chapter of the Association of Certified Anti-Money Laundering Specialists (ACAMS).

Roy Melnick, National Leader of PwC’s Anti-Money Laundering and Counter-Terrorist Financing division says: “The new laws will not only strengthen South Africa’s fight against money laundering and terrorist financing, but also go a long way to ensuring that South Africa’s legal framework aligns itself with global anti-money laundering and counter-terrorist financing standards.”

The Financial Intelligence Centre, the custodian of FICA on behalf of the Government, has for several months advised that FICA is in the process of being reviewed and will be amended in line with global standards. The spotlight is firmly on South Africa following the Reserve Bank’s recent imposition of administrative penalties on the four largest banks.

Melnick points out that the most significant of the proposed changes will be the requirement to implement a risk-based approach to managing money laundering and terrorist financing risks. Although this approach was already addressed in FICA Guidance Note 3A issued in March 2012, the FICA amendments are certain to ensure implementation of this approach.

“Current measures employed by accountable institutions to identify and verify their customers will need to be revisited and potentially enhanced. This will almost certainly lead to changes to existing measures employed by institutions such as the manner in which high risk clients are managed; more onerous beneficial owner requirements; and the manner in which clients such as foreign politically exposed persons are identified, verified and monitored,” adds Melnick. This will require enhancements to existing monitoring, reporting, record keeping and training measures.

However, some institutions affected by FICA have chosen the ‘wait and see’ approach to the implementation of their risk-based approach before embarking on large scale projects that will require wholesome changes to how they conduct their businesses. “This risk-based approach will have the biggest impact on accountable institutions that have not yet begun their implementation.”

Melnick says implementation of the risk-based approach to customer due diligence could in fact simplify the customer management processes. “Moreover, it will provide an accountable institution with more insight into the money laundering and terrorist finance risks their organisation may be facing and afford them an opportunity to mitigate these,” he says. As things currently stand, some accountable institutions are not fully aware of the inherent money laundering and terrorist financing risks of their products and services. Implementation of a risk-based approach will give accountable institutions a better understanding of how to identify, assess and prevent or mitigate these risks.

In addition, any existing anti-money laundering and  counter-terrorist financing policies will require updating to ensure they are in line with organisational standards and changes to regulatory requirements. It is expected that FICA will require financial and other institutions to formally document, maintain and implement an anti-money laundering and counter- terrorist financing risk management programme in conjunction with their risk framework.

Accountable institutions will also be required to train their resources to ensure that their employees are equipped with the necessary knowledge and skills to accommodate the requirements of the proposed amendments. “Training programmes will have to be put in place to ensure that employees (and any third parties that are used) are familiar with the risk-based approach and the internal programme that has been implemented to accommodate it,” adds Melnick.

Melnick concludes: “Organisations are faced with an increasingly challenging anti-money laundering and counter-terrorist financing regulatory environment. Non-compliance with the laws can result in reputational damage as well as financial penalties for businesses.

Organisations are advised not to wait until the amendments to the law have been finalised but rather to begin with their implementations now. We already know of what is expected from a risk-based approach perspective having regard to the Financial Action Task Force recommendation and guidance, and the FICA guidance. By starting their programmes now accountable institutions will not only mitigate their money laundering and terrorist financing risk quicker but also take a proactive approach to meeting their legal obligations. The concept of a risk-based approach is not new and regulators are unlikely to support a delayed implementation to achieve compliance with the law once it comes into effect.”

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Sanchia  Temkin

Sanchia Temkin

Senior Manager, Media Relations, PwC South Africa

Tel: +27 (0) 11 797 4470

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