 On 18 August 2023, following the issuance of a notice in the Government Gazette, the amendment of Section 56 of the Financial Intelligence Centre Amendment Act of 2017 came into effect. This amendment is explained by the FIC’s Draft Guidance Note 104A, issued on 18 January 2023, as well the FIC’s International Funds Transfer Reports user guide, dated 9 February 2023. In essence, Section 43 of FICA introduces an amendment to Section 56 within the Act. This Section deals with the repercussions when an accountable institution, as mandated, fails to report the prescribed information concerning cross-border electronic funds transfers (EFT’s). This amended Section 56 now includes a sub-section (2) which specifies that if an accountable institution fails to report the prescribed information related to an electronic money transfer in accordance with Section 31, it not only becomes liable for an offense but is also considered non-compliant and subject to an administrative penalty. The requirements Section 31 of FICA imposes an obligation on accountable institutions to submit an international funds transfer report (IFTR) - • within three days of the transaction or transfer date, when conducting electronic money transfers. • This report must be submitted directly to the Financial Intelligence Centre (FIC). • These electronic money transfers must be moved on behalf, or on the instruction, of another person, • across South African borders, • involving amounts of R20 000 and above (excluding transaction fees). Who must Report? The obligation to report international fund transfer transactions exceeding the prescribed threshold applies solely to specific categories of accountable institutions authorized to conduct the business of cross-border electronic funds transfers, for example authorised dealers (banks), the Post Office, authorised dealers with limited authority (remittance and forex dealers), FSP’s that have a direct reporting dispensation under the Exchange Control Regulations and the South African Postbank, etc. These FSP’s will, in terms of the Exchange Control Regulations, be authorised by the Treasury in accordance with conditions as the Treasury may impose, to do the following: • Take or send out of the Republic any bank notes, gold, securities or foreign currency, or transfer any securities from the Republic elsewhere. • Send, consign or deliver any bank notes, gold, securities or foreign currency to any person for the purpose of taking, sending or removing such bank notes, gold, securities or foreign currency out of the Republic. • Take any South African bank notes into the Republic or send or consign any such notes to the Republic. • Make any payment to, or in favour, or on behalf of a person resident outside the Republic or place any sum to the credit of such person. • Draw or negotiate any bill of exchange or promissory note, transfer any security or acknowledge any debt. • Grant any financial assistance to any person in the Republic, where as security for such financial assistance, the person granting the financial assistance in turn relies on any security, guarantee, undertaking or financial assistance, directly or indirectly furnished by – (i) any person resident outside the Republic; or (ii) an affected person. • Grant any financial assistance to any person in the Republic, where such person – (i) is not resident in the Republic; or (ii) is an affected person. Failure to Report? The IFT Report must contain the specified details as stipulated in Regulation 23E of the Money Laundering and Terrorist Financing Control Regulations. Failure to adhere to these provisions constitutes an offense, subject to potential penalties including imprisonment for up to three years or a fine of up to R1 million. Additionally, failure to submit an IFTR within the stipulated timeframe classifies the entity or individual as non-compliant and subjects them to administrative sanctions, which may involve financial penalties reaching up to R10 million for individuals and R50 million for legal entities.  In recent years, Cryptocurrencies and Crypto Assets have gained significant attention and popularity. The Financial Sector Conduct Authority (FSCA) declared Crypto Assets to be financial products with immediate effect from 19 October 2022. The aforementioned means that anyone who provides financial services related to Crypto Assets will need to be appropriately licensed as a Financial Services Provider (FSP) and must apply to the FSCA for an FSP licence between 1 June 2023 and 30 November 2023.
Understanding the FSCA FAIS Notice 25 of 2023: Exemptions for Crypto Asset FSPs To regulate the financial services provided in relation to Cryptocurrencies and Crypto Assets, the FSCA has issued FAIS Notice 25 of 2023, which will apply to all licenses Crypto Asset FSPs and took effect on the date of publication, i.e. 11 May 2023. This notice outlines certain exemptions for persons rendering financial services involving Crypto Assets. In this blog post, we will explain the key points contained in the Notice. Exemption from General Code of Conduct and Regulatory Examinations Crypto Asset FSPs, its Key Individuals and Representatives are exempted from maintaining suitable guarantees or professional indemnity or fidelity insurance cover, as is required in terms of section 13 of the General Code of Conduct and Board Notice 123 of 2009. This exemption applies solely to the rendering of financial services in relation to crypto assets. Additionally, Crypto Asset FSPs and its Key Individuals are temporarily exempted from the regulatory examination requirements as captured in Part 5 of Chapter 3 of the Determination of Fit and Proper Requirements. This exemption lasts for a period of 18 months from the effective date of the notice. Exemption for Crypto Asset Supervised Representatives The notice also provides exemptions for Crypto Asset supervised Representatives, with different requirements based on their appointment status. If a supervised Representative was never appointed as a Representative of an FSP before the publication of this notice, they can be exempted from the Regulatory Examination requirements. However, the exemption is conditional upon the completion of the relevant regulatory examination within two years from their first appointment as a Representative for providing financial services in relation to Crypto Assets. For those supervised Representatives who were previously appointed only to render financial services for Tier 2 financial products or perform sales execution, they must comply with the applicable regulatory examination requirements within two years from the date they were first appointed as representatives for providing financial services related to crypto assets. Continuing Professional Development (CPD) Requirements It is a requirement that Crypto Asset FSPs, its Key Individuals and Representatives complete a minimum of 6 (six) hours of CPD activities per CPD cycle specifically relating to crypto assets. A Crypto Asset supervised Representative (including a supervised Representatives who were, before publication of this Notice, appointed only to render financial services for Tier 2 financial products or perform sales execution, and thereafter appointed as a representative to render financial services, other than the execution of sales, in relation to crypto assets) must also complete a minimum of 6 (six) hours of CPD activities relating to crypto assets per CPD cycle. The CPD cycle starts from the date when the supervised individual meets the applicable regulatory examination and qualification requirements for crypto assets, or after six years from their initial appointment as a crypto asset supervised representative, whichever occurs first. Non-Compliance It is essential for all parties involved, including Crypto Asset FSPs, its Key Individuals, Representatives and Crypto Asset supervised Representatives to comply with the conditions specified in the Notice. Failure to meet these conditions will automatically result in the exemption no longer being applicable to the respective individuals or entities. FAIS Notice 25 of 2023 therefore provides exemptions for individuals and entities involved in rendering financial services related to crypto assets. These exemptions are subject to specific conditions, including compliance with regulatory examination requirements and fulfilling CPD activities. It is important for those operating within this sector to stay updated with any amendments or withdrawals of the exemptions that may be published by the FSCA. Please also note that the new license application forms that now include Crypto FSP License Applications have now been published. For any help on getting licensed contact us today to get a quote!  South Africa's financial sector is undergoing significant regulatory changes to combat money laundering, terrorist financing, and proliferation financing. Accountable institutions (and others now) must adapt to these changes to ensure compliance and mitigate risks. We explore and summarise some of the more recent changes. The employee screening changes below are unrelated to the CIPC and Master's Office changes. Employee Screening - FICA Directive 8 and Public Compliance Communication 55
It is important to note that the employee screening changes are specific to all accountable institutions. Totally separate to that is the CIPC and Master's Office changes. They are not applicable to accountable institutions/financial services only but all companies and trusts and is a "once-off" and "when there are changes" exercise. So the next two headings applies to all Trusts and Companies in South Africa - note you cannot comply with it yet because the systems are not in place yet to be able to report. This is totally separate to FICA UBO screening/checks that accountable institutions have to do and must not be confused. In future this information might help accountable institutions to check this more easily to establish who the UBO's are.
Beneficial Ownership (BO) Transparency and the Companies Act
Beneficial Ownership and Trusts
In conclusion, South Africa's financial sector is taking significant steps to enhance transparency and combat financial crime. Accountable institutions must adapt in future to these regulatory changes to ensure compliance and mitigate risks. By understanding and implementing the requirements of Directive 8, beneficial ownership transparency, and trust regulations, accountable institutions can contribute to a more secure and transparent financial sector in South Africa. See the following links on the CIPC and Master of the High Court's websites: https://www.justice.gov.za/master/trust.html https://www.cipc.co.za/wp-content/uploads/2023/03/BO-Step-by-step-Guidelines.pdf  Compliance with the Financial Advisory and Intermediary Services (FAIS) Act and the Financial Intelligence Centre Act (FICA) regulations is crucial for Financial Service Providers (FSPs) when dealing with clients. To meet regulatory requirements, FSPs must maintain a comprehensive compliance file for each client. In this blog post, we provide a general checklist of the items that should be included in a compliance file for a retail client in accordance with FAIS and FICA regulations. Please note this might not cover all instances and each client and product type has some changes
Compliance File Checklist: Disclosure documentation: A letter of engagement outlining the services provided, fees and commissions charged, and any potential conflicts of interest. Record keeping: A record of all client interactions, including meetings, telephone calls, emails, and correspondence. Needs analysis: A thorough needs analysis to ensure that the products and services offered are suitable for the client's needs, objectives, and risk profile. Risk profiling: A risk profiling assessment to determine the client's risk appetite and tolerance. Product information: A detailed explanation of the products and services being offered, including any risks involved. Compliance requirements: All compliance requirements related to FICA KYC (Know Your Customer) and AML (Anti-Money Laundering) regulations. Record of advice: A record of all advice given to the client, including the rationale behind the advice. Quotations: A record of all quotations provided to the client. In conclusion, maintaining a comprehensive compliance file is essential for FSPs in the financial services industry. By ensuring that all necessary documentation and records are kept, FSPs can demonstrate their commitment to meeting regulatory requirements and providing clients with the necessary protection and information to make informed decisions. As a compliance outsourcing firm, we remind our clients to keep a detailed compliance file for each retail client in accordance with FAIS and FICA regulations. By doing so, our clients can have peace of mind knowing that they are meeting regulatory requirements and promoting ethical business practices within the industry.  In an effort to deal with the possible grey listing of South Africa and strengthening the fight against money laundering, terrorist financing and proliferation financing, the FIC recently made some changes. With effect from 19 December 2022, the list of Accountable Institutions in Schedule 1 was amended, and the updated list is as follows:
1. (a) A person who is admitted and enrolled to practise as a legal practitioner as contemplated in section 24(1) of the Legal Practice Act, 2014 (Act 28 of 2014) who is:
2. (a) A person who carries on the business of preparing for, or carrying out, transactions for a client, where– (i) the client is assisted in the planning or execution of
(d) A person who carries on the business of preparing for or carrying out transactions (including as a trustee) related to the investment, safe keeping, control or administering of trust property within the meaning of the Trust Property Control Act, 1988 (Act 57 of 1988). 3. An estate agent as defined in the Estate Agency Affairs Act, 1976 (Act 112 of 1976). 4. An authorised user of an exchange as defined in the Financial Markets Act, 2012 (Act 19 of 2012). 5. A manager registered in terms of the Collective Investment Schemes Control Act, 2002 (Act 45 of 2002), but excludes managers who only conduct business in Part VI of that Act. 6. A person who carries on the “business of a bank” as defined in the Banks Act, 1990 (Act 94 of 1990) 7. A mutual bank as defined in the Mutual Banks Act, 1993 (Act 124 of 1993). 7A. A co-operative bank as defined in the Co-operative Banks Act, 2007 (Act 40 of 2007). 8. A person who carries on a life insurance business as defined in the Insurance Act, 2017. This excludes a reinsurance business, as defined in this Act; 9. A person who carries on the business of making available a gambling activity as contemplated in section 3 of the National Gambling Act, 2004 (Act 7 of 2004) in respect of which a license is required to be issued by the National Gambling Board or a provincial licensing authority. 10. A person who carries on the business of dealing in foreign exchange. 11. (a) A person who carries on the business of a credit provider, as defined in the National Credit Act, 2005; (b) A person who carries on the business of providing credit in terms of any credit agreement that is excluded from the application of the National Credit Act, 2005 by virtue of section 4(1)(a) or (b) of that Act. 12. A person who carries on the business of a financial services provider requiring authorisation in terms of the Financial Advisory and Intermediary Services Act, 2002 to provide advice or intermediary services in respect of the investment of any financial product (but excluding a non-life insurance policy, reinsurance business as defined in the Insurance Act, 2017 and the business of a medical scheme as defined the Medical Schemes Act, 1998) 13. A person who issues, sells or redeems travellers’ cheques, money orders or similar instruments. 14. The South African Postbank Limited referred to in section 3 of the South African Postbank Act, 2010 (Act 9 of 2010) 15. A person who carries on the business of a money or value transfer provider 16. A person who carries on the business of dealing in high-value goods in respect of any transaction where such a business receives payment in any form to the value of ZAR100 000 or more, where "high-value goods" means any item that is valued in that business at ZAR100 000 or more. This specifically relates to tangible items that are traded, sold or bought in the ordinary course of business of that entity. For example, an audit firm that is downsizing and selling their fleet of vehicles for R135 000 each would not be part of the regular feature of the audit firm’s business. However, a tanzanite dealer who has items that are over R100 000 each, would fall within the ambit of the HVGD. 17. The South African Mint Company (RF) (Pty) Ltd, only to the extent that it distributes non-circulation coins in retail trade and where in respect of such transactions it receives payment in any form to the value of R100 000,00 or more, whether the payment is made in a single operation or in more than one operation that appears to be linked. 18. A person who carries on the business of one or more of the following activities or operations for or on behalf of a client: (a) exchanging a crypto asset for a fiat currency or vice versa; (b) exchanging one form of crypto asset for another; (c) conducting a transaction that transfers a crypto asset from one crypto asset address or account to another; (d) safekeeping or administration of a crypto asset or an instrument enabling control over a crypto asset; (e) participation in and provision of financial services related to an issuer's offer or sale of a crypto asset; and where “crypto asset” means a digital representation of perceived value that can be traded or transferred electronically within a community of users of the internet who consider it as a medium of exchange, unit of account or store of value and use it for payment or investment purposes, but does not include a digital representation of a fiat currency or a security as defined in the Financial Markets Act, 2012 (Act 19 of 2012). 19. A clearing system participant as defined in section 1 of the National Payment System Act, 1998 that facilitates or enables the origination or receipt of any electronic funds transfer and or acts as an intermediary in receiving or transmitting the electronic funds transfer. These entities now have a responsibility to do the following:
The FIC further stated that it and supervising bodies are not intending to issue any fines for non-compliance during the first transitional 18-month period until May 2024. Thereafter, non-compliance by these entities can lead to imprisonment for a period not greater than 15 years or a fine that does not exceed R100 million. To read further on the amendments click here  On Thursday, 17 November 2022, one of our Compliance Officers, Adriaan van Wyk, was invited to a discussion on Money Laundering at the radio station POWER FM 98.7 hosted by Faith Mangope.
You can listen to the Podcast here: omny.fm/shows/power-lunch/money-laundering-in-south-africa#description  The FIC has updated the cash thresholds from R25 000.00 to R50 000.00. The reporting timeframes have also been updated from reporting within 2days to reporting within 3days after the company or any of its employees become aware of the transaction. This will become effective on 14 November 2022.
Lastly the aggregation of amounts that together total above R25 000.00 is also abolished. Generally this can be seen as a relaxation of the requirements and it unknown how this fits into the prevention of the possible coming FATF greylisting.  The FSCA recently posted the abovementioned notice. When reading it the average person, or even professional, will find it hard to understand what they are trying to convey. We simplify and explain it for you. Some background info: this is one of the items the FIC and our government needed to fix to ensure we do not get Grey Listed as a country. They are also busy ensuring other kinds of businesses are also classified as accountable institutions in terms of FICA (new additions will be credit providers, crypto exchanges, co-operative banks and high value goods dealers to name a few - more on this in our next post). The notice is complex because you have to refer to 2 notices (the original Joint Standard of 2020 and the exemption general notice 3 of 2020) and 2 pieces of legislation (FAIS Act and FSR Act) to understand it. In short - the notice only puts in place the legislation to allow the FSCA to ask for the information of significant owners of FSPs. One has to read the content very carefully - it only exempts FSPs from the requirement to prove competence and financial standing of significant owners. They will still need to do other things the original joint standard of 2020 requires of significant owners (such as disclosure thereof etc). Banks, insurers and CIS managers must do all that FSP's have to do but also prove competence and financial standing of SO's.
In short - the notice only puts in place the legislation to allow the FSCA to ask for the information of significant owners of FSPs. The mechanism with which they will require us to submit is still to be seen. I am guessing this will be asked with license applications and in future and perhaps they will require FSP's to upload it onto the e-Portal (or the compliance reports) , however that is just conjecture on my part. The actual submission requirement has not been announced yet. We will, however, potentially start to ask for it in our future compliance audits next year as a means to ensure our clients and so they are ready when the time comes.  I am a fan of regulations and compliance that have reasons and make sense. I am also a fan of "less is more" when it comes to regulation. In that vein I do believe much of our current financial services regulation in South Africa over-corrects to protect investors at the expense of economic activity and innovation. I've written a previous blog post about it that you can find here.
It seems like Crypto is heading the same way if some voices of reason do not speak up. It is not new that a country wants to control or outright ban Crypto. China has banned, un-banned and re-banned it many times over. Other countries have seen the light and provided enabling regulations for Crypto to flourish and grow. Mainstream adoption is growing exponentially in the form of ETF's being issued and even card issuers like Visa joining the party. Some Crypto Exchanges have even listed on major stock exchanges. So, what have our regulators done so far? They have issued zero final regulations. To their credit, there was a draft regulation on the advice and intermediary services on Cryptocurrencies issued in November of last year. But nothing has been said of that since a year ago. All that happened in the meantime is that the FSCA issued another draft regulation barring Pension Funds from holding Crypto assets. I would assume this includes NFT's (non-fungible tokens) in the form of Art which had sales of $10.7 billion in Q3 of 2021. The Reserve Bank has also reportedly pushed banks to prevent customers from buying Crypto with their cards and from buying Crypto from any company domiciled overseas. So basically we only have confusion and frustrated businesses. I can't begin to tell you how many Crypto businesses approached us in the last two years to find out how they can comply and get licensed. Unfortunately you can't yet. I understand that many people have been taken for a ride by Crypto scammers. But, many people have also been taken for a ride by money scammers. Does declaring investing in normal fiat money a crime, solve the problem? No, you but can rather provide trust by licensing exchanges and funds at best. One cannot eliminate all crime by force over-regulation as the criminals will still find ways to do the crime (rather beef up the criminal justice system). What you will accomplish with this heavy handed regulatory approach is overburden those that want to comply en ensure that less people are economically active in this space. Instead, enable the industry through a measured approach with limited regulation that is both practical and that encourages new entrants to the market. Blockchain technology is already changing the world and offering better use cases, privacy and trust for all involved. Cryptocurrency is just one use case of blockchain technology and we are at risk of getting left behind if do not create a better space for it to grow.  a reminder to accountable institutions to regularly submit CTRs, risk-rate clients (and potential clients) and comply with your own RMCP This blog is about the recently imposed administrative sanctions on Momentum Wealth (Pty) Ltd and Momentum Collective Investments RF (Pty) Ltd by the FSCA.
The broad reason for the sanctions was the ineffective money laundering/terrorist financing control measures of both accountable institutions, as required by the FIC Act. The total financial penalty imposed by the regulator on these institutions amounted to R11,100,000.00 (excluding an amount of R100,000.00 which is suspended for three years). The breaches identified by the FSCA were the following:
These cases serve as a reminder to accountable institutions to regularly submit cash threshold reports, risk-rate clients(and potential clients) and comply with your own RMCP. For more information click here |
by: Horizon Compliance teamCompliance Experts Archives
October 2023
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