Johannesburg – Complying with the Financial Intelligence Centre Act (FICA) will be costly for banks, according to representatives from the Banking Association of South Africa (BASA).
Speaking at a briefing on Monday, senior general manager of market conduct Raksha Semnarayan unpacked different challenges the legislation presents.
The Bill gives effect to standards set out by the Financial Action task Force (FATF) to stop money laundering and the flow of illicit financial flows and the funding of terrorism. Banks part of the international banking community are expected to meet these standards, explained Semnarayan.
The South African Reserve Bank (SARB) will have the authority to assess banks and determine if they meet the standards prescribed by the Act, she said.
The Act introduces a risk-based approach as opposed to a rules-based approach followed previously. This gives banks more discretion to determine how to meet the standards. The risk-based approach supports the use of technological innovation for customer identification and verification to help with financial inclusion objectives.
There is a “huge” cost of compliance and it will have a significant impact on administration to implement. This will feed into the cost of banking and impact consumers, Semnarayan confirmed during a question and answer session.
The full cost of implementing FICA is not yet known as the full ambit of the regulation has not yet been determined, explained Semnarayan. “It will impact on consumers. We can’t say exactly how much… A whole host of regulatory costs have an impact on banks.”
Among the other key challenges is that banks will have to shift from operating from the rules-based or tick-box approach of compliance. “It requires a shift in approach of banking which will be a challenge,” said Semnarayan.
The rules-based approach was “onerous” and a whole list of requirements had to be met. But with the risk-based approach, banks may have to change systems and forms used. In some cases, banks may be finalising systems they built and implemented for an old framework.
Another challenge is that it requires provisions such as provision of a list of Prominent Influential Persons. Further there is a lack of alignment between FICA and existing frameworks. For example, to meet FIC standards, banks are required to list relationships of customers which may conflict with privacy legislation, she explained.
BASA has asked regulators to define which legislation would trump the other in these situations.
Further the FATF will conduct a mutual evaluation in October, and it is unlikely banks will have everything in place by then. It will be challenging to measure success in the absence of clearly defined outcomes.
Regulation beyond control
Cas Coovadia, managing director of BASA, explained that some of the regulations are beyond the control of banks. “Ideally we should not have had a Basel III because we [South Africa] did not go through a financial crisis. Our banks were fine. No banks had to be bailed out.”
Although small, South Africa’s banking sector, is sophisticated and may be prone to illicit flows, he said. “Whether we like it or not, we are subject to global regulations put in place to deal with a crisis in Europe. That’s how the world works,” he said.
Part of the cost of being within the global banking sector is to stay at the “cutting edge” of international best practice. “It is a fact of life.”
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