The Prudential Authority (PA) has published the third Sector Risk Assessment (SRA) for South Africa’s banking sector, a cornerstone of the national economy providing essential financial products and services.

The SRA presents a structured evaluation to identifying, assessing and managing money laundering, terrorism financing and proliferation financing (ML/TF/PF) risks in the sector, covering the three-year period from January 2022 to December 2024. It draws on a wide range of data sources, including national and sector risk assessments, intelligence reports and industry threat analyses to inform a risk-based approach to compliance and supervision.

As the supervisor of the banking sector that includes large, small to medium, foreign, mutual and cooperative banks, the PA is responsible for ensuring compliance with the Financial Intelligence Centre Act 38 of 2001, aiming to minimise ML/TF/PF activity and strengthen the sector’s resilience to financial crime. The banking sector is dominated by six large banks, which together hold 92.8% of the total banking sector assets.

Key findings

Inherent risk

• Large banks face high ML/TF/PF risks due to their size, transaction volumes and cross-border activities.
• Small to medium banks are exposed to high ML risk from broad customer access and transaction volumes.
• Foreign banks have elevated ML risk from cross-border flows and complex structures.
• Mutual and cooperative banks have lower TF/PF risk but remain exposed to ML risk due to cash-intensive operations.

Mitigating controls

Mitigating controls introduced by banks as well as supervisory measures implemented by the PA, including strong market-entry controls, risk-based inspections, effective remediation processes and the imposition of dissuasive administrative sanctions, together with the PA’s ongoing outreach and awareness initiatives to enhance the sector’s resilience to financial crime, have contributed to reducing the inherent MT/TF/PF risks.

While controls are broadly adequate across the sector, some weaknesses remain, especially for PF in smaller banks. The control areas requiring enhancement are governance, the enhancement of business risk assessments, the implementation of customer due diligence, verification of beneficial ownership information, transaction monitoring, training programmes and reporting.

Residual risk

• Money laundering: medium-high for large as well as small and medium banks; medium for foreign banks; and medium-low for mutual and cooperative banks
• Terrorist financing: medium-high for large banks; medium-low for small and medium as well as foreign banks; and low for mutual and cooperative banks  
• Proliferation financing: medium-high for large banks; medium-low for small and medium as well as foreign banks; and low for mutual and cooperative banks

Ongoing assessment and continuous improvement of risk management are essential to safeguard the integrity and resilience of South Africa’s banking sector.