The Prudential Authority (PA), responsible for supervising and enforcing compliance with the provisions of the Financial Intelligence Centre Act 38 of 2001 by the banking sector, has published its third Money Laundering, Terrorism Financing and Proliferation Financing (ML/TF/PF) Sector Risk Assessment (SRA) for the South African banking sector, a key roleplayer in the financial system and contributor to the broader South African economy.

The SRA presents a structured evaluation  of how and why the banking sector may be vulnerable to ML/TF/PF, covering the period January 2022 to December 2024. It uses diverse data sources such as the South African National Risk Assessments on ML and TF, input from private and public stakeholders, reporting data and typologies and open source information.

Key findings

Inherent risks:

• The inherent ML risks in the banking sector have been assessed as high for all large, medium and small domestic banks; medium-high for foreign banks; medium for mutual banks; and medium-low for cooperative banks.
• The inherent TF risks have been assessed as high for large banks; medium for small-to-medium banks and foreign banks; and low for mutual and cooperative banks
• The inherent PF risks have been assessed as high for large banks; medium for small-to-medium banks and foreign banks; and low for mutual and cooperative banks

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.

Residual risks:

• The residual ML risks have been assessed as medium-high for large, small and medium banks; medium for foreign banks; and medium-low for mutual and cooperative banks.
• The residual TF risks have been assessed as medium-high for large banks; medium-low for small and medium banks as well as foreign banks; and low for mutual and cooperative banks.
• The residual PF risk have been assessed as medium-high for large banks; medium-low for small and medium banks as well as foreign banks; and low for mutual and cooperative banks.

The SRA provides a comprehensive evaluation of ML/TF/PF risks in the South African banking sector, highlighting the higher risk areas. The findings are intended to enhance awareness of ML/TF/PF risks within the sector, helping it to recognise potential misuse and adopt a risk-based approach to mitigate specific ML/TF/PF risks posed to it. It also assists in informing the supervisory priorities of the PA and serves to contribute to South Africa’s broader efforts to combat financial crime and contribute to the ensuring the integrity of the financial system.