The anti-money laundering and counter financing of terrorism (AML/CFT) Division within the Prudential Authority ((PA) previously the Bank Supervision Department), was established in April 2012 and is responsible for supervising and enforcing compliance with the FIC Act.
In line with the aforementioned responsibility, the PA is responsible for assessing the adequacy and effectiveness of money laundering and terrorist financing (ML/TF) risk management and compliance programmes by accountable institutions. The AML/CFT Division is responsible for planning and executing on-site inspections, including all AML/CFT- related off-site supervisory work. The division also participates in meetings and other interactions of local and international AML/CFT standard-setting bodies.
All South African AML/CFT related legislation, joint guidance notes, directives and public compliance communications are published by the Financial Intelligence Centre (FIC) in terms of section 4(c) of the FIC Act and can be accessed via the FIC’s website.
The PA applies a risk-based supervisory framework to identify, assess and understand the ML/TF risks in the banking and life insurance sectors. The application of the risk-based approach to AML/CFT supervision requires that the PA varies the intensity and frequency of its supervisory interactions depending on the ML/TF risk profile of an accountable institution.
Since 2013, the AML/CFT Division has conducted a number of joint inspections with host country regulators at international operations of South African banks. Furthermore, the PA has assisted a number of AML/CFT supervisory bodies in other jurisdictions, mostly in other African countries, with capacity-building initiatives relating to the supervision and monitoring of financial institutions’ compliance with AML/CFT obligations.
The PA and the FIC meet on a quarterly basis to coordinate the supervision of institutions supervised by the PA. The PA) participates in the activities of the FIC Enforcement Forum, a platform where the FIC and supervisory bodies share information relating to AML/CFT compliance and enforcement matters. The PA is also a member of the South African Anti-Money Laundering Integrated Taskforce, a public-private sector partnership between the government, supervisory bodies and banks aimed at ensuring greater collaboration and sharing of information insofar it relates to countering money laundering and terrorist financing.
The PA also holds quarterly meetings with The Banking Association South Africa (BASA) and Association for Savings and Investment South Africa (ASISA) to discuss AML/CFT matters concerning the respective industry/supervised entities.
The PA also holds quarterly meetings with and the Financial Sector Conduct Authority (FSCA) in order to collaborate and coordinate supervisory processes on conglomerates. The PA regularly engages with other various supervisory bodies and law enforcement agencies when required to ensure better coordination and sharing of information and best practice related to AML/CFT supervision. When required, the said supervisory bodies accompany the PA when conducting on-site inspections at supervised institutions.
Are supervised institutions required to implement automated solutions to sanction screen their clients?
The banking and life insurance industries are particularly prone to being abused for financing terrorist activities. The PA therefore expects entities operating in these industries to utilise appropriate detection and sanction-screening tools and enhanced monitoring techniques to safeguard themselves against abuse.
When and how often should supervised institutions screen their clients?
In order to mitigate the risk of dealing with a sanctioned person or entity, supervised institutions are expected to screen all prospective clients and parties related to the client prior to entering into a business relationship with them. Examples of parties related to a client include natural persons purported to be authorised to establish a business relationship or to enter into a transaction with the supervised institution on behalf of a legal person; the ultimate beneficial owner of a company; members of close corporations; members involved in a partnership; trustees; and income and capital beneficiaries of trusts.
Details pertaining to sanctioned entities and persons are issued by the President of the Republic of South Africa, in government gazette notices, in accordance with section 25 of the Protection of Constitutional Democracy against Terrorist and Related Activities Act 33 of 2004. Once on-boarded, supervised institutions should sanction screen their clients and parties related to such clients on an ongoing basis thereafter including when there are changes to the applicable sanction list(s).
Furthermore, supervised institutions should have measures in place to sanction screen all cross-border payments prior to releasing such funds to the intended beneficiary/recipient.
Are supervised institutions required to implement automated solutions to monitor client transactional activities?
Supervised banking institutions process large volumes of transactions on a daily basis, but lack the human resources to effectively review such transactions manually. In order to improve the capability to monitor client transactions and behaviour, the PA encourages supervised institutions to utilise effective transaction-monitoring systems. A well-designed automated transaction-monitoring system that is capable detecting unusual or suspicious transactions or suspicious activity is extremely beneficial for these institutions.
What process does the PA follow to conduct on-site inspections?
Section 45B of the FIC Act empowers the PA to conduct inspections at supervised institutions. The purpose of the on-site inspections is for the PA to assess a supervised entities’ level of compliance with the FIC Act. It does this by assessing the ML/TF risk management policies, procedures, systems and controls which need to be adequate and satisfactory to effectively address the ML/TF risk. Special attention will be given to those ML/TF areas that are perceived to be of high risk.
What are the consequences of non-compliance with the FIC Act?
Section 45C of the FIC Act empowers the PA to impose various forms of administrative sanction on supervised institutions found to be non-compliant with the FIC Act. When determining an appropriate sanction, the PA takes the following factors into account:
Who within the PA can be contacted for enquiries relating to AML/CFT?
All electronic enquiries can be forwarded to SARB-PA@resbank.co.za. Please be aware that electronic messages sent directly to individual staff members within the PA might not be registered or processed.
Does the PA provide AML/CFT training to external parties?
No, the PA does not provide any AML/CFT training to supervised institutions.
Does the PA formally approve supervised institutions’ risk management and compliance programmes?
No, section 42 of the FIC Act places an obligation on supervised institutions to develop, document, maintain and implement a risk management and compliance programme (RMCP). The RMCP forms the foundation of a supervised institution’s efforts to comply with its obligations under the FIC Act on a risk-sensitive basis and must be reviewed by supervised institutions at regular intervals to ensure that it remains relevant to the institution’s operation and the risks identified. There is no requirement for the PA to formally approve a supervised institution’s RMCP.
What powers does the PA have in dealing with suspected illegal deposit takers?
The Banks Act gives the PA the following powers in dealing with unregistered persons that are suspected of taking deposits from the general public: