If South Africa adopted the suggestions in the Financial Action Task Force (FATF) mutual assessment report, it might prevent potential greylisting.
The FATF started its evaluation in 2019 and released its final report on October 7 of that same year.
The technical compliance and effectiveness sections of the mutual assessment report received negative reviews. It offered various suggestions.
Lesetja Kganyago, the governor of the South African Reserve Bank (SARB), spoke before the Standing Parliament on Finance and said that the study suggests that all regulatory bodies subject beneficial owners to fit and appropriate evaluations.
In addition, all regulatory bodies should check the criminal background of directors, top management, and beneficial owners or their connections.
However, according to Kganyago, the procedure to avoid being placed on a greylist entails more than just what the Prudential Authority (PA) is doing and also includes, among other things, law enforcement and prosecution agencies.
The programme we have was started in October 2020. We have designated work streams, and based on all of this research, we are certain that we will be able to comply,” he added.
The PA-regulated structure includes of 69 life insurers, 70 non-life insurers, 8 reinsurers, 9 market infrastructures, 31 registered banks and local branches of foreign banks, 4 mutual banks, 5 cooperative banks, 24 cooperative financial institutions.
Providers of domestic money or value transfers should be subject to licence or registration, according to Kganyago. All supervisors should get a better awareness of the inherent and residual risks that both industries and specific institutions face, particularly those related to money laundering and terrorism financing.
All regulatory agencies should “perform better in prioritising and scoping on site supervision based on money laundering or terrorist financing threats, which might be informed by offsite surveillance and results from past inspections,” according to the report’s recommendations.
According to studies, South Africa has poor compliance levels in the 40 technical compliance categories and moderate to low levels of effectiveness in the 10 requirement areas (such as wire transfers, reporting of suspicious transactions and transparency, and the beneficial ownership of legal persons).
There are thus shortcomings that need for improved follow-up procedures in South Africa.
The Governor said that South Africa will be placed on the FATF grey list if it was unable to comply with the FATF guidelines by April 2023.
The FATF requested that the PA make sure that more often investigated higher risk banking firms.
Financial supervisors were tasked with monitoring financial organisations rather than merely individual banks for money laundering and terrorism funding threats.
According to the Governor, this would include the organization’s foreign activities and coordinate its oversight of financial institutions operating in related but distinct industries.
“… Providers should use a comprehensive arsenal of enforcement tools, including monetary fines. Finally, more detailed sector assistance has to be offered to assist the private sector in identifying and comprehending issues related to money laundering and terrorism funding.
By the end of this year, the PA should be able to show considerable improvement and compliance in the areas it is in charge of, according to Kganyago.
Despite this, the research identified a number of advantages for the nation’s banking industry.
These consist of:
– The COVID-19 shock has so far been handled by the financial system, and the banks and insurers seem to be adequately capitalised and have enough of liquidity.
– The supervision of the financial industry is effective, demonstrating a dedication to independent scrutiny and the adoption of international norms.
The FATF suggested that the nation increase its vulnerability analysis to improve impairments.
This, according to the study, should include increased financial sector analytical tool strengthening, risk-based supervision, early bank intervention, and improved climate oversight, among other suggestions.
These evaluations, according to Kganyago, confirm the SARB’s findings.