FICA sanctions for financial services providers
This blog was co-authored by Michael McCarthy, trainee associate, litigation insurance.
On 20 March 2024 the Financial Sector Conduct Authority published a number of administrative sanctions for financial services providers who had failed to comply with the Financial Intelligence Centre Act (FICA). The FSCA, the supervisory body responsible for financial services providers under FICA, issued the sanctions following inspections it conducted during the course of 2023. Each FSP was found to have contravened section 42(1) and (2) of FICA for failing to spell out in detail the minimum information that an accountable institution must include in their risk management and compliance programme (RMCP).
According to section 42(1) “an accountable institution must develop, document, maintain and implement a programme for anti-money laundering, counterterrorist financing and proliferation financing risk management and compliance.” Section 42(2) requires an accountable institution to set out in its RMCP the manner in which and the processes by which the accountable institution will establish and verify the identities of those for whom it is required to do so.
The FSCA stated that “the importance of a risk-based approach is underscored by the fact that this is the very first recommendation of the Financial Action Task Force.” “Non-compliance with section 42(1) and (2) of the FIC Act is no minor issue. It breaches one of the core principles of the FIC Act, i.e. a risk-based approach to all the compliance elements of the FIC Act.” The Financial Action Task Force observed in its 2021 Mutual Evaluation Report of South Africa that financial advisors and intermediaries received less attention in their assessment “due to their relatively lower level of money laundering / terrorist financing risk.”
When imposing an administrative sanction under FICA, section 45C(2) requires the relevant supervisory body to consider the “nature, duration, seriousness and extent of the relevant non-compliance” and “any other relevant factor, including mitigating factors.” A decision to impose a sanction must take into account whether the alleged contravention actually increased the risk of money laundering or financing of terrorist activities and, in relation to financial advisors and intermediaries in particular, that the FATF risk-rated the sector as low.
There are limited grounds on which the Financial Services Tribunal can review a sanction imposed on a regulated entity. Therefore, financial services providers must in terms of FICA review their RMCPs at regular intervals to ensure the programme remains relevant to their operations and enables them to comply with their anti-money laundering and counter-terrorist financing obligations.