Proposed changes to South Africa’s finance regulations to stop money laundering and terrorist financing could cause major headaches for businesses in the country – and lead to higher prices for consumers.

Presenting to the standing committee on finance on Tuesday (16 August), the Financial Intelligence Centre (FIC) proposed that the Financial Intelligence Centre Act (FICA) be amended, broadening the scope of ‘accountable institutions’ under its purview.

This change would force both small and large companies to comply with FICA regulations, adding an administrative burden and costs to business operations.

By doing this, the FIC aims to identify the proceeds of crime, combat money laundering and terror financing as well as supervise and enforce compliance with FICA.

The proposed amendments argue for the following types of entities to be included as ‘accountable institutions’:

  • Certain legal practitioners;
  • Credit providers;
  • Boards of executors or a trust company;
  • Estate agents;
  • Long-term life insurance businesses
  • Dealers in motor vehicles;
  • Dealer in goods over R100,000;
  • Dealers in crypto assets;
  • Dealers in Krugerrands, and;
  • Gambling institutions.

Bad for business

Critics of the proposed changes argued that the amendments to FICA are too broad in their definitions and would include activities that pose no risk of money laundering or terrorist funding.

The inclusion of an entity into the scope of the Act entails that extra compliance measures be taken to ensure that financial crime does not occur – this, however, comes at the cost of a company.

During the committee meeting, industry figureheads representing the insurance industry, the retail sector, the mining sector as well as financial service companies raised concerns over the scope of the amendments.

Keigan Hart, a spokesperson for Outsurance, said that the draft amendments could affect how business in the insurance sector is conducted with the extra costs of compliance ultimately falling on the consumer.

Hart said that the services Outsurance offers are low-risk products that should not be subjected to the same compliance provisions as seen with banking products. He added that the increased compliance costs, especially where the services of third-party vendors are concerned, are not proportionate to the risk.

“Increased compliance costs result in the increase in product costs which is ultimately passed onto the consumer,” said Hart.

The South African Institute of Chartered Accountants (SAICA) said that the accounting industry could face some challenges if the draft amendments are implemented. SAICA said that the amendments lack clarity and do not factor into account the cost of compliance.

SAICA recommended that smaller businesses (SMMEs) be subject to a lesser requirement and that other mechanisms such as transaction value could be used to manage risk when assessing accountants.

The Minerals Council of South Africa also added that the proposed amendments be redefined as they are too wide and must include only cash transactions over R100,000 not ‘payments in any form’.

The proposed amendments were said to be a blunt instrument in a broad kneejerk reaction to the possible ‘greylisting’ and sufficient thought has not been given to the impact such regulations could have on business in the country.

A recent report from the Financial Action Task Force (FATF), an international watchdog, identified significant weaknesses in parts of South Africa’s financial regulation. Such weaknesses have resulted in high cases of money laundering and terrorism funding in the country.

If no significant changes are made to legislation, then the country could be greylisted.

According to Rebecca Thomson, a senior associate at Allen & Overy, this would mean the country would be deemed as high-risk jurisdiction to transact with, and anyone wanting to do business with South Africa will need to take extra steps.

Government has until October to demonstrate that it has a credible plan to address its deficiencies – failing to do so would result in the country being greylisted in February of next year.

Pieter Smit, an executive manager at the FIC, said that the group could not exclude businesses from the scope of the act even if there is a low risk of financial crime. He added that if there is any risk, then the implementation of the act and its provisions will be risk-sensitive.

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