The controversial Financial Intelligence Centre Amendment (FIC) Amendment Bill – aimed at aligning South Africa with international anti-money laundering standards – was adopted for the second time by parliament last month.
It is now up to President Jacob Zuma to sign the bill into law before the next review of the global Financial Action Task Force (FATF) in June this year. Failure to do so could have catastrophic results for South Africa – it will discourage foreign investment and could have a further negative impact on our sovereign credit rating.
The FIC Amendment Bill was introduced by Treasury to bring South Africa into line with international standards with regards to money laundering, illicit cross-border financial transactions and the financing of terrorism. These standards are set by the FATF, of which South Africa has been a member since 2003.
The bill differs from the current Financial Intelligence Centre Act (Fica) in that the amendments introduce a risk-based approach in which clients of accountable institutions – including banks, wealth managers, life insurers, and to some extent the practices of financial advisers – are risk-rated and due diligence stepped up considerably in the case of clients deemed to be higher risk.
This means clients won’t just be verified once in terms of Fica, but their financial affairs may be subject to ongoing due diligence and greater scrutiny by financial institutions.
Enhanced due diligence won’t just apply to politically exposed persons – the amendment bill also includes both foreign and local prominent and influential persons, including those in the private sector, as well as individuals doing business with the state.
The process is likely to be fairly intrusive – clients will not only need to disclose to their financial institutions their source of income and wealth, but also provide evidence of this.
Needless to say, the FIC Amendment Bill has been the subject of much controversy and heated debate.
It was meant to have been ratified by Zuma before July 30 last year, but he cited concerns that it was “unconstitutional” and sent it back to the legislature in November.
He’s had strong support for his views, not least of which from the security cluster, which feared that the bill would usurp its powers, and the Black Business Council (BBC), which argued that it would target black clients. Mzwanele Manyi of the Progressive Professionals’ Forum went so far as to state that it would “bankrupt” the ANC (Deputy President Cyril Ramaphosa has since distanced his party from this remark).
To what extent the opposition to a bill which is intended to expose financial irregularities and shady transactions was an attempt at protecting vested interests, is open to debate.
Those at odds with the new legislation did not win the day, however – political parties across the spectrum banded together and it was passed unanimously with minor tweaks by the National Assembly at the end of last month.
If Zuma now stalls on signing the bill, as he has done in the past – the Protection of State Information Bill, for example, has been languishing on the president’s desk for years – it could have disastrous consequences for South Africa. The country will not comply with the international best practice standards set by the FATF, which will not only call into question our continued membership of this organisation but will almost certainly result in a negative review by the FATF in June this year.
This could lead to capital outflow from South Africa as both foreign and local investors will be reluctant to invest in a country without appropriate and globally accepted anti-money laundering procedures in place, where the source of wealth is not a consideration, and where individuals can essentially acquire funds illicitly.
It should also be remembered that two new exchanges have been licensed by the Financial Services Board (FSB) to begin trading this year alongside the Johannesburg Stock Exchange (JSE) – ZAR X and 4AX, backed by the Maponya Group – with other applicants currently in talks with the FSB to secure licensing.
With reduced appetite to invest in South Africa, the chances of success of any new players in this market will be greatly diminished.
Crucially, the non-implementation of the FIC Amendment Bill will not be good news for South Africa’s sovereign credit rating.
We dodged the downgrade bullet in December, when the three major rating agencies – Standard & Poor’s (S&P), Fitch and Moody’s – all kept our sovereign rating unchanged above non-investment status, but S&P and Fitch downgraded us to “junk” earlier this month, with Moody’s still expected to follow suit.
There can be no doubt that failure to sign this bill into law will be seen as political interference, which could further jeopardise our hope of returning to investment grade credit rating when the rating agencies call on us again later this year.
Zuma needs to ratify this important piece of legislation without delay.
The bottom line is that South Africa needs to meet international best practice standards, and the current FICA Act is not up to par in this regard. It is a matter of some urgency – the longer we tally in getting the FIC Amendment Bill signed and fast-tracked in terms of implementation, the more the good standing of our financial institutions in the international community will be affected, casting South Africa into further financial isolation and costing the country much-needed foreign investment.
Daniël Kriel is CEO of Sanlam Private Wealth.
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