FSCA fines Harith General Partners R1.7 million for Fica non-compliance

The FSCA has fined Harith General Partners R1.7 million for not complying with certain provisions of Fica.

The company had no risk management and compliance programme and failed to conduct proper due diligence on customers.

The Financial Sector Conduct Authority (FSCA) imposed the administrative penalty on Harith General Partners for failing to comply with certain provisions of the Financial Intelligence Centre Act (Fica).

Harith is a licensed financial services provider (FSP) under the Financial Advisory and Intermediary Services Act (Fais Act) and an accountable institution under Fica.

The FSCA is responsible for supervising and enforcing FSP compliance with Fica that aims to combat money laundering, the financing of terrorism and other related criminal activities. All accountable institutions designated under Fica must comply fully with its requirements.

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FSCA says Harith did not have a risk management and compliance programme as Fica requires

When the FSCA conducted an inspection on Harith as part of its ongoing supervisory activities in terms of section 45B of Fica, it found that Harith was in breach of these sections of Fica:

• Sections 42(1) and 42(2): Accountable institutions must develop, document, maintain and implement a risk management and compliance programme (RMCP) for anti-money laundering, counter-terrorist financing and proliferation financing.

The RMCP must outline how the accountable institution will determine when a transaction or activity is reportable to the Financial Intelligence Centre (FIC) and provide for the processes for reporting the information to the FIC.

The RMCP must also indicate how the accountable institution will comply with the provisions of section 26B of Fica relating to prohibitions of persons and entities identified by the United Nations Security Council.

Although Harith had developed an RMCP, it was found to be deficient in that the RMCP failed to outline how the accountable institution would comply with Fica.

Sections 21, 21A and 21B: Accountable institutions are required to conduct customer due diligence which includes the identification and verification of clients, establishing the identity of people acting on behalf of the client, obtaining information on the nature of the business relationship and obtaining beneficial ownership information.

Harith failed to conduct the requisite customer due diligence because it:

• Failed to establish and verify the identity of clients and provide evidence of establishing and verifying the identity of other people authorised to act on behalf of clients.
  • Failed to obtain information describing the client’s nature of business, intended purpose of the business relationship and source of funds.
  • Failed to adequately establish and verify the identity of beneficial owners.

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Harith did not screen clients and employees as Fica requires, according to FSCA

• Section 28A read with section 26B: Accountable institutions are required to scrutinise their client information to determine if any of their clients are listed on terrorism financing lists. Harith failed to provide evidence that client information was scrutinised against the UN lists published under the Protection of Constitutional Democracy Against Terrorist and Related Activities Act, as required.
• Directive 8: An accountable institution is required to screen prospective employees and current employees for competence and integrity periodically in a risk-based manner. Moreover, it must provide for and record the manner of screening for competence and integrity, as well as the manner for scrutinising of employee information against terrorism financing lists, will be conducted.

Harith failed to provide evidence that employees were subject to competence and integrity screening.

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FSCA says fine is a reminder it will not tolerate non-compliance with Fica

Considering these contraventions and based on an assessment of various factors, including the size, complexity and risk exposure applicable to Harith, the FSCA issued a directive to the institution to remedy the identified deficiencies and imposed a financial penalty of R1.7 million.

However, R500 000 is conditionally suspended for two years. The FSCA says it also notes Harith’s ongoing engagements regarding its efforts to remediate the identified instances of non-compliance.

The FSCA says it considers the identified compliance deficiencies to be serious breaches of Fica. “An effective RMCP is vital not only because it assists accountable institutions to protect and maintain the integrity of their own businesses but also because it helps contribute to the integrity of the South African financial system as a whole.

“Proper due diligence of clients and screening of client and employees against the terrorism financing lists is crucial to help identify and mitigate against suspicious and criminal elements from infiltrating the financial system.”

The FSCA says this fine serves as a reminder that the FSCA will not tolerate non-compliance with Fica.

“The authority urges all accountable institutions to continually review and enhance their anti-money laundering and terrorist financing controls at the highest levels and conduct thorough risk assessments on a regular basis. Failure to do so will result in firm regulatory action.”