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Technology can change how banks manage their new AML and CTF obligations

South Africa’s financial credibility has been in the spotlight for quite some time and was finally shredded when the country was greylisted by the FATF on 24 February.

Even though the announcement may feel like an eternity ago in the rough and tumble of the South African newscape, the real work to regain the world’s trust has not even started yet.

Make no mistake, there are different stakeholders, both in the public and private sector, that need to step up and take responsibility for pulling South Africa out of the FATF’s greylist. Taking responsibility implies action and accountability – like a machine, a missing cog can hamper the function at best and seize the motor at worst. These stakeholders need to communicate.

Most financial institutions have announced that their operating systems are in place, and that the greylisting will not have a significant impact on their operations. This is encouraging, but if we are honest, everyone, from the government, to banks, to accountable institutions such as some legal practices, credit providers, estate agents, among others, all the way down to the man and the woman in the street, will feel the impact of the FATF’s decision. This is no small event.

The first major development has been the announcement of the Beneficial Ownership (BO) Registry initiative. The Companies and Intellectual Property Commission (CIPC) has said that compulsory registration of trust and company beneficial ownership will take effect on 1 April 2023. Mere days away, this is an accelerated move following the country’s greylisting by the FATF.

The register, which forms part of newly amended legislation, will be implemented in accordance with the commencement of the General Laws Amendment Act, which was signed into law in December 2022. While most of the sections under the bill have kicked in, some will become effective on 1 April this year. We must give credit where credit is due, this is a move in the right direction, and integration through APIs will allow financial institutions even greater visibility into the true beneficial owners.

Rule-based versus risk-based risk approach

The majority of South Africa’s accountable institutions have not transitioned from a rule-based to a risk-based approach to ML/TF risk assessment and mitigation, nor have they developed the necessary framework to support and maintain this. Such a transition is challenging and takes time and expertise to implement effectively – but it is critical to avoid fines.

A major bank in South Africa was fined by the South African Reserve Bank (SARB) in 2022 for failing to comply with specific administrative requirements of the Financial Intelligence Centre Act (FICA). While the bank’s fine relates to findings from 2019, it is not difficult to join the dots with the FATF actions.

According to SARB, the bank failed to apply the following:

  • A risk-based approach across its business sectors, in line with its Risk Management and Compliance Programme;
  • Enhanced due diligence controls;
  • Risk-rating of their clients;
  • To clearly demonstrate and prove that the bank had developed and documented end-to-end procedures and methods used during the on-boarding process of their clients;
  • To prove that the bank’s controls could effectively obtain the right data that would help them to correctly risk-rate its clients.

RegTech’s role in solving compliance problems

Technology evolves at lightning speed and RegTech can solve massive compliance problems and shorten the time it takes for institutions to see value from their investments.

If we turn the lens inwards, at Andile we operate in the world of banks. This is our focus and this is where we take responsibility. Banks are under no illusions about the task that lies ahead. Compliance generally and know-your-customer (KYC) requirements specifically are already labour intensive, time consuming and expensive.

What’s likely to happen now? The costs for KYC will escalate, the costs for onboarding will increase, and ongoing monitoring costs will jump, too. Accompanying these costs will be more labour-intensive processes. Banks will feel this and when banks need to take on these costs, they will eventually find their way to passing them on to the end-user, a situation we all want to avoid.

We expect that as South Africa scrambles to exit the greylist and comply, new legislation will emerge and new policies will need to be adhered to. Banks will have no choice but to respond to these changes quickly. Solving these challenges as a financial services community will be the most effective and cost-efficient route.

The Financial Sector Conduct Authority (FSCA) says its risk-based approach for financial institutions fighting money laundering and terror financing is preferable to additional compliance hurdles as the country begins its journey to escape the greylist.

Banks need to re-align to a risk-based approach and, simply put, technology is the solution. Because KYC has been so manually intensive in the past – taking weeks or even months in some circumstances and involving large, dedicated workforces – RegTech has radically changed what’s possible by combining the power of automation with deep industry knowledge and compliance.

Adoption of RegTech platforms that provide a comprehensive technology-driven anti-money laundering (AML) and counter-terrorist financing (CTF) solution will help banks implement effective policies, procedures and controls while reducing the risk of errors and increasing the efficiency of compliance operations. This can help minimise the impact on banking customers and maintain the integrity of the global financial system. In other words, the immediate solution is to implement robust technology that uses international best practice for their KYC activities.

Introducing Fenergo

We have partnered with the Irish company Fenergo, which has a global reputation for solving KYC and compliance problems for major banks around the world. For example, soon after Fenergo partnered with one bank in the Australian market, they signed all the major banks because the industry realised that technology-driven AML and CTF investments are not a competitive advantage, but rather a license to participate.

These banks engage Fenergo frequently to discuss problem statements that are solved on the one platform they all use, as opposed to each bank going off and solving it alone. We are talking about a group of banks coming together and collaborating to work towards the betterment of the industry at large.

And so, looking at Fenergo’s Australian use case, it is apparent that we must facilitate the coming together of banks to discuss an array of relevant topics such as the new legislation. The rallying call is to solve an industry-wide problem with technology, on a platform like Fenergo, as opposed to banks working in silos trying to solve the same problem in different and very expensive ways.

Invitation to join our round table discussion

With this in mind, we have invited the top leadership of Fenergo to a thought leadership round table at the end of March, and we will be inviting the entire industry to unpack the challenges the sector will likely face and interrogate what can be done immediately to create inroads into solving these problems. We are working with Fenergo because they are one of the leading vendors in the world in implementing technology solutions for banks to solve KYC and regulation challenges affordably, efficiently and in a way that complies with global regulation requirements.

When we understand that KYC is not a competitive advantage for an individual bank if the country as a whole is seen as being non-compliant, the discussion around a collaborative, technology-driven approach makes sense. 

However, looking at the shorter term it is crucial for banks in South Africa to work towards being welcomed back by their global financial peers. The adoption of best-of-breed technology like Fenergo, that provides a comprehensive AML/CTF solution, can go a long way towards achieving this goal cost effectively and efficiently, while remaining compliant. We encourage all interested parties in our industry to join us at the round table discussion at the end of March.

Register for our KYC Event here: