On the 24th of February, South Africa was greylisted by the FATF after the country failed to sufficiently amend the shortcomings in its AML/CFT regulatory framework. Nearly two months later, the impact on AML/CFT laws, domestic markets and international investment have been varied, but one thing is clear: greylisting has thus far not been catastrophic for South Africa. 

How Have Global Financial Institutions and Markets Reacted? 

Global markets have reacted much the same as domestic markets: minimally. Although the days after the announcement saw the Rand drop and some negative media coverage, none of these outcomes were prolonged. Markets have proven resilient and willing to stick with South Africa for a while longer as it tries to get itself removed from the grey-list. 

“Our view is that the greylisting was anticipated and largely priced in by the financial markets, and therefore on its own does not present a significant risk to the stability of the SA economy.” - Thulani Kunene, Group Head of Compliance, Investec. 

These sentiments are echoed by Allan Gray. 

“Private sector companies in our country are well regarded and have long-established financial links, which will continue to operate. Legitimate investment abroad by South Africans will continue. However, the news is expected to impact sentiment and business confidence, and there will be an adjustment period as individuals and entities digest the practical implications.” – Allan Gray. 

Although the short-term consequences of greylisting have been minimal, analysts predict that real damage to South Africa’s economy will begin to be felt if South Africa is still greylisted two years from now. A quick resolution to the greylisting fiasco is critical. 

“I think in the short term the consequences will not be that bad and will be relatively immaterial. The impact will really be felt if we don't get off this list by 2025.” - Richard Wainwright, Investec Bank CEO. 

Within the broader context of the South African economy, the greylisting saga represents yet another unfortunate hurdle for doing business in South Africa. Alongside the national energy crisis, transportation shortfalls and low growth forecasts, the heightened due diligence obligations that come with a greylisted status may be too much for businesses to bear in the long run. The longer that South Africa remains on the greylist, the higher the chance that businesses will choose to de-risk their portfolios and cut operational costs by withdrawing from South Africa. 

How has Greylisting Impacted South African Businesses?

Across the board, there has been little disturbance to operations. There were fears that South Africa being greylisted would lead to an immediate national credit rating downgrade. These fears were overblown and South Africa’s rating has remained stable. However, the longer South Africa remains on the FATF’s greylist, the higher the chance that the country will be downgraded in yet another blow to hopes of sustainable national economic growth. 

“The greylisting in itself does not represent any necessarily increased chance credit rating downgrade/s from the key agencies.” - Investec Chief Economist, Annabel Bishop. 

The primary objective of a credit rating agency is to assess the creditworthiness of a borrower. Factors driving a credit rating downgrade are primarily related to budgetary concerns on a national level – the recent national budget speech helped to reassure credit rating agencies of South Africa’s competency in handling national debt, especially in relation to Eskom. 

The longer that South Africa remains on the grey-list, however, the greater the risk that South Africa will suffer a credit-rating downgrade. 

Domestically, one of the largest impacts of the greylisting saga has been a selection of revisions to South African AML/CFT legislation that have significantly impacted some business sectors. 

Revisions to FICA – New Due Diligence and Ongoing Monitoring Obligations 

South Africa’s primary AML/CFT legislation, FICA, has been amended. The definition of what constitutes an Accountable Institution (AI) has been expanded to include a broader range of businesses, institutions and organizations, all of whom must now comply with stricter due diligence and ongoing monitoring obligations and maintain their own Risk Management and Compliance Program (RMCP). 

To better understand these critical revisions to FICA and other legislation, read our analysis here. 

These latest amendments to FICA were made in a last-ditch attempt to avoid being greylisted by the FATF. However, this was too little too late and South Africa was greylisted by the FATF one the 24th of February 2023. 

Nevertheless, if South Africa wants to get itself taken off the FATF’s greylist, further revisions to legislation will be required. The FATF’s mutual evaluation report – a comprehensive critical analysis of South Africa’s AML/CFT legislation – highlights shortcomings in the country’s laws and provides recommendations for how these should be addressed. These include major shortfalls in the identification and monitoring of beneficial ownership structures that are essential for an effective national AML/CFT legislative framework. 

What are South Africa’s Prospects for Getting Taken Off the Greylist? 

Predictions for how quickly South Africa can get itself removed from the FATF’s greylist can be informed by the experiences of other countries. Iceland, Mauritius and Serbia – three countries that were also greylisted – were able to quickly implement reforms and get taken off the greylist in under two years. 

There are hopes that South Africa will manage to follow a similar trajectory and be taken off the greylist by 2025. South Africa has a mature and well-developed financial sector that improves its chances of doing this successfully, while the government and private sector both remain strongly committed to rectifying shortfalls as quickly as possible. Critically, there are eight remaining shortfalls that must be addressed Significant progress has already been made. 

“South Africa’s hard work resulted in most of the identified deficiencies being addressed within the 12-month observation period afforded to South Africa.” – South African Reserve Bank. 

The FATF itself remains cautiously optimistic about South Africa’s prospects for removal from the greylist. The FATF has recognized and commended South Africa on the significant progress made in implementing reforms since the adoption of the Mutual Evaluation Report in June 2021. Furthermore, the FATF has also acknowledged the high-level political commitment to strengthening the effectiveness of the country’s AML/CFT legislation. South African president Cyril Ramaphosa has gone so far as to welcome heightened scrutiny by the FATF. 

“As a country we welcome the intensified monitoring by FATF… As a country that both values and enforces the rule of law, the grey listing is an opportunity for us to tighten our controls and improve our response to organised crime.  This will ultimately place us on a stronger footing to effectively fight these damaging and dangerous crimes.” – President Cyril Ramaphosa.

With strong initiative and sustained cooperation between government, major financial institutions and the private sector in general, South Africa stands a good chance of being able get itself taken off the greylist by 2025 without incurring significant damage to its economy. 

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