What is the Financial Intelligence Centre Amendment Act (FICA)?
In South Africa, an Accountable Institution is a concept that is defined and regulated by the Financial Centre Amendment Act (FICA). Therefore, to understand an Accountable Institution, one first needs to understand what FICA is.
FICA is South Africa’s central piece of legislation for Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT). It governs many aspects of South Africa’s financial system, including defining and regulating the concept of an Accountable Institution and South Africa’s adoption and the Risk-Based Approach (RBA) for the country’s national AML/CFT legislation.
What is an Accountable Institution (AI)?
Accountable Institutions (AIs) can be broadly understood as financial institutions, businesses and organizations that, due to the financial and legal nature of their business, carry a higher responsibility towards their clients, government and society – a responsibility that means AIs are held to higher standards concerning good governance, enhanced due diligence, and risk assessment and mitigation.
FICA classifies certain businesses, institutions and organizations as Accountable Institutions (AIs). When a financial institution, business or organization is designated as an AI, it has to comply with a wide range of regulatory requirements that cover due diligence, record-keeping, reporting of information to the Financial Intelligence Centre (FIC) and internal compliance governance.
As South Africa’s leading provider of world-class identity verification, data validation and due diligence solutions, ThisIsMe gives businesses the tools they need to ensure compliance with the regulatory obligations established by FICA. To discover how we can empower your business to easily meet its regulatory compliance obligations, contact us here.
Who/What Classifies as an Accountable Institution?
According to the Financial Intelligence Centre (FIC), the definition of an accountable institution includes:
- A practitioner who practices as defined in section 1 of the Attorneys Act (53 of 1979).
- A board of executors or a trust company or any other person that invests, keeps in safe custody, controls or administers trust property within the meaning of the Trust Property Control Act (57 of 1988).
- An estate agent as defined in the Estate Agency Affairs Act (112 of 1976).
- An authorised user of an exchange as defined in the Securities Service Act (36 of 2004).
- A manager registered in terms of the Collective Investment Schemes Control Act (45 of 2002), but excludes managers who only conduct business in Part VI of the Collective Investment Schemes Control Act (45 of 2002).
- A person who carries on the ‘business of a bank’ as defined in the Banks Act (94 of 1990).
- A mutual bank as defined in the Mutual Banks Act (124 of 1993).
- A person who carries on a ‘long-term insurance business’ as defined in the Long-Term Insurance Act (52 of 1998).
- A person who carries on the business of making available a gambling activity as contemplated in section 3 of the National Gambling Act (7 of 2004) in respect of which a license is required to be issued by the National Gambling Board or a provincial licensing authority.
- A person who carries on the business of dealing in foreign exchange.
- A person who carries on the business of lending money against the security of securities.
- A person who carries on the business of a financial services provider requiring authorisation in terms of the Financial Advisory and Intermediary Services Act (37 of 2002), to provide advice and intermediary services in respect of the investment of any financial product (but excluding a short term insurance contract or policy referred to in the Short-term Insurance Act (53 of 1998) and a health service benefit provided by a medical scheme as defined in section 1(1) of the Medical Schemes Act (131 of 1998).
- A person who issues, sells or redeems travellers’ cheques, money orders or similar instruments.
- The Postbank referred to in section 51 of the Postal Services Act (124 of 1998).
- The Ithala Development Finance Corporation Limited.
- A person who carries on the business of a money remitter.
Furthermore, the classification of an accountable institution affects all clients/consumers that enter into either a single transaction or a business relationship with an accountable institution. The classification of clients/consumers include:
- Natural Persons
- Natural person acting on behalf of another, or
- Foreign national
- Close corporation
- South African company
- Foreign company
- Legal Persons
Although a wide range of businesses, institutions, organizations and individuals may be classified as an accountable institution, the exact laws and regulations that each accountable institution will be obligated to adhere to will vary due to South Africa’s use of a Risk-Based Approach to AML/CFT legislation.
What is a Risk-Based Approach (RBA)?
A Risk-Based Approach (RBA) is a system of risk management that adjusts itself depending on the risk level of a country, industry, or specific business.
Because South Africa operates a Risk-Based Approach (RBA) to money laundering regulation, it is the responsibility of the AI to identify risks and take the necessary steps to mitigate those risks. Once the AI has finalized its risk management strategy, it will be presented to the Financial Intelligence Center (FIC) for approval.
For example, if a particular business industry is at high risk of financial crime, businesses within that sector will be legally obligated to implement serious protocols to mitigate the risk of financial crime occurring. Businesses in other sectors that are at a far lower risk of financial crime will not be legally obligated to employ the same protocols because they are not exposed to the same level of risk.
In South Africa, the RBA is closely linked to the concept of an Accountable Institution because an AI’s legal obligations are largely dictated by the principles of South Africa’s RBA. To a certain extent, an AI’s legal obligations and the steps it takes to be compliant with those obligations will be dictated by the risk profile of the AI in question.
Consequently, the digital tools that an AI requires to ensure regulatory compliance will vary on a case-to-case basis. For example, due to the varying natures of their business, one AI may require a wide variety of basic tools for identity verification, while another AI may require complex digital tools that focus on enhanced due diligence and risk analysis.
South African AML/CFT Regulatory Compliance Solutions
AML/CFT laws and regulatory compliance obligations vary from country to country and can fundamentally affect how businesses interact with their customers and other business partners.
Accordingly, when doing business in a country and ensuring regulatory compliance, it is important to employ experts in the relevant country who are best equipped to operate within the nexus of legislation, law enforcement and economic realities while delivering high-quality and cost-effective solutions for ensuring regulatory compliance.
As South Africa’s leading provider of world-class due diligence and remote-onboarding solutions, ThisIsMe is proud to be at the forefront of a trust-based and privacy-compliant digital world. To experience our full suite of advanced due diligence services, book a demonstration by contacting our team here.