ALBERT JANSE VAN VUUREN: Technology can turbocharge SA’s exit from the greylist

SA’s financial credibility has been in the spotlight for some time, and was dealt another blow when the country was greylisted by the Financial Action Task Force (FATF) on February 24.

Long seen as a leader in the region, the country is now on a watch list for money laundering and terrorism financing.

Make no mistake, this is not an event that has come and gone. We are deep in the greylist. Pulling ourselves out of it will take a monumental effort by all stakeholders — including the government, banks, the wider financial industry and all accountable institutions. SA will surely get off the list eventually, as did Mauritius and Morocco, but what will it take?

Taking responsibility implies action and accountability. As with a machine, a missing cog can hamper function at best and seize the motor at worst. All stakeholders need to communicate.

The first big development has been the announcement of the Beneficial Ownership Registry initiative. The Companies & Intellectual Property Commission has said compulsory registration of trust and company beneficial ownership took effect on April 1.

The register, which forms part of newly amended legislation, will be implemented in accordance with the start of the General Laws Amendment Act, which was signed into law in December 2022. We must give credit where credit is due; this is a move in the right direction, and integration through application programming interfaces (APIs) will give financial institutions even greater ability to see the true beneficial owners.

A rules-based versus risk-based approach

The majority of SA’s accountable institutions have not transitioned from a rules-based to a risk-based approach to money laundering and terrorism financing 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.

The Reserve Bank fined a major bank in SA in 2022 for failing to comply with 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. Then, at the end of March, Al Jazeera ran an article alleging that gold smugglers are using three of the top SA banks to launder millions.

The country has a long way to go to rid itself of the scourge. Despite this, most financial institutions have announced that their operating systems are up to scratch, and that the greylisting will not have a significant effect on their operations. But we must ask, are their know-your-customer operations set up for success?

We expect that as SA scrambles to exit the greylist and comply, new legislation will emerge and new policies will have to be adhered to. Banks will have to respond to these changes quickly. Solving these challenges as a community will be the most effective and cost-efficient route.

The Financial Sector Conduct Authority 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 realign to a risk-based approach, and technology is the solution, because know-your-customer has historically been so manually intensive, taking weeks or even months in some circumstances and involving large, dedicated workforces.

What’s likely to happen now? The costs of know-your-customer will escalate, the costs for onboarding will increase, and 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 the end-user, a situation we all want to avoid.

Regulatory technology has radically changed what’s possible by combining the power of automation with deep industry knowledge and compliance. Adoption of technology that provides a comprehensive technology-driven anti-money laundering and counter-terrorist financing 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 effect 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 know-your-customer activities.

Recently, at an expert briefing session in Johannesburg, representatives from every top bank in SA joined capital markets technology experts Andile, which has partnered with Irish regulatory technology unicorn Fenergo, to talk about a way forward for banking specifically and the country more broadly.  A vital theme that emerged was the industry’s acknowledgment that co-operation sector-wide is crucial, and each showed a willingness to find common ground.

This is important because know-your-customer is not a competitive advantage for an individual bank if the country as a whole is seen as being noncompliant, so discussions about a collaborative, technology-driven approach makes sense. 

Looking at the shorter term, it is crucial for banks in SA to work towards being welcomed back by their global financial peers. Regulatory technology offered by Fenergo provides a comprehensive anti-money laundering and counter-terrorist financing solution that can go a long way towards achieving this goal cost effectively and efficiently, while remaining compliant.

• Janse van Vuuren is head of business development at Andile.