Written by: Financial Mind Blog Team
30 September 2024
In a move aimed at bolstering South Africa's fight against financial crime, both the Financial Intelligence Centre (FIC) and the Financial Sector Conduct Authority (FSCA) have implemented new compliance measures to enhance transparency and tighten regulatory controls.
New Rules on Beneficial Ownership
The FIC has introduced significant changes to the Ultimate Beneficial Ownership (UBO) guidelines. Previously, companies were only required to disclose shareholders with a 25% or greater ownership stake. However, to close loopholes exploited by criminals who use complex corporate structures to hide their control, the FIC has now lowered the threshold to 5%. This shift aims to make it harder for bad actors to evade detection by distributing their ownership across multiple smaller shareholdings.
This change aligns with international standards and is part of South Africa’s efforts to address issues flagged when the country was greylisted by the Financial Action Task Force (FATF) in 2023. The new threshold will demand companies review and report more detailed ownership structures, contributing to the broader goal of increasing transparency in corporate governance. For further details on the UBO changes, visit the FIC’s official Public Compliance Communications page.
Guidance on Targeted Financial Sanctions (TFS)
In another key update, the FIC has issued draft guidance to assist accountable institutions in meeting their obligations under targeted financial sanctions (TFS). These sanctions are primarily linked to United Nations Security Council resolutions focused on preventing the financing of terrorism and the proliferation of weapons of mass destruction (WMD).
The new guidance outlines the steps that institutions must take, including thoroughly vetting client information against TFS lists, freezing assets of designated individuals and entities, and filing reports on any suspicious transactions. These obligations are crucial for South Africa to meet its international commitments in fighting financial crimes linked to terrorism and WMD proliferation.
The draft guidance is open for public comment and is expected to be finalized early in 2024. Once implemented, the updated rules will require businesses to adopt a more risk-focused approach in their client vetting processes. For more on the draft guidance, see the FIC’s Publications and Updates section.
Business Compliance Challenges
While these new regulations are crucial for strengthening South Africa’s defenses against financial crime, they also present new challenges for businesses. The reduction of the UBO threshold will require companies to perform more rigorous checks on ownership structures, ensuring compliance with stricter reporting standards. Additionally, the extended compliance framework for TFS means that institutions will need to upgrade their systems for client scrutiny and transaction monitoring.
Non-compliance with these new regulations can result in severe penalties, and businesses must take proactive steps to align their internal processes with the latest requirements. Many companies are turning to technology solutions, such as automated Know Your Customer (KYC) platforms, to help streamline compliance procedures and avoid falling afoul of the law. You can explore more about the FSCA’s regulatory updates on their official website.
A Broader Push for Financial Transparency
These regulatory updates are part of South Africa’s broader efforts to improve transparency and governance within the financial sector. They not only aim to meet international standards but also foster a safer and more secure financial environment in the country. With these changes, South Africa is positioning itself to regain its reputation following its greylisting and attract greater foreign investment by ensuring that the financial system is less vulnerable to abuse.
As these new measures come into effect, businesses must remain vigilant, updating their compliance strategies and using available technologies to meet the heightened regulatory requirements. This collective effort across institutions, regulators, and businesses will help strengthen South Africa’s financial ecosystem against the ever-evolving threats of financial crime.
For more on the FATF greylisting and South Africa's compliance obligations, visit the FATF's greylisting page. Additionally, for further guidance on beneficial ownership and regulatory requirements, see the CIPC's Beneficial Ownership Register.
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