“I paid R500 000 for a master’s degree in FICA.” That’s the view of Miros Kaffka, who has emerged from a difficult experience after the Financial Sector Conduct Authority fined his company for non-compliance with aspects of the Financial Intelligence Centre Act (FICA).
Last month, the FSCA informed Kaffka that his Pretoria-based business, MIKA Finansiële Dienste (MFD), has successfully remediated all the identified deficiencies.
Moonstone previously reported that MFD was fined R1.1 million in June last year for having a defective Risk Management and Compliance Programme (RMCP) and not verifying the beneficial owner of one client.
The penalty was reduced to an effective R500 000 after the FSCA conditionally suspended R600 000 for three years. The suspension was in recognition of MFD’s efforts to address the shortcomings in mitigating its anti-money laundering and terrorist financing risks.
Despite the reduction, the R500 000 fine was a massive blow for the small FSP, whose staff consists of Kaffka and an office manager. MFD, which has been in existence for 28 years, also suffered reputational damage.
When Moonstone reported on the sanction last year, Kaffka shared what he had learned about FICA compliance – lessons that were particularly relevant for small financial services providers.
Read: Small FSP that was fined R1.1m shares four lessons in FICA compliance
Kaffka spoke to Moonstone this week about what subsequently transpired.
Immediately after receiving notification of the sanction, Kaffka asked for and was granted an in-person meeting with the FSCA’s FICA supervision unit, to obtain guidance on how to comply with the Authority’s directive for full remediation by the end of June 2024.
Kaffka said it was only after meeting with the FSCA that he realised what a massive task he was facing to remediate the deficiencies, and it would be impossible to meet the deadline.
He then submitted a written request for an eight-month extension. The letter set out why he needed the extension, which included detailing the remediation efforts made to date and explained that he also had to attend to his clients while amending and implementing the RMCP.
He also requested permission to pay off the R500 000 fine in equal instalments over eight months.
The FSCA granted the requested extension and the payment plan at the end of June.
MFD was placed under remediation by the FSCA. Kaffka was required to submit a progress report at the end of each month, and there were regular online feedback sessions.
After eight months of hard work, with numerous sessions with the FSCA and a company that specialises in mitigating financial crime and digital risk management, MFD finally got the nod from the regulator.
“It brings huge relief, but the work doesn’t stop here,” Kaffka said.
Lessons from the remediation experience
Kaffka shares the following insights from his remediation experience:
- The FSCA is willing to help
Although the FSCA, as a FICA supervisory body, is firm when it comes to compliance, it is more than willing to assist accountable institutions with proper guidance on RMCPs and due diligence processes.
However, the FSCA will not spoon-feed you the answers; instead, it will constantly refer you to the Act and the relevant Public Compliance Communications and Guidance Notices. “Once that realisation sets in, knowing and understanding the Act becomes essential.”
- Change your attitude towards FICA compliance
He said remediation cannot be successful unless an accountable institution truly believes that FICA is essential in South Africa’s fight against money laundering, and terrorism proliferation financing.
Once an AI has done a proper institutional risk assessment, it will understand how easy it is to become part of irregularities unknowingly. And as MFD learned during the past eight months or so, you cannot protect yourself if you do not understand the risks that you are facing, Kaffka said.
He emphasised that an RMCP must adopt a risk-based approach – the AI must show that it understands the potential risks posed by different types of transactions and clients.
It insufficient for an RMCP simply to state what the accountable institution should do to mitigate risks. What the FSCA is looking for in an RMCP are the step-by-step processes that the accountable institution will apply to every transaction scenario and type of client.
- Obtain expert assistance
MFP approached Riaan van Schalkwyk and his son Ruan of Red Cipher. Both have got years of local and international experience and have the Certified Anti-Money Laundering Specialist, Certified Cryptocurrency Investigator, and Certified Fraud Examiner accreditations. But a compliance officer with enough knowledge of FICA should be able to assist you, Kaffka said.
“Choose wisely and make sure that you do it together, instead of somebody giving you a complete RMCP. If you do not know what it says, your processes will in all probability not be correct.”
In retrospect, Kaffka said he should have sought help from a FICA specialist immediately after he received the FSCA’s audit report, which followed its inspection in August 2022. If he had started the remediation earlier, MFD might not have been sanctioned, or incurred a lower fine.
He advises sanctioned accountable institutions to resist the temptation to “lawyer up” and believe it can successfully challenge the FSCA’s interpretation and application of FICA.
- Compliance is always a work in progress
Once the RMCP and processes are in place, do not stop working on them. In the eight months it took MFD to remediate, its compliance officer signed off on five new versions of the RMCP, and the annexures were updated regularly.
MFD is currently working on additions to its RMCP to make it more comprehensive and easier to use.
“An RMCP is a living document that must be reviewed regularly. The perfect RMCP doesn’t exist!”
Kaffka said the sanction and remediation were an expensive and stressful experience.
The work required to remediate the non-compliance left him with almost no time to service his clients. The business would probably have collapsed if it had still been in its infancy. However, MFD had built up a fairly large client book.
Nevertheless, Kaffka said MFD is grateful that it underwent the process.
This is a huge fine for a small FSP just for an unwitting breach of an administrative process. Yet, the Mark Kretzshmers of the world, Kleuterzone, etc , Khans (from Estcourt) impoverish widows and pensioners and get away with millions. The FSCA is a joke.