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FICA Inspection Feedback

In 2014, the four major banks were fined a collective R125 million for failing to implement adequate anti-money laundering controls. The Financial Intelligence Centre does not only focus on them, though.

FAIS Newsletter 19 contained details of inspections conducted by the FSB’s Supervision Department over the last two years to determine the level of compliance with the Financial Intelligence Centre Act (FICA). Although they mostly visited motor dealers, the information contained in the article applies to most other smaller FSPs as well.

Incorrect registration

The dealerships were visited in their capacity as accountable institutions for carrying on business as financial services providers (FSPs) in respect of Short-term insurance (both personal lines and commercial lines) as well as Long-term insurance.

During the inspections it was found that most of the dealerships were incorrectly registered with the FIC. They were only registered as reporting institutions and were not aware of the implications of having Long-term insurance products on their licences.

If, in the process of selling vehicles, a dealership also sells credit life cover underwritten as a long-term insurance policy, it is an accountable institution and should register with the FIC.

If you focus on short-term insurance and health service benefits only, but are also licensed for other products, you are regarded as an accountable institution and should duly register with the FIC, even if you have never sold any of these other products.

Where a FSP conducts the business of more than one accountable institution, it should register separately with the FIC for each one.

FSPs licensed for Short-term insurance and Health Services only are not accountable institutions in terms of Schedule 1. However, section 29 of FICA applies to them. It provides that any person who carries on a business or is in charge of or manages a business or is employed by a business should report suspicious and unusual transactions to the FIC.

Internal rules

Accountable institutions are obliged to formulate and implement internal rules. Most dealerships visited had internal rules or some written document on Anti-Money Laundering (AML) and Combatting the Financing of Terrorism (CFT) policies and procedures. Most of these were drafted by external compliance officers and were not customised, updated or approved by senior management of the dealerships.

Internal rules should have standard operating procedures and working methods to ensure identification and verification of clients, record keeping and reporting of suspicious transactions to the FIC.

Relevant staff in the business should be provided with training on both FICA and the internal rules. Internal rules should stipulate the roles and responsibilities of the different role players involved in ensuring AML/CFT compliance.

Cash threshold reporting

Some dealerships were aware of the requirement to report cash transactions above R25 000, however, some were not aware of the requirement to file reports with the FIC within 2 business days of such transactions being made.

Where a client deposits R25 000 or more into the FSP’s bank account, both the bank and the FSP should report such a transaction to the FIC. Similarly, if a dealership pays a client an amount of R25 000 or more for a vehicle trade-in, this has to be reported to the FIC.

Training of staff

In terms of section 43 of FICA, an accountable institution must provide training to its staff to enable them to comply with the provisions of FICA and the internal rules applicable to them.

Training was provided to relevant staff at most of the dealerships. However, even though it is not expressly provided for in the Act, there were no assessments or refresher courses conducted.

High risk clients

Car dealerships are prone to doing business with high risk clients such as Politically Exposed Persons (PEPs). Most of the dealerships indicated that they might have had dealings with PEPs but were not aware that they had to have separate procedures for identifying and verifying this type of client. Although FICA does not expressly provide for a risk-based approach, Regulation 21 requires institutions to obtain additional information in relation to a business relationship or transaction deemed to pose a high risk of AML/CFT.

If any of the above applies to you, we strongly recommend that you read the more detailed report in FAIS Newsletter 19 by clicking here.

The latest developments on the FICA front will also be discussed in detail at the remaining Moonstone/Webber Wentzel Regulatory Update workshops:

Cape Town 15 March
Durban 17 March
Johannesburg 30 March
Pretoria 31 March

Please click here for more information and to register for the event.

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