The FSCA has imposed an administrative sanction of R16 million on Ashburton Fund Managers (Pty) Ltd (AFM) for failing to comply with certain provisions of the Financial Intelligence Centre Act (FICA).
In recognition of the remedial action already taken by AFM, the FSCA conditionally suspended R6m of the penalty for three years, while the remaining R10m was due by 28 February.
The sanctioning of AFM comes shortly after the Authority imposed a R400 000 penalty on Theuns Vosloo Financial Advisory Services (TVFAS) for breaches of FICA.
The reasons the FSCA sanctioned AFM are virtually identical to those that resulted in the fining of TVFAS.
Read: Financial services provider slapped with R400 000 fine for FICA violations
The FSCA is responsible for supervising and enforcing FSPs’ compliance with FICA.
AFM, FirstRand Limited’s wholly owned asset management business, is a licensed FSP and an accountable institution in terms of FICA.
In a statement on Tuesday, Ashburton said it has paid the R10m. It added the FSCA did not find any evidence that AFM facilitated any transactions involving terrorist financing or money laundering.
Areas of non-compliance
The sanction follows an FSCA inspection between 17 October and 15 November 2022.
The Authority said the inspection found that AFM’s Risk Management and Compliance Programme (RMCP) for anti-money laundering and counter-terrorist financing was defective because it failed to set out how it would comply with FICA as it relates to, among other things:
- examining complex or unusually large transactions and unusual transaction patterns;
- performing customer due diligence when, during the course of a business relationship, AFM suspects that a transaction or activity is suspicious or unusual;
- terminating business relationships;
- enabling AFM to determine when a transaction or activity is reportable to the Financial Intelligence Centre (FIC); and
- the implementation of its RMCP.
The second violation cited by the FSCA was that, at the time of the inspection, AFM failed to identify and verify the identity of some clients, including the beneficial owners of clients.
In terms of sections 21 and 21B of FICA, when an accountable institution engages with a prospective client to enter a single transaction or establish a business relationship, the institution must, in accordance with its RMCP, identify and verify the identity of the client, the person acting on behalf of the client, and the client acting on behalf of another person.
In addition, if a client contemplated in section 21 is a legal person or a natural person acting on behalf of a partnership, trust or similar arrangement between natural persons, an accountable institution must also establish the nature of the client’s business, the ownership and control structure of the client, and establish the identity of the beneficial owner of the client.
The third area of non-compliance was that AFM failed to screen its clients, including beneficial owners, against the Targeted Financial Sanctions Lists (TFSL) issued by the United Nations Security Council.
Section 28A read with sections 26A to 26C of FICA require accountable institutions to scrutinise client information to determine whether such clients are listed in terms of section 25 of the Protection of Constitutional Democracy Against Terrorist and Related Activities Act and the TFSL. If an accountable institution finds that a client is on the TFSL, it must, as soon as possible, report that fact to the FIC and take steps to freeze the client’s assets.
‘Serious violations’
The FSCA said it regarded the cited non-compliance as serious violations of FICA, particularly considering the nature, size, complexity, and potential risk exposure of AFM’s business.
“The requirement to understand and mitigate money laundering and terrorist financing risks through the implementation of an RMCP is vital not only because it assists accountable institutions to protect and maintain the integrity of their own businesses but also because it helps contribute to the integrity of the South African financial system as a whole.
“Proper customer due diligence and screening of clients is also crucial to help identify and mitigate against suspicious and criminal elements from infiltrating the financial system. This makes it especially important for institutions that operate as part of large financial services groups to demonstrate an elevated level of vigilance when managing their financial crime risks,” the Authority said.
The Authority said the sanction was “a strong reminder” that non-compliance with FICA will not be tolerated.
“All accountable institutions are urged to continue reviewing and strengthening their anti-money laundering and terrorist financing risk and control environments. Failure to do so will result in firm regulatory action.”
Remediation programme
The suspension for three years of R6m of the penalty is conditional on AFM complying fully with a directive to remediate the remaining deficiencies and remains fully compliant with sections 42(1) and (2), sections 21(1) and 21B, and sections 28A read with sections 26A to 26C of FICA during this period.
Ashburton said it has already started a remediation programme to address the shortcomings identified by the FSCA, “and the first key milestones have been met”. The programme includes enhancements to Ashburton’s financial crime policies and frameworks, as well as improvements to its client due diligence and screening processes.
The FSP said the FSCA’s sanction has not affected clients’ funds and investments.
“Ashburton fully supports the FIC Act and believes that a robust regulatory environment is crucial to protect our industry, considering South Africa’s greylisting.”
Help is at hand
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I can’t believe that Ashburton was found non-compliant.
Now they have to pay a fine which they could have avoided.
We have a lot of people in high positions being paid nice salaries for not doing their jobs.
Injustice is another problem!!!