At the end of last month, president Jacob Zuma signed into law the Financial Intelligence Centre Amendment (FICA) Bill. Most of the headlines around the Act have been centred on the delays in getting it signed off, but the furore around it might have you wondering why there is so much urgency over the Act in the first place.
The Financial Intelligence Centre Act itself has been around for years - it's the reason you have to bring whole binders of documents to the bank to open new accounts. So, is an amendment really that big a deal? To answer that, we need to go to the reasons for its existence.
A much-needed Bill
In 2001, FICA was introduced to fight financial crime, particularly money-laundering. Banks were legally obligated to implement and comply with 'know your client' requirements, prior to establishing any kind of business relationship or transaction.
Pressure to strengthen the Act came about following the infamous Fidentia pyramid scheme, one of South Africa's biggest financial scandals to date. Fraudster J Arthur Brown was able to defraud 47 000 widows and orphans of their savings, amounting to more than R500 million. The outcry was swift and loud - the legislation we did have clearly wasn't enough.
The biggest factor that led to the amendment was South Africa's membership in the Financial Action Task Force (FATF), the international regulatory body dedicated to fighting money-laundering. Recent years have seen South Africa fall short of the requirements for membership, which meant we were under threat of being kicked out. And without membership, our local banks would have been unable to meaningfully participate in the global banking community.
The impact
Delays aside, the ink is now dry and a potential setback has been avoided. Failure to sign the Bill in time for the FATF's June review would likely have had a negative impact on our already fragile sovereign credit rating, as investors would have been dissuaded from coming here. The ratification of the amendment goes a long way to restore international confidence, in both our banks and the country overall as an investment destination.
Consumers will certainly feel the indirect effects of the amendment - food prices and inflation not going up as a result of gun-shy foreign investment. Otherwise, life will continue in much the same way as normal for them.
The ratification of the amendment goes a long way to restore international confidence, in both our banks and the country overall as an investment destination.
For banks, financial services providers and other businesses that deal in financial transactions, it's a different story. The Bill won't just make it easier for police to combat money-laundering and corruption, it will also increase the onus on accountable institutions to identify and prevent illegal activities. They'll have to identify the areas of their business that might open them up to being involved in money-laundering or financing terrorism, as well as more closely assessing their customers to see who might pose a risk.
If these accountable institutions fail to take the necessary measures, they will be held liable, as per the Act. The Financial Intelligence Centre, which is responsible for enforcement, has typically been quite effective in the past in going after non-compliant businesses. With South Africa's international investments at stake, there's little chance this will be a toothless Bill.
The quick and the diligent
Alright, enough about Bills and legalese. What does this Bill practically mean from a strategy perspective?
The FICA amendment is one of several pieces of legislation signed over the last few years focused on due diligence. There's the National Credit Act, which tightened controls over lending, as well as the Protection of Personal Information Act, focused on data privacy.
Businesses will naturally have to find better ways to detect fraud and malicious uses of personal data. On top of that, it translates into additional reporting requirements and training of staff. Then, there is the cost of increased consumer education, to ensure people understand these onerous requirements are not intended to be barriers to doing business, but to protect them.
While these Bills are undoubtedly welcome, they have raised the cost of compliance for companies. Businesses must find ways to be more efficient from a process and cost perspective to become more transparent, and thus compliant.
There's a lot businesses can do to reduce this cost and improve these processes. According to a 2017 report, a minority of companies are using data analytics, mapping and reporting tools in their risk management strategies. Implementing automation and business intelligence, integrating functions, and investing in training are just some of the actions South African companies can take towards nurturing a more compliant business environment.
The good news is that pursuing such strategies won't just make your business more compliant, but improve your capability of delivering an authentic customer experience as a result. At heart, each of the above Bills have one objective in mind - delivering a safer, more valuable experience to ordinary South Africans. Putting in place due diligence measures is both a necessary precursor to being a participant in the digital economy, as well as a foundation for delivering a greater customer experience.
It's no wonder that even the businesses set to be affected most by the FICA amendment have welcomed it the most warmly. They recognise that the increased compliance costs aren't a burden at all, but an opportunity to build digital trust and find more streamlined ways of delivering value.
How do new FICA requirements affect your business?
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