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KYC

27 September 2004 Angelo Coppola

Clients of financial institutions have not got an indefinite reprieve before the personal identification requirements of the Financial Intelligence Centre Act (FICA) come into force – so avoid the rush and establish your ID now.

The call comes from STANLIB.

Among other things, FICA places rigorous client identification duties on financial institutions, especially an investment company.

Know your client (KYC) rules were scheduled for implementation on July 1, but the authorities granted an extension to the institutions which found their admin processes at full stretch as they attempted to formally establish the identities of hundreds of thousands of existing clients.

An administrative overload threatened as implementation date approached.

Now another key date – October 31 – is on the horizon and STANLIB, in common with other institutions, is concerned that existing clients appear to be in no great hurry to formally establish their identity.

“The danger is that we will again face a last-minute rush and the threat of overload,” said Anthony Katakuzinos, client service director of STANLIB. “A phased ‘reprieve’ was granted until mid-2005, but some cut-off dates are closer than clients think.

“Now is a great time to go complete the ID process. There’s no backlog. In fact, the pace of ID substantiation is a little too sluggish. Our advice to clients is to act now and avoid possible delays and inconvenience later.”

Recent official guidelines on FICA procedures advise financial institutions to split clients into three categories:

Category 1 should contain partnerships, trusts and clients responsible for the biggest 20% of the institution’s monthly transactions by value.

Category 2 should contain clients responsible for the next 30% of monthly transactions by value.

Category 3 should house the remaining 50% of the client-base.

After October 31, STANLIB may not transact with Category 1 clients without completing the KYC processes. From a KYC perspective Category 1 is the most demanding as the requirements for trusts , partnerships and companies are the most stringent in terms of documentation and resolutions required.

The institution can continue to deal with Category 2 and 3 clients without KYC clearance until April 30, 2005. After that date, Category 2 clients can no longer transact financial business without KYC compliance.

The transaction window stays open for Category 3 clients until June 30, 2005.

After that date, no one will be doing business with local financial institutions unless KYC requirements are met.

Katakuzinos said it is a mistake to regard on-going consultations as a way of extending FICA deadlines as and when required. “From a regulatory and country risk reputation point of view there will be no extension on 30 June 2005 so don’t wait.”

“It is up to all advisers and institutions to communicate a sense of urgency to clients,” said Katakuzinos. “If everyone waits until the last permissible day there will be logjams in the system and clients may face inconvenient delays before they can liquidate, re-allocate or make investments.

“Currently, one of the key timing decisions facing investors is completion of these ID processes.”

· For KYC purposes clients are advised to produce an ID book and tax number, a bank statement containing the client’s name and street address supported by an electricity, rates or water account, again with a street address. In some cases a passport may have to be produced. Properly attested copies may be accepted.

“Our advice to help clients avoid future aggravation and to assist your financial institution to meet its legal obligations is to get FICA compliant now,” says Katakuzinos.

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Financial behaviour experts suggest that today’s risk modelling methodologies ignore your client’s emotional ability / behavioural capacity. What are your thoughts on spicing up risk profiling tools to make allowance for your client’s financial behaviours

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[a] Bring it on; my client’s make too many irrational financial decisions
[b] Existing risk profiling tools are adequate
[c] Risk profiling tools should be based on the model / rational client
[d] The perfect risk profiling tool is science fiction
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