FSPs under increased scrutiny, grey list or not

South Africa is making meaningful strides towards exiting the Financial Action Task Force (FATF) grey list, with those leading the effort optimistic that the remaining obstacles will soon be overcome. In a presentation to the Financial Sector Conduct Authority (FSCA) Industry Conference 2025, once National Treasury stalwart and now head of the country’s delegation to FATF, Ismail Momoniat, confirmed that, “We are now in the last mile, and we only have two action items to address.”

The toughest obstacles remain

Momoniat said that the country’s last report to the FATF Joint Group had been well-received, resulting in four of the then six remaining issues being struck from the ‘to do’ list. “We are left with the two items that we always anticipated would be the toughest: Immediate Outcome (IO)7 and IO9(4),” he said. “These are like ‘end’ objectives … [dealing with] the final type of consequence if any of the more serious crimes occur.” Per the FATF, South Africa’s enforcement authorities must demonstrate a sustained increase in money laundering investigations and prosecutions, and be more effective in combating the financing of terrorism. 

The presenter explained that to address IO7, authorities would have to show a sustained increase in investigations and prosecutions for serious and complex money laundering, in particular crimes involving professional money laundering networks, enablers, and third-party money laundering. As for combating terror financing, more needed to be done to show a sustained increase in effective identification, investigation, and prosecution of transgressors. Although progress had been made by early 2025, the FATF assessors felt they needed more evidence to support that improvements were sustainable. 

An in-country FATF audit looms

The FATF also expects the FSCA and South African Reserve Bank (SARB) and other enforcement agencies to take a no-nonsense approach in dealing with institutional transgressors of AML/CFT (Anti-Money Laundering Combating the Financing of Terrorism) regulations. 

Momoniat believes the country has already done enough to satisfy the FATF Joint Group at the next report back, due in April this year. Assuming the remaining items are ticked off, the FATF will then undertake an on-site (in-country) review in June and hopefully trigger a grey list exit before year-end. “The greylisting was actually a good thing because it has forced us to do things which are good for us as a country, not [just to satisfy the] FATF,” Momoniat said. 

For some additional background, the FATF is an international anti money laundering body comprising 40 member countries who are subject to peer reviews, called mutual evaluations, every seven or eight years. South Africa’s last peer review was conducted in 2019, but as a result of the COVID pandemic interruption the results were only published in 2021. We failed 20 of 40 legal framework checks, and all the effectiveness of implementation measures. And in this case, 30% was considered a grey list-worthy fail. 

There were three FATF actions with direct impact on the financial services sector namely IO3/4(1), (3), and (4). On the first point, the SARB had to proactively deal with unlicensed cross-border monetary and value transfers, aka stamping out suitcases full of cash and lounge-chair deposit-taking. PS, the presenter himself alluded to the President’s buffalo for cash matter. “When you go through OR Tambo or the Limpopo border and you are carrying cash above a certain amount, you are going to have to declare it,” Momoniat said, adding that another Omnibus Bill would be introduced to tweak reporting standards, and plug any remaining legal gaps. 

Big boost in regulators’ budgets

The second point was easier, requiring an increase in cash and human resource budgets for the FSCA and Financial Intelligence Centre (FIC). As for the third, per 103/4(4), “South Africa must demonstrate that all AML/CFT supervisors apply and monitor implementation of follow-up remedial actions, and that effective, proportionate, and dissuasive sanctions are being applied.” The final part of this phrase could prove challenging, because the FIC and FSCA have limited (if any) influence over the prosecutorial outcomes at the National Prosecuting Authority (NPA). 

Charl Geel, Senior Specialist at the FSCA’s AML/CFT Advisory Unit took to the podium to expand on the regulator’s role in addressing FATF concerns. “There were seven action items that were applicable to us when the FATF completed its 2019 mutual evaluation; we knocked down five of those action items during the initial observation period,” he said. Of the two remaining issues, the first is to ensure a greater level of oversight of financial services providers (FSPs), especially Cat II FSPs and CIS managers. And the second, is to use a full suite of enforcement measures, including monetary penalties, to sanction AML/CFT breaches. 

To date FSCA responses include creating a dedicated AML/CFT department and pushing forward with its risk-based approach to supervision. The FATF assessors made some other explicit findings. “They said we had to strengthen our human and financial resources capacity, and apply remediation and effective proportional dissuasive actions,” Geel said. He shared an organogram showing a 257% increase in the FSCA’s AML/CFT department in just 18-months. This boost in staff complement enabled the FSCA to increase the number of FIC Act inspections from 38 in 2022/23 to 100 in the current year, with 140 pencilled in for 2025/26. 

Crypto assets under the spotlight

Few in the audience were surprised at the ongoing scrutiny of crypto asset service providers (CASPs). Geel said the focus was on pre-licensing inspections to determine whether this business had some level of AML/CFT framework in place. “We also conducted our first 10 inspections on licenced CASPs, they are in the spotlight and can expect a lot of attention from the FSCA,” he warned. This does not mean other sectors can breathe sighs of relief. According to Geel, the authority is conducting desk-based analyses of FSP’s risk management and compliance programmes too. 

A key FATF-related intervention has seen the FSCA increase its pre-licensing communication. For example, they now send introductory letters to nearly-authorised FSPs to remind them of their FIC Act obligations. But the rubber really hits the road under the ‘enforcement’ headline. Geel illustrated an almost three-fold improvement in the monetary value of FIC Act related financial penalties, from R11.9 million prior to greylisting to R35.6 million in the current year. His warning to the FSPs in attendance: “Expect us to come down hard on you when you are not compliant.” FSPs that contravene AML/CFT requirements may even have their licenses withdrawn. 

While South Africa appears well-positioned to exit the grey list, Momoniat made it clear that the country’s regulatory overhaul must extend far beyond compliance. Slipping back into his National Treasury persona, he noted that the greylisting had surfaced deeper, structural issues in the financial sector, from high fees and layered costs (complexity) to inadequate access for poorer households and migrants. “We need to bring people in and not drive them to even more illegality,” he warned, pointing to the risks of financial exclusion and the role it plays in perpetuating criminal networks. 

Going far beyond ticking boxes

Beyond FATF tick-boxes, South Africa now faces the more complex task of strengthening its entire anti-financial crime architecture. That includes closing gaps in technology regulation, fixing weaknesses in the RICA system, improving oversight of crypto and cross-border value transfers, and elevating preventive systems within the private sector. “We have got to focus on preventative systems,” Momoniat concluded. The work does not end with our grey list exit; in many ways, it only begins. 

As an aside, one wonders whether the FATF review could still produce a curve ball or two. After all, South Africa has been quite antagonistic towards the United States of late, and the US is among the 40 FATF member countries. It would be brave to proceed on the basis that our exit from the grey list is fait accompli, especially given the light touch approach by the NPA to serious politically-connected corruption and financial crimes. 

Writer’s thoughts:

Grey list reforms have raised the bar for compliance, and regulators are unlikely to ease up once SA gets off the list. Will your financial or risk advice practice stand up to tougher FIC and FSCA scrutiny? Please comment below, interact with us on X at @fanews_online or email us your thoughts [email protected].

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