Analysing SA’s progress toward FATF compliance
South Africa's placement on the Financial Action Task Force (FATF) grey list has raised numerous questions and concerns regarding the country's economic health and its attractiveness to investors.
FAnews spoke to Michael Field, GM: of Investments and Lelani Van Der Merwe, Head: GRC (Governance, Risk Management and Compliance) at Fedgroup about the broader implications of South Africa's greylisting, addressing key questions about its economic and regulatory landscape, the potential risks and opportunities for investors, and the country's efforts to comply with the FATF's requirements.
The effectiveness of SA’s efforts
In assessing the effectiveness of South Africa's efforts in combating money laundering and terrorist financing, considering the FATF's recommendations and the progress reported by the National Treasury, the effects, according to Van Der Merwe, can be assessed quantitatively and qualitatively.
“From a quantitative point of view, following the regulatory and legislative changes in our AML environment, National Treasury recently confirmed that South Africa is deemed to be fully or largely compliant in 35 of the 40 FATF Recommendations, which include five of the six core recommendations. This indicates a significant effort in ensuring compliance,” she said.
“From a qualitative perspective, we believe it’s still too soon to accurately assess the effectiveness of the practical implementation and application of the amendments to our AML environment, as well as the consistent and continued application thereof,” she added.
As with many countries on the grey list, Field mentioned that South Africa chose to respond and comply with the FATF requirements quite quickly.
“While this was done to demonstrate our commitment to comply with the recommendations, we share the sentiment of others that the legislative changes were made too quickly without proper consultation with all applicable parties, and without fully understanding the practical implications and continued application thereof. Direction is more important than speed to ensure that SA achieves its goal to be removed from the grey list, and the speed at which legislation was changed might cause unforeseen challenges in the future,” he said.
Mauritius, according to Field, stands out as an example predominately because the government (including the regulators) and the private sector worked together to get off the grey list as quickly as possible. Hence, they managed to exit the FATF grey list within two years of being added.
There are undoubtedly negative effects
According to Van Der Merwe, there can be no doubt that South Africa’s greylisting has made it much harder for international investors to invest in the country.
“That said, the requirements are predominantly administrative in nature. Companies that adapted and are proactive in their dealings are largely back to business as usual. Those who are less agile are likely feeling more pain,” she said.
While there are undoubtedly negative effects as a result of the greylisting, Van Der Merwe said that much of this can be mitigated.
Opportunities and risks
As South Africa progresses in addressing the FATF action plan, both opportunities and risks emerge for investors in the country.
The downsides, according to Field, are largely already in place and escalations are unlikely. “That said, the cost of doing business has increased, which is never a good thing. This will have a domino effect and make South Africa less competitive in the global arena, which will in turn hurt the economy and companies at large.”
South Africa faces several challenges in meeting the FATF’s requirements. The implementation and continued compliance with the amended AML framework requirements, according to Van Der Merwe, is likely to be a challenge for many business sectors, not only the financial services sector.
“Another challenge could be that some businesses might view the improved requirements as a regulatory burden and not an opportunity. A final challenge could be ensuring accountability by regulators and enforcement agencies and effective prosecution to motivate compliance and serve as a deterrent for non-compliance,” she said.
Cautiously optimistic
When asked how confident they are in South Africa’s ability to meet the deadline for getting off the grey list, both Field and Van Der Merwe mentioned that they were cautiously optimistic.
Both Field and Van Der Merwe, remain optimistic that the situation can be resolved, and that South Africa might be removed from the grey list.
In their concluding remarks, they said, “Entities that remain committed to building relationships and opportunities will see the benefits. That said, the restrictions are largely administrative in nature and those who adapt to the requirements, and are proactive when dealing across borders, can mitigate much of the effects.”
Writer’s Thoughts
Despite the hurdles, optimism remains that with continued commitment, South Africa can effectively navigate these challenges and improve its global standing. Speaking of optimism, do you believe the country has made notable strides in complying with the FATF’s core recommendations? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected]
