The FICA Amendment Act No 2 of 2017 (“the Act”), published in the Government Gazette on 2 May 2017, strengthens the provisions of FICA by introducing a risk-based approach to customer due diligence, among other things.
In this article, we will deal in short with the sections that relate to customer due diligence measures. Customer due diligence refers to the knowledge that an accountable institution has about its clients, and the institution’s understanding of the business that the client is conducting. If these measures are properly implemented, they enable an accountable institution to better manage its relationships with clients and to better identify possible attempts by clients to exploit the institution’s products and services for illicit purposes.
A new Section 20A will prohibit an accountable institution from establishing a business relationship or concluding a single transaction with an anonymous client or a client with an apparent false or fictitious name. No transaction of any amount may be concluded with such a client.
Section 21, as amended on 2 October 2017, requires an accountable institution to establish and verify certain information in the course of concluding a single transaction or establishing a business relationship with a prospective client.
The accountable institution’s Risk and Compliance Programme must provide for the manner in which, and the processes by which, the establishment and verification of the identification of persons, and their authority, are to be performed by the accountable institution, and this must be strictly complied with.
Further, a new Section 21A requires an accountable institution to determine what constitutes a business relationship as well as a transaction in the context of their particular business, who is to be regarded as a prospective client and client in order to apply the customer due diligence.
Section 21B of the Act also requires application of additional due diligence measures, namely to establish the nature of the client’s business; the ownership and control structure of the client; and the beneficial ownership of clients, and to take reasonable steps to verify the identity of the beneficial owners. These requirements also apply to non-South African entities.
Section 21C provides for ongoing due diligence measures. The objective of the ongoing measures is to identify activities of clients during the course of the business relationship which are not consistent with the knowledge of the client, or the purpose of the business relationship, and which need to be assessed for the possibility that the institution may have grounds to report a suspicion of money laundering or terrorism financing.
Section 21D further provides for measures that accountable institutions are required to take if doubts about the veracity or adequacy of previously obtained customer due diligence information arise later on in the relationship, or where a suspicion of money laundering or terrorism financing is formed at a later stage and in terms of section 21E, an accountable institution is prohibited from entering into or maintaining business relationship, or concluding single transaction if they cannot perform a customer due diligence.