FSCA fines 3 financial services providers R1.2 million for Fica non-compliance

The Financial Sector Conduct Authority (FSCA) has fined three financial services providers a total of R1.2 million for not complying with certain provisions of the Financial Intelligence Centre Act (Fica).

The FSCA has imposed administrative sanctions on these three financial services providers (FSPs) for failing to comply with certain provisions of Fica:

• Adams Chrambanis & Associates CC
• ID Capital (Pty) Ltd and
• Henk Kolver Investment Management Services CC.

According to the FSCA, all three entities are licensed FSPs under the Financial Advisory and Intermediary Services Act and accountable institutions under FICA. The FSCA is responsible for supervising and enforcing FSP compliance with Fica. All accountable institutions designated under Fica must comply fully with its requirements.

The FSCA conducted inspections on the three entities as part of its ongoing supervisory activities in terms of section 45B of Fica, where it found that the entities were in breach of one or more provisions of the act.

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Fica sections 42(1) and (2): a risk management and compliance programme

According to these sections, accountable institutions must develop, document, maintain and implement a risk management and compliance programme for anti-money laundering, counter-terrorist financing and proliferation financing.

The programme must outline how an accountable institution will mitigate these risks and ensure compliance with Fica.

The FSCA says it found that Adams Chrambanis failed to develop, document and maintain a programme for anti-money laundering, counter-terrorist financing and proliferation financing.

Although ID Capital and Henk Kolver had developed programmes, they failed to outline how the respective institutions would comply with various Fica requirements, the FSCA says.

Sections 21(1), 21A, 21C(1), 21D, 21F – H: customer due diligence

Fica requires accountable institutions to conduct customer due diligence which includes the identification and verification of clients, obtaining information on business relationships, ongoing due diligence and establishing if the clients are politically exposed persons.

The FSCA says Adams Chrambanis failed to perform the necessary customer due diligence as required in terms of Fica, including taking measures to establish whether any of its clients is a family member or known close associate of a foreign or domestic politically exposed person or a prominent influential person.

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Fica section 28A read with sections 26A – 26C: checking sanctions lists

According to Fica, accountable institutions are required to scrutinise their client information to determine if any of them are listed on Targeted Financial Sanctions Lists published under the Protection of Constitutional Democracy Against Terrorist and Related Activities Act.

The FSCA says Adams Chrambanis and Henk Kolver failed to scrutinise client information against the United Nations Security Council sanctions lists as required.

Section 42A(1): Compliance and risk management and compliance programme

The highest levels of authority within the entity must ensure that an accountable institution and its employees comply with the provisions of Fica and the programme.

The FSCA says Adam Chrambanis’ senior management failed to ensure that it complied with the provisions of Fica.

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Fines instituted for FICA non-compliance

Due to these contraventions and based on an assessment of various factors applicable to each institution, the FSCA says it issued directives to the three entities to remedy the identified deficiencies and imposed these administrative sanctions or fines:

• Adams Chrambanis was fined R785 000, while R300 000 is conditionally suspended for three years
• Henk Kolver was fined R300 000, while R150 000 is conditionally suspended for three years
• ID Capital was fined R200 000, while R100 000 is conditionally suspended for three years.

Serious breaches of Fica

The FSCA says it considers the identified compliance deficiencies to be serious breaches of Fica.

“The requirement to understand and mitigate money laundering and terrorist financing risks through effective implementation of a risk management and compliance programme is vital not only because it assists accountable institutions to protect and maintain the integrity of their own businesses but also because it helps contribute to the integrity of the South African financial system as a whole.”

In addition, the FSCA says, proper due diligence of all clients is crucial to help identify suspicious and criminal elements and stop them from infiltrating the financial system.

The FSCA emphasises that these fines serve as reminders that the FSCA will not tolerate non-compliance with Fica.

“All accountable institutions are urged to continually review and enhance their anti-money laundering and terrorist financing controls at the highest levels and to conduct thorough risk assessments on a regular basis. Failure to do so will result in firm regulatory action.”

ALSO READ: SA stays on greylist due to its remaining strategic deficiencies

Fica compliance important to get SA off grey list

This is an important development in getting South Africa off the grey list of the Financial Action Task Force (FATF), an intergovernmental body established in 1989 by the ministers of its member jurisdictions to protect financial systems and the broader economy from threats of money laundering and the financing of terrorism and proliferation.

The FATF said in its latest review last year in October that South Africa should continue to implement its action plan to address its remaining strategic deficiencies, including demonstrating that all Anti-Money Laundering and Countering the Financing of Terrorism supervisors apply effective, proportionate and effective sanctions for non-compliance.