Compliance… not the sexiest of topics but it is something we encounter in daily life, whether we realise it or not.
From everyday banking to purchasing property or transferring funds, we are asked to prove our identity and physical address, often with further information required.
Why is this the case and why does it seem that is got worse in the last few years?
With fraud being so prevalent in everyday life, companies are having to step up their game when it comes to compliance. Not only to protect themselves but more importantly to protect the consumer from those wishing to exploit and steal from customers.
Governing bodies throughout the world have set up and implemented rules and regulations for companies, banks and majority of institutions to follow in order to and prevent fraud, corruption, money laundering and terrorist financing. There are best practice regulations that majority of countries follow and adhere to, while some countries have their own additional regulations, such as South Africa with it’s Financial Intelligence Centre Act (FICA).
Covering all the different regulations from multiple countries would take ages but we’ll focus on two of the globally accepted frameworks, namely Know Your Customer and Anti-Money Laundering regulation as well as the Financial Intelligence Centre Act from South Africa.
Anti-Money Laundering (AML)
Anti-Money Laundering is an international set of laws, regulations, policies and practices that are aimed ensuring financial institutions and other relevant entities prevent, detect and report financial crime and money laundering activities. Fighting crime and terrorism can be massively assisted by following the money and AML laws and activities aim to do just that.
When the Financial Action Task Force (FATF) was founded in 1989, it spurred on the promulgation of international frameworks for anti-money laundering standards. As regulations became more prevalent, the FATF began a process to publicly identify countries that did not meet their anti-money laundering laws and did not cooperate with the task force… a “name and shame” policy if you will.
In recent years with the use of big data and artificial intelligence, AML mechanisms are becoming more adept at sniffing out money laundering and terrorist financing, but the more traditional AML systems are still vital to combating this problem.
Effective AML policies include practices like Know Your Customer (KYC) and Customer Due Diligence (CDD), while in South Africa we have the Financial Intelligence Centre Act (FICA).
Know Your Customer (KYC)
Know Your Customer is a mandatory process for identifying and verifying a customer’s identity when onboarding with institutions where KYC checks are required. Aside from verifying the customers identity, it is normally coupled with them proving their physical address too.
There are a variety of ways for customer verification such as providing a passport or government issued identity document. Customers are required to provide an accompanying document confirming their address. Examples would be a utility bill or bank statement. In most cases, the proof of address needs to be dated within the last three (3) months. Some institutions require a more up to date one and in certain instances may request more than one proof of address.
Part of this KYC process is not only to establish the customers identity but to understand the nature of the customer’s activities and assess money laundering risks associated with that customer for the purposes of monitoring the customer’s activities.
Companies should have clear Customer Due Diligence checks which form part of their KYC and AML policies. It is the responsibility for the company to ensure these checks are completed in full and updated on a regular basis as required by law.
Customer Due Diligence (CDD)
Working together with KYC, CDD includes the practice of continued maintenance of keeping accurate and up-to-date records of transactions and customer information for any regulatory compliance or potential investigations.
This includes identifying the customer’s personally identifiable information (PII), identifying and verifying the identity of beneficial owners who hold a 25% or more stake in a company as well as understanding the nature and purpose of the customer’s business.
In certain instances, where a client is deemed high risk, additional or Enhanced Due Diligence (EDD) will need to be done.
These ongoing monitoring practices ensure that any attempts to hide or disguise suspicious transactions and money movements are limited and if spotted, reported.
Financial Intelligence Centre Act (FICA)
To bring it in line with international standards, South Africa brought in the Financial Intelligence Centre Act 38 of 2001.
The Act set up a Financial Intelligence Centre and Money Laundering Advisory Council to combat money laundering activities. It enables government departments and relevant bodies to impose duties on institutions and other persons who might be used for money laundering activities and works together with other Crime and Access to Information Acts to combat any wrongdoing.
It works much like the international regulations like KYC, CDD and AML but it tailored to South Africa and its requirements while also working in conjunction with the policies from other nations.
AML and Cryptocurrency
As Cryptocurrency has grown over the past few years, particularly during and after COVID, it has drawn increased attention from regulatory bodies. Virtual assets provide users with anonymity, giving criminals a convenient way to store and move funds.
Due to the decentralized nature of cryptocurrency markets, it is challenging for regulators to implement and enforce AML checks and practices. Regulators are making significant progress in addressing weaknesses were present and monitoring tools and blockchain analysis are enabling financial institutions and law enforcements to identify and investigate suspicious transactions.
Being able to provide basic KYC these days is expected in many business dealings and Non Res SA and its partners are no exception. We operate in line with FICA and international AML policies and regulations.
When companies are working together, they each must do their own KYC which is why you’re often asked to provide the same documents, even if you’ve already supplied documents to one of them.
If you’re unsure or need assistance with what documentation you need to supply, ask one of our team who’ll be able to advise further.