Page 99 - Profile's Unit Trusts and Collective Investments 2021 issue 2

Legislation and Guidelines

The effect of the FICA amendments are to modernise and improve the approach to fighting
financial crime. The amendments see a shift from a rules-based approach to a principles-based approach.

Accountable Institutions
FICA defines a broad range of entities involved in financial transactions as accountable
institutions. The list includes, amongst others, banks, real estate agents, investment managers
(including collective investment schemes), forex dealers, casinos, attorneys, long term insurers,
and stockbrokers.
Accountable institutions are required to report suspicious transactions and tax evasion to the
Financial Intelligence Centre (FIC). FIC shares information and liaises closely with its counterpart
Financial Intelligence Units in other parts of the world.
FICA places onerous duties and obligations on all accountable institutions. These include:
The establishment and verification of the identities of clients
Maintenance of detailed records about clients, business relationships and transactions
An obligation to make such records available to FIC
An obligation to inform FIC, on request, of the existence of a current or past mandate
An obligation to report suspicious transactions
FICA stipulates that any person who carries on a business, including a manager or employee, who
knows or suspects certain transactions may be of a suspicious or unusual nature, is obliged to report
this to FIC. Even more burdensome is the obligation to report on a potential transaction even if this
comes to nothing (ie, where there is an enquiry with an accountable institution but no transaction
takes place). To complicate the relationship between service providers and clients, there is also in the
Act a prohibition against disclosure by the reporting person that a report to FIC has been made.

Risk-Based Monitoring
As mentioned above, the FICA amendments promulgated in 2017 have shifted the process of
monitoring and reporting clients and transactions from a rules-based approach to risk-based approach.
Under the 2003 FIC Act, accountable institutions were required to establish internal rules to
ensure compliance with the legislation. An entity’s rules included the process of appointing a
compliance officer, definitions of the information to be recorded and stored in respect of each
client, staff training regimes, and the steps to be taken in the event of suspicious transactions.
Following the implementation of the amendments, accountable institutions must now assess
the potential risks of each client and every transaction in the context of each account’s history. For
example, an entity’s rules may have required staff to alert compliance about any large transaction
above a defined threshold, even though transactions of that size would have been routine for
certain large clients. The new approach allows accountable institutions to green-flag accounts that
follow stable patterns, even where large transactions are involved. Conversely, however, an
accountable institution is now required to red-flag much smaller transactions where they are
unusual in terms of an account’s history.
Under the FICA amendments, accountable institutions have to develop, maintain and
document Risk Management and Compliance Programmes which will replace each organisation’s
FICA rules. The aims of the amendments are to make the compliance process both more effective
and more efficient – the risk-based approach allows accountable institutions to simplify the due
diligence measures applied where they assess money laundering (ML) and terrorist financing (TF)
risks to be lower. To quote from the FIC’s draft guidance document, “By applying a risk-based
approach accountable institutions are able to ensure that measures to prevent or mitigate ML/TF
risks are commensurate with the risks identified. This will ensure that resources are directed in
accordance with priorities, so that the greatest risks receive the highest attention.”
Although the amendments to FICA shift to a risk-based approach, the Act continues to specify
some transaction thresholds. For example, all deposits of notes or traveller’s cheques exceeding
R25 000 (as single or aggregated transactions made in close succession or across associated
accounts) are reportable. For non-cash transactions, accountable institutions are not required to
scrutinise transactions below R5 000.

97
Profile’s Unit Trusts & Collective Investments — Understanding Unit Trusts