FIC Act and Risk Management Compliance

Financial Intelligence Centre Act, 2001 Overview

• Establishes regulations to combat money laundering, terrorist financing, and proliferation financing.
• Addressing these issues is a legal requirement for accountable institutions.

Risk Management and Compliance Programme (RMCP)

• Implemented by Charles Merrington Executive Financial Services (PTY) LTD (CMEFS).
• Designed to identify, assess, monitor, and manage money laundering risks.

Glossary of Key Terms

• AML: Anti-Money Laundering.
• CDD: Customer Due Diligence.
• KYC: Know Your Customer; vital for preventing illicit activities.
• MLCO: Money Laundering Compliance Officer; responsible for overseeing compliance.
• MLRO: Money Laundering Reporting Officer; reports suspicious activities.
• UBO: Ultimate Beneficial Owner; critical in identifying true ownership in transactions.

Definitions and Interpretation

• Customer: Any individual or legal entity engaging with a financial institution.
• Single transaction: Transactions valued under R5,000 not part of an ongoing relationship.
• Cash: Coin and paper money recognized as legal tender.

Introduction to Money Laundering

• Money laundering disguises illegally obtained funds, making them appear legitimate.
• Involves actions that obscure the origin of the proceeds from crime.
• Terrorist Financing: Financially support terrorist activities, including providing money, goods, or services.
• Proliferation Financing: Financially supports the development or acquisition of weapons of mass destruction.

CMEFS Compliance Responsibilities

• Comprehensive systems to combat money laundering and terrorist financing must be in place.
• Requirement for risk-based identification and verification for all clients, including single transactions.
• Employee awareness and compliance with anti-money laundering policies are mandatory.

Business Information

• CMEFS is fully registered under the FIC Act (Org ID: 24502).
• Operates independently with no affiliations to parent companies or other financial entities.

High-Risk Products and Services

• CMEFS identifies specific financial products as having a high risk of being misused for money laundering or terrorist financing.
• Focuses on understanding and mitigating risks associated with its financial activities.### Risk Classification of Products and Services
• High Risk includes advisory services related to pre-retirement investments into discretionary products, collective investment schemes, and endowments, regardless of stated purposes.
• Medium Risk encompasses post-retirement lump sum investments into discretionary products and endowments, without regard to the stated investment term.
• Low Risk includes products such as endowments with premiums under R25,000, life policies with incidental savings, and all pre/post-retirement products like annuities.
• No Risk relates to advisory services like medical aid, short-term insurance, and tax return filings.

Transactions and Client Interaction

• CMEFS handles between 1 to 100 transactions monthly.
• Client interactions are primarily face-to-face, with approximately 650 clients having established business relationships.

Distribution Model

• Services are distributed exclusively by authorized representatives, all employees of CMEFS, relying mainly on referral business for new clients.

AML Risk Classification

• Clients and business model present a low risk relative to money laundering and terrorism financing (AM/TF/PF).
• The highest risk factor identified is the source of funds, necessitating robust customer due diligence and monitoring of transactions.

Key Management and Compliance Officers

• CEO Charles Merrington oversees the AML and CFT control structure, promoting compliance culture within CMEFS.
• As the Money Laundering Compliance Officer (MLCO) and Reporting Officer (MLRO), Merrington ensures adherence to FICA regulations and manages compliance controls proportionate to business risks.
• Seshini Magan serves as the FAIS compliance officer, responsible for monitoring standards under the Financial Advisory and Intermediary Services Act.

AML/TF Risk Management Process

• Includes detailed risk assessment processes and customer due diligence requirements outlined in annexures related to risk assessment, investigation, and KYC procedures.

Customer Due Diligence

• Clients must be identified, and identities verified before beginning an account-based relationship.
• If a client fails to provide necessary documentation within 30 days, the business relationship is terminated.

Politically Exposed Persons (PEPs)

• CMEFS must identify potential clients who are Domestic or Foreign Politically Exposed Persons (DPEPs/FPEPs) and their associates.
• Enhanced due diligence is required for these individuals, including obtaining management approval and ongoing monitoring of their transactions.

Ultimate Beneficial Owner (UBO) Identification

• Companies and entities must disclose their UBO, defined by control or ownership of 25% or more of share capital or voting rights.
• CMEFS will require UBO declarations as part of customer due diligence.

Financial Sanctions and Asset Freezing

• The FICA allows asset freezing on suspected money laundering or terrorist financing activities.
• Immediate freezing directives are issued by the Financial Intelligence Centre (FIC) and are to be reported within three business days.

Reporting Obligations

• CMEFS must file various reports with the FIC, including suspicious activity reports, transaction reports, and cash threshold reports.
• Reporting is mandatory when knowledge of suspicious activity exists or when factors indicate a reasonable suspicion, regardless of transaction success.### Cash Threshold Reports
• Reporting is mandatory within 3 days under section 28 of the FIC Act for transactions (CTR) involving cash over R49,999.99.
• Reporting obligations exist whether cash is paid to or received from the client or their representatives.
• Cash is defined as legal tender (coins and paper money) and traveler's cheques.

Terrorist Property Reports

• Section 28A mandates reporting when an accountable institution has property linked to a sanctioned entity, regardless of any related activity.

Submission Process

• CMEFS submits detailed reports via the GOAML online platform of the Financial Intelligence Centre or electronically by a registered person.

Investigating Suspicious Transactions

• Delay suspicious transactions without alerting the client; if delay is not possible, obtain approval from senior management and the Money Laundering Reporting Officer.
• Continuing dealings with property flagged in a Terrorist Property Report is prohibited.

Confidentiality

• Disclosing report details or even the existence of a report is prohibited under Section 29 of the FIC Act, except under specific legal circumstances.
• Internal communication on reports within CMEFS should only involve necessary personnel.

FIC Reports Register

• Any escalated or reported transactions must be documented in the FIC Reports register, ensuring thorough record-keeping.

Record Keeping

• Records of suspicious transactions must be retained for at least five years post-report submission; identity verification records should also be kept for a minimum of five years after relationship termination.
• Ongoing investigations’ records are retained until formally closed, with daily backups conducted to secure data.

Offences Related to Money Laundering

• Participants in money laundering can face serious penalties, including imprisonment and fines.
• Assisting in money laundering or failing to report suspicious activities is a criminal offense.
• Tipping off the subject of any report or investigation is also an offense.

Offences and Penalties

• Assisting a money launderer can result in imprisonment or administrative penalties.
• Failure to report suspicious activities can lead to imprisonment, unlimited fines, or both.
• CMEFS may impose disciplinary measures, including dismissal, for non-compliance with regulations.

Training Requirements

• Employees must understand AML/CFT responsibilities and systems, with annual refresher training mandated.
• Participation in training is logged, and compliance checks are performed by the Money Laundering Compliance Officer.

Review and Update of Policies

• The Risk Management and Compliance Programme will be reviewed annually to ensure alignment with business operations and regulations.

Risk Assessment Process Summary

• Money laundering risk evaluation determines Know Your Client (KYC) requirements and ongoing due diligence frequency.
• Risk ratings range from little to no risk (0) to high risk (100 and above), influencing due diligence procedures.
• Enhanced, ongoing, standard, and simplified due diligence frameworks are established based on assessed risk.

Financial Intelligence Centre Act, 2001 Overview

• Establishes regulations to combat money laundering, terrorist financing, and proliferation financing.
• Addressing these issues is a legal requirement for accountable institutions.

Risk Management and Compliance Programme (RMCP)

• Implemented by Charles Merrington Executive Financial Services (PTY) LTD (CMEFS).
• Designed to identify, assess, monitor, and manage money laundering risks.

Glossary of Key Terms

• AML: Anti-Money Laundering.
• CDD: Customer Due Diligence.
• KYC: Know Your Customer; vital for preventing illicit activities.
• MLCO: Money Laundering Compliance Officer; responsible for overseeing compliance.
• MLRO: Money Laundering Reporting Officer; reports suspicious activities.
• UBO: Ultimate Beneficial Owner; critical in identifying true ownership in transactions.

Definitions and Interpretation

• Customer: Any individual or legal entity engaging with a financial institution.
• Single transaction: Transactions valued under R5,000 not part of an ongoing relationship.
• Cash: Coin and paper money recognized as legal tender.

Introduction to Money Laundering

• Money laundering disguises illegally obtained funds, making them appear legitimate.
• Involves actions that obscure the origin of the proceeds from crime.
• Terrorist Financing: Financially support terrorist activities, including providing money, goods, or services.
• Proliferation Financing: Financially supports the development or acquisition of weapons of mass destruction.

CMEFS Compliance Responsibilities

• Comprehensive systems to combat money laundering and terrorist financing must be in place.
• Requirement for risk-based identification and verification for all clients, including single transactions.
• Employee awareness and compliance with anti-money laundering policies are mandatory.

Business Information

• CMEFS is fully registered under the FIC Act (Org ID: 24502).
• Operates independently with no affiliations to parent companies or other financial entities.

High-Risk Products and Services

• CMEFS identifies specific financial products as having a high risk of being misused for money laundering or terrorist financing.
• Focuses on understanding and mitigating risks associated with its financial activities.### Risk Classification of Products and Services
• High Risk includes advisory services related to pre-retirement investments into discretionary products, collective investment schemes, and endowments, regardless of stated purposes.
• Medium Risk encompasses post-retirement lump sum investments into discretionary products and endowments, without regard to the stated investment term.
• Low Risk includes products such as endowments with premiums under R25,000, life policies with incidental savings, and all pre/post-retirement products like annuities.
• No Risk relates to advisory services like medical aid, short-term insurance, and tax return filings.

Transactions and Client Interaction

• CMEFS handles between 1 to 100 transactions monthly.
• Client interactions are primarily face-to-face, with approximately 650 clients having established business relationships.

Distribution Model

• Services are distributed exclusively by authorized representatives, all employees of CMEFS, relying mainly on referral business for new clients.

AML Risk Classification

• Clients and business model present a low risk relative to money laundering and terrorism financing (AM/TF/PF).
• The highest risk factor identified is the source of funds, necessitating robust customer due diligence and monitoring of transactions.

Key Management and Compliance Officers

• CEO Charles Merrington oversees the AML and CFT control structure, promoting compliance culture within CMEFS.
• As the Money Laundering Compliance Officer (MLCO) and Reporting Officer (MLRO), Merrington ensures adherence to FICA regulations and manages compliance controls proportionate to business risks.
• Seshini Magan serves as the FAIS compliance officer, responsible for monitoring standards under the Financial Advisory and Intermediary Services Act.

AML/TF Risk Management Process

• Includes detailed risk assessment processes and customer due diligence requirements outlined in annexures related to risk assessment, investigation, and KYC procedures.

Customer Due Diligence

• Clients must be identified, and identities verified before beginning an account-based relationship.
• If a client fails to provide necessary documentation within 30 days, the business relationship is terminated.

Politically Exposed Persons (PEPs)

• CMEFS must identify potential clients who are Domestic or Foreign Politically Exposed Persons (DPEPs/FPEPs) and their associates.
• Enhanced due diligence is required for these individuals, including obtaining management approval and ongoing monitoring of their transactions.

Ultimate Beneficial Owner (UBO) Identification

• Companies and entities must disclose their UBO, defined by control or ownership of 25% or more of share capital or voting rights.
• CMEFS will require UBO declarations as part of customer due diligence.

Financial Sanctions and Asset Freezing

• The FICA allows asset freezing on suspected money laundering or terrorist financing activities.
• Immediate freezing directives are issued by the Financial Intelligence Centre (FIC) and are to be reported within three business days.

Reporting Obligations

• CMEFS must file various reports with the FIC, including suspicious activity reports, transaction reports, and cash threshold reports.
• Reporting is mandatory when knowledge of suspicious activity exists or when factors indicate a reasonable suspicion, regardless of transaction success.### Cash Threshold Reports
• Reporting is mandatory within 3 days under section 28 of the FIC Act for transactions (CTR) involving cash over R49,999.99.
• Reporting obligations exist whether cash is paid to or received from the client or their representatives.
• Cash is defined as legal tender (coins and paper money) and traveler's cheques.

Terrorist Property Reports

• Section 28A mandates reporting when an accountable institution has property linked to a sanctioned entity, regardless of any related activity.

Submission Process

• CMEFS submits detailed reports via the GOAML online platform of the Financial Intelligence Centre or electronically by a registered person.

Investigating Suspicious Transactions

• Delay suspicious transactions without alerting the client; if delay is not possible, obtain approval from senior management and the Money Laundering Reporting Officer.
• Continuing dealings with property flagged in a Terrorist Property Report is prohibited.

Confidentiality

• Disclosing report details or even the existence of a report is prohibited under Section 29 of the FIC Act, except under specific legal circumstances.
• Internal communication on reports within CMEFS should only involve necessary personnel.

FIC Reports Register

• Any escalated or reported transactions must be documented in the FIC Reports register, ensuring thorough record-keeping.

Record Keeping

• Records of suspicious transactions must be retained for at least five years post-report submission; identity verification records should also be kept for a minimum of five years after relationship termination.
• Ongoing investigations’ records are retained until formally closed, with daily backups conducted to secure data.

Offences Related to Money Laundering

• Participants in money laundering can face serious penalties, including imprisonment and fines.
• Assisting in money laundering or failing to report suspicious activities is a criminal offense.
• Tipping off the subject of any report or investigation is also an offense.

Offences and Penalties

• Assisting a money launderer can result in imprisonment or administrative penalties.
• Failure to report suspicious activities can lead to imprisonment, unlimited fines, or both.
• CMEFS may impose disciplinary measures, including dismissal, for non-compliance with regulations.

Training Requirements

• Employees must understand AML/CFT responsibilities and systems, with annual refresher training mandated.
• Participation in training is logged, and compliance checks are performed by the Money Laundering Compliance Officer.

Review and Update of Policies

• The Risk Management and Compliance Programme will be reviewed annually to ensure alignment with business operations and regulations.

Risk Assessment Process Summary

• Money laundering risk evaluation determines Know Your Client (KYC) requirements and ongoing due diligence frequency.
• Risk ratings range from little to no risk (0) to high risk (100 and above), influencing due diligence procedures.
• Enhanced, ongoing, standard, and simplified due diligence frameworks are established based on assessed risk.

Test your knowledge on the Financial Intelligence Centre Act of 2001 and the essential components of a Risk Management and Compliance Programme (RMCP) as outlined for Charles Merrington Executive Financial Services. This quiz covers definitions, acronyms, and business information relevant to compliance and risk management.