From CompliNEWS | Financial Service Intelligence Watch

Guidance Note: Draft General Laws (AML/CTF) Amendment Bill, 2024

The National Treasury has recently published the Draft General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Bill, 2024, for public comment. This publication reflects South Africa’s determination to meet the standards set by the Financial Action Task Force (FATF) and resolve the issues that led to the country’s greylisting in February 2023. The proposed amendments span multiple legislative frameworks, focusing on strengthening compliance, enhancing enforcement mechanisms, and addressing gaps in the existing Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) systems.

The Bill is a collaborative effort involving the Department of Trade, Industry and Competition, the Department of Social Development, and the Financial Intelligence Centre, and targets key legislation, including the Financial Intelligence Centre Act, the Companies Act, the Nonprofit Organisations Act, and the Financial Sector Regulation Act.

Key Provisions and Practical Implications

1. Financial Intelligence Centre Act (FIC Act)

The FIC Act forms the backbone of South Africa’s AML/CFT regulatory framework. The proposed amendments include:

  • Access to Restricted Funds – Provisions to allow entities under financial restrictions to access funds for extraordinary expenses, subject to ministerial approval. Interest accrued on frozen accounts can also be managed to ensure legitimate use under certain conditions.
  • Technology and New Product Risks – Institutions are required to assess and mitigate risks linked to emerging technologies and new financial products before their launch. This includes considering how such innovations might be exploited for money laundering or terrorist financing.
  • Accountable Institutions’ Obligations – Institutions must intensify efforts to scrutinise their databases and identify transactions involving flagged entities or individuals. Enhanced reporting requirements ensure that timely information reaches the Financial Intelligence Centre.
  • Practical Implication – Financial institutions must prioritise integrating comprehensive risk management strategies to address these enhanced obligations, particularly in technology-driven products and services.

2. Companies Act
Amendments to the Companies Act aim to improve transparency in corporate structures and strengthen sanctions for non-compliance:

  • Beneficial Ownership Reporting – Companies failing to submit securities registers or beneficial ownership information for over a year can now face deregistration.
  • Increased Penalties – Administrative fines for non-compliance with beneficial ownership reporting obligations have been significantly increased to R10 million or 10% of turnover, whichever is greater.
  • Right to Appeal – Companies penalised for non-compliance can now request a review of administrative fines through the Companies Tribunal.
  • Practical Implication – Businesses need to maintain accurate and up-to-date beneficial ownership records to avoid severe penalties and potential deregistration.

3. Financial Sector Regulation Act (FSR Act)
The amendments to the FSR Act aim to modernise regulatory oversight to include innovative financial products and services:

  • Broader Licensing Requirements – Virtual assets and fintech solutions, including blockchain services, will fall under expanded definitions of financial products, ensuring comprehensive regulatory coverage.
  • Pre-emptive Investigations – Regulators are now empowered to act on suspected or imminent contraventions, preventing harm before it occurs.
    Transparency Measures – Regulators can directly obtain information from significant and beneficial owners, enhancing the visibility of complex ownership structures.
  • Practical Implication – Financial service providers offering innovative products must align their operations with these new licensing requirements and prepare for closer regulatory scrutiny.

4. Nonprofit Organisations Act
The amendments introduce clearer penalties for non-compliance within the nonprofit sector:

  • Enhanced Penalties – Maximum fines of up to R1 million or five years of imprisonment, or both, are now applicable for offences under the Act.
  • Improved Governance – Nonprofit organisations are encouraged to implement stronger compliance measures to ensure alignment with national AML/CFT standards.
  • Practical Implication – Nonprofit organisations must reassess their internal controls and governance frameworks to avoid penalties and ensure compliance.

Next Steps and Stakeholder Engagement

The draft Bill is open for public comment until 6 February 2025. Stakeholders are encouraged to submit their written responses to Commentdraftlegislation@treasury.gov.za

Following this, the National Treasury and other key departments will hold public workshops to refine the proposals. The updated Bill will then be presented to the Cabinet before being tabled in Parliament.

This initiative demonstrates South Africa’s commitment to addressing FATF’s requirements and restoring confidence in its financial systems. Stakeholders should take this opportunity to contribute to the legislative process and ensure their readiness to comply with the impending regulatory changes.