FICA CHANGES: EMPLOYEE SCREENING, BENEFICIAL OWNERSHIP AND MORE

South Africa's financial sector is undergoing significant regulatory changes to combat money laundering, terrorist financing, and proliferation financing. Accountable institutions (and others now) must adapt to these changes to ensure compliance and mitigate risks. We explore and summarise some of the more recent changes. The employee screening changes below are unrelated to the CIPC and Master's Office changes.

Employee Screening - FICA Directive 8 and Public Compliance Communication 55

• Requires accountable institutions to screen prospective and current employees for competence and integrity on a risk-based approach.

• Employee information must be scrutinised against targeted financial sanctions lists.

• Records of the screening outcomes must be maintained.

• This is already in place and entities will have to comply with this going forward. Thus, you need not do the full exercise you would do with clients but only focus on assessing:

  • competence

  • integrity

  • screening against the UN sanctions list

  • applying a risk-based approach

  • doing periodic assessments based on risk and not only at onboarding

• No immediate reporting is required but you may be called upon to show evidence of certain persons being screened.

“It is important to note that the employee screening changes are specific to all accountable institutions. Totally separate to that is the CIPC and Master's Office changes. They are not applicable to accountable institutions/financial services only but all companies and trusts and is a "once-off" and "when there are changes" exercise.”

So the next two headings applies to all Trusts and Companies in South Africa - note you cannot comply with it yet because the systems are not in place yet to be able to report. This is totally separate to FICA UBO screening/checks that accountable institutions have to do and must not be confused. In future this information might help accountable institutions to check this more easily to establish who the UBO's are.

Beneficial Ownership (BO) Transparency and the Companies Act

• In March 2022, the Financial Action Task Force (FATF) adopted amendments to Recommendation 24 (R.24) to address BO transparency.

• South Africa has responded by amending the Companies Act, 2008, effective 1 April 2023.

• Companies must now record beneficial ownership information in their securities registers and file this information with the Companies and Intellectual Property Commission (CIPC) as part of their annual returns.

• The CIPC will maintain a register of this information to assist authorities in detecting crime and corruption. How this affects FICA and RMCP’s remains to be seen as the general practice is to identify all entities with 25% and above. So, in future all companies will have to declare their beneficial ownership of 5% and above– that is not to say it affects FICA at all yet. This is CIPC specific…for now.

• This system seems up and running at the date of writing this but functionality is unknown and may not be 100%.

• Entities have 6 months from 1 April to file.

Beneficial Ownership and Trusts

• Similarly to the CIPC above the same is being implemented for Trusts. You can submit to the Masters Office but it is via a Google Forms link(!?) which seems somewhat insecure and amateur. I sincerely hope they implement a more secure and professional way of submitting information. And it does not seem to have a direct effect on FICA…yet.

• ‘New regulations under the Trust Property Control Act (TPCA) require trustees to establish and record the beneficial ownership of the trust.

• Trustees must keep a record of prescribed information relating to the beneficial owners and lodge a register of this information with the Master's Office.

• Failure to comply can result in fines or imprisonment.

• Although you can submit already there seems to be no due date set for completion yet.

In conclusion, South Africa's financial sector is taking significant steps to enhance transparency and combat financial crime. Accountable institutions must adapt in future to these regulatory changes to ensure compliance and mitigate risks. By understanding and implementing the requirements of Directive 8, beneficial ownership transparency, and trust regulations, accountable institutions can contribute to a more secure and transparent financial sector in South Africa.

See the following links on the CIPC and Master of the High Court's websites:

https://www.justice.gov.za/master/trust.html

https://www.cipc.co.za/wp-content/uploads/2023/03/BO-Step-by-step-Guidelines.pdf