What's Happening?

Facebook Twitter Youtube Linkedin

NEED HELP? QUESTIONS@FIA.ORG.ZA

become A FIA member TODAY
member login

Behind the Numbers

ARTICLE BY

  • Hawken McEwan
  • Director of Risk & Compliance
  • DocFox

SHARE THIS POST

In the ongoing battle against financial crime, South Africa has taken a significant step forward. The Financial Intelligence Centre (FIC) has recently issued new guidance on Ultimate Beneficial Ownership (UBO), lowering the threshold expected for identifying controlling ownership from 25% to 5%. This change, detailed in Public Compliance Communication 59 (PCC59), represents a crucial shift in our approach to combating money laundering, corruption, and other financial crimes.

For years, it was generally understood that a 25% shareholding was sufficient to establish ownership or control of a company. However, criminals have become increasingly sophisticated, often using complex webs of smaller shareholdings to obscure their control over legal entities. The new 5% threshold is a direct response to these tactics, making it significantly harder for bad actors to hide behind corporate structures.

This change didn’t come out of nowhere. It aligns with the Companies and Intellectual Property Commission’s (CIPC) Beneficial Ownership Register and addresses the high levels of financial crime in South Africa. It particularly aims to tackle the well-publicised issue of tender corruption, where shell companies are often used to front illicit transactions.

Impact on the fight against financial crime

The lowered threshold is a powerful tool in uncovering what criminals might try to hide. By looking closer at ownership structures, investigators are much more likely to identify scenarios where one person holds multiple smaller shareholdings across various entities – a common tactic used to maintain control while staying under the radar.

This change is reminiscent of the challenges faced when South Africa was greylisted by the Financial Action Task Force (FATF) in February 2023. Just as the greylisting highlighted gaps in our financial crime-fighting infrastructure, this new UBO regulation addresses a critical vulnerability in our system.

Challenges for businesses

While this change strengthens our defences against financial crime it does introduce new considerations for businesses. Many companies have historically viewed detailed shareholder disclosures as an invasion of privacy. The new 5% threshold demands an even closer look at ownership structures, which may be met with some resistance.

However, it’s worth noting that the recent requirement for the Beneficial Ownership Register at CIPC, which mandates the declaration of all shareholders at 5% or greater, should make this task less laborious. Many companies will have already done the groundwork to comply with CIPC requirements.

Technology will also play a crucial role in navigating these new requirements. While solutions like DocFox cannot directly obtain the UBO information from clients – the responsibility still lies with the institution – we can significantly streamline verifying the identities of all identified UBOs. This helps businesses maintain compliance without drowning in paperwork.

Consequences of non-compliance

It’s important to note that while the FIC “strongly recommends” the 5% threshold, the industry expects it to become the de facto standard from now on. Non-compliance with FICA can have significant consequences, ranging from reprimands to substantial fines. In a post-greylisting environment, where South Africa is under increased international scrutiny, the stakes for compliance have never been higher.

Impact on the average citizen

You might wonder how these seemingly technical changes affect the person on the street. In reality, increased transparency in business ownership has far-reaching effects on our daily lives. When businesses are more transparent, it becomes harder for corrupt individuals to exploit company structures for personal gain. This can lead to fairer competition, potentially lower prices for consumers, and reduced risk of job losses because of fraudulent business practices.

Moreover, as we have seen with the fall-out from scandals like the VBS Bank heist, when financial crimes go unchecked, society’s most vulnerable often suffer the most. By tightening our UBO regulations, we are creating a more robust system that protects everyone – from individual savers to entire communities.

Looking ahead

As we implement these new regulations, it is important to remember that compliance is not just about ticking boxes. It is about creating a financial ecosystem that’s hostile to criminals and welcoming to legitimate businesses and investors. This shift towards greater transparency represents a significant cultural change in how we approach business and finance in South Africa.

While the path to full compliance may seem daunting, it’s a necessary step that requires collaboration across all sectors. Businesses, regulators, and technology providers must collaborate to develop innovative solutions that make UBO verification and overall KYC processes more efficient and effective. This collaborative approach will be vital to implementing these changes without overburdening legitimate businesses.

As we continue to strengthen our defences against financial crime, we move closer to not just getting off the FATF’s grey list, but to building a financial system that is truly world-class in its integrity and transparency. This evolution will have far-reaching effects, potentially attracting more foreign investment, improving our global economic standing, and fostering a more ethical business environment domestically.

Subscriber Terms and Conditions

  1. APPLICATION OF TERMS
    • These terms and conditions (“Subscriber Terms”) apply to the subscription by any qualifying member of the South African Underwriting Managers Association NPC (“SAUMA”) to the services and benefits offered by FIA Services (Pty) Ltd (“FIA Services”) under the SAUMA affiliation arrangement (“Subscription”).

  2. NATURE OF SUBSCRIPTION
    • A Subscription under this arrangement:
      • does not constitute membership of FIA NPC;
      • does not confer any voting rights or governance participation in FIA NPC; and
      • is governed solely by the contractual relationship between the Subscriber and FIA Services.

  1. ELIGIBILITY
    • To qualify for the Subscription, the applicant must, at the time of application, be a current paid-up member of SAUMA.
    • FIA Services will verify the applicant’s SAUMA membership status with SAUMA prior to activation, and may re-verify such status periodically.
    • If a Subscriber ceases to be a paid-up member of SAUMA, the Subscription will correspondingly be terminated.
    • Applicants are required to authorise FIA Services to confirm their SAUMA membership status with SAUMA as part of the application process.

  1. SERVICES
    • The Subscription entitles the Subscriber to the following benefits:
      • Complimentary access to the FIA CPD Platform;
      • Complimentary access to the FIA Insight Magazine (digital edition);
      • Advertising opportunities on FIA platforms at a discounted rate of 15% (fifteen percent) off the prevailing published rates; and
      • Invitations to attend FIA Technical Webinars annually.
    • FIA Services reserves the right to update, vary or substitute the Services from time to time, provided that the overall value and nature of the benefits remain materially the same.

  1. FEES AND PAYMENT
    • The monthly subscription fee is R260.00 (two hundred and sixty rand) for up to seven registered individuals (Key Individuals and Representatives), and R36.00 (thirty-six rand) per additional registered individual thereafter, excluding VAT.
    • The Subscriber shall provide FIA Services with the required details of each individual to be registered under the Subscription for the purposes of activation and billing.
    • All fees are exclusive of VAT, which shall be charged at the prevailing statutory rate.
    • Subscription fees are reviewed annually in March and may be adjusted with effect from 1 April.
    • Any changes to the Subscription, including but not limited to the number of Representatives and Key Individuals registered under the Subscription, may only be effected once annually during the annual review period in March of each year, with such changes taking effect from 1 April.
    • Subscription fees shall be billed monthly in arrears, unless the Subscriber elects an annual billing cycle at the time of application.
    • The Subscriber shall ensure that all billing information (including contact details, authorised signatories and bank account details) is kept accurate and up to date.
    • Non-payment of subscription fees may result in suspension of access to the Services until such fees are brought up to date.
    • The Subscriber acknowledges and agrees that all subscription fees payable under these Subscriber Terms may be collected by way of debit order, which shall be processed by the holding company, FIA NPC (The Financial Intermediary Association of South Africa), on behalf of FIA Services. Payment to FIA NPC shall be deemed to constitute valid and sufficient discharge of the Subscriber’s payment obligations to FIA Services under these Subscriber Terms.

  1. ONBOARDING
    • Onboarding will be conducted as a Subscription with FIA Services under the SAUMA affiliation arrangement.
    • Onboarding will not confer FIA NPC membership status or any associated rights.
    • Onboarding is conditional on confirmation of the Subscriber’s current SAUMA membership at the time of application

  1. DATA PROTECTION
    • FIA Services will process all personal information in accordance with the Protection of Personal Information Act 4 of 2013 (POPIA) as set out in our POPIA policies.
    • By subscribing, the Subscriber authorises FIA Services to confirm their SAUMA membership status with SAUMA and to process personal information for the purposes of fulfilling the Subscription.

  1. TERMINATION
    • The Subscriber may terminate the Subscription by giving FIA Services one calendar month’s written notice.
    • FIA Services may terminate the Subscription on one calendar month’s written notice, or immediately if the Subscriber breaches these Subscriber Terms and fails to remedy such breach within 14 (fourteen) days of receiving written notice.
    • Termination of the SAUMA–FIA Services affiliation agreement shall not automatically terminate these Subscriber Terms.
    • Termination by the Subscriber shall not relieve the Subscriber of liability for any subscription fees accrued up to the effective date of termination.
    • FIA Services may suspend or terminate the Subscription with immediate effect in the event of non-payment of fees by the Subscriber.

  1. GENERAL
    • These Subscriber Terms are governed by the laws of the Republic of South Africa.
    • Any disputes arising under these Subscriber Terms shall be dealt with in accordance with the dispute resolution provisions contained in the FIA NPC membership terms and conditions, as modified to reflect that the contractual relationship is with FIA Services.
    • Any notices required under these Subscriber Terms may be validly delivered by email to the addresses provided in the Subscriber’s application form, and such notices shall be deemed received on the day of transmission if sent during business hours.
    • The Subscriber may not assign, cede or transfer any of its rights or obligations under these Subscriber Terms without the prior written consent of FIA Services.
    • No variation of these Subscriber Terms shall be of any force or effect unless reduced to writing and signed by both FIA Services and the Subscriber.