In today’s highly regulated financial environment, client onboarding, KNOW YOUR CUSTOMER (KYC) procedures and due diligence are not just formalities — they are critical in allowing us to continue conducting business. These formalities are required for both sales and leases, and information is needed from the seller, buyer, landlord, and tenant.
As an accountable institution, we are legally obliged to adhere to these processes to safeguard our operations, maintain compliance and avoid significant risks, including regulatory penalties. These obligations have become even more critical after South Africa’s recent greylisting by the Financial Action Task Force (FAFT).
One of the foremost authorities enforcing these standards in South Africa is the Property Practitioners Regulatory Authority (PPRA), alongside the Financial Intelligence Centre (FIC). The PPRA, through its mandate to oversee market conduct by Property Practitioners, has recently issued numerous sanctions on accountable institutions that have failed to comply with the FIC’s legal obligations. This scrutiny has increased as South Africa continues to work towards exiting the greylist.
This article aims to educate our clients by highlighting the importance of proper client onboarding, KYC, and due diligence, explaining the implications of South Africa’s greylisting, as well as informing them of the consequences it has on our business in the event of non-compliance, and to stress that the FIC regulations are mandatory and non-negotiable.
SOUTH AFRICA’S FAFT GREYLISTING AND WHAT IT MEANS:
In February 2023, South Africa was placed on FAFT’s greylist, which indicates that our country has had deficiencies in its ability to prevent money laundering and terrorism financing. For businesses such as ours, this means enhanced scrutiny from both domestic and international regulators, as well as from foreign institutions.
THE IMPLICATIONS OF THE GREYLISTING ARE SIGNIFICANT:
- INCREASED DUE DILIGENCE BY GLOBAL COUNTERPARTIES:
South African businesses, particularly those in the property sector, have faced additional scrutiny from international banks and investors. Foreign institutions have also increased due diligence requirements for transactions involving South African entities to ensure compliance with global anti-money laundering (AML) standards.
- GREATER REGULATORY PRESSURE:
The South African government and its regulatory bodies, such as the PPRA and FIC, are now under even greater pressure to enforce compliance with AML and counter-terrorism financing (CTF) standards, which means that businesses will face heightened regulatory scrutiny and an increased likelihood of penalties for non-compliance.
WHY IS PROPER CLIENT ONBOARDING AND KYC SO IMPORTANT?
- MITIGATING THE RISK OF FINANCIAL CRIME:
Client onboarding and KYC are essential first steps in safeguarding our business from being used for illicit activities such as money laundering, fraud or terrorism financing. By verifying the identity of our clients, understanding business operations and evaluating potential risks, we can ensure that our business is not unknowingly facilitating financial crime/s.
- ENSURING REGULATORY COMPLIANCE AND AVOIDING PENALTIES:
The FIC Act requires accountable institutions to conduct robust customer due diligence on our clients. This means that, before entering into any business transactions, we have to verify our clients’ identities, assess the nature of the relationship, and monitor our clients’ activities on an ongoing basis. Failure to meet these obligations can result in severe penalties, including fines and sanctions imposed by the PPRA and FIC.
- BUILDING TRUST WITH CLIENTS:
In a challenging regulatory landscape, adhering to KYC and FIC obligations is not just about avoiding penalties but also a mark of trustworthiness. As a business that places compliance at its forefront, we protect our clients and operate with transparency and integrity. This also allows us to foster long-term relationships, as clients will feel safer and more secure knowing that the company they are dealing with fully complies with all legal requirements.
- PREVENTING FSCA SANCTIONS:
The PPRA has recently increased its scrutiny of FSP’s and other accountable institutions. As a result, numerous entities have faced significant sanctions, fines and reputational damage due to non-compliance with FIC regulations. These sanctions clearly warn that regulatory bodies are not hesitant to enforce the law regarding financial crime prevention.
THE CONSEQUENCES OF NON-COMPLIANCE WITH FIC AND PPRA REGULATIONS
Failure to comply with FIC regulations violates the law and opens businesses to significant risks in a greylisted country. The PPRA and FIC have emphasised their commitment to enforcing compliance more stringently, and the consequences of non-compliance are more severe in the current climate.
- HEFTY FINES AND SANCTIONS:
The PPRA can impose heavy fines on accountable institutions failing to meet compliance obligations. These penalties have increased due to South Africa’s greylisting, as regulators seek to demonstrate South Africa’s commitment to AML and CTF improvements.
- BUSINESS DISRUPTIONS:
Non-compliance can lead to business disruptions, as they may be barred from conducting property transactions until the required standards are met.
- REPUTATIONAL DAMAGE:
In the current regulatory environment, any negative attention related to non-compliance can severely harm a business’s domestic and international reputation, making it difficult to attract clients and retain existing ones.
FIC REQUIREMENTS ARE HERE TO STAY
Recognising that compliance with FIC and PPRA regulations is not a temporary measure is essential.
These regulations are continually updated and intensified to keep up with evolving financial crime risks. We, as an accountable institution, and our clients must understand that:
- NO BUSINESS RELATIONSHIPS OR TRANSACTIONS WILL TAKE PLACE WITHOUT COMPLIANCE:
We cannot proceed with transactions or business relationships until compliance standards, KYC, and due diligence are completed. Documents which will be requested from clients, but are not limited to, will include completed compliance paperwork, certified copies of identity documentation, proof of residence (not older than 3 months), proof of bank account details (not older than 3 months), proof of tax registration, and source of funds with the required evidence thereof. Legal entities, such as companies and trusts, must provide additional documentation.
- THESE OBLIGATIONS WILL NOT GO AWAY:
Compliance with KYC, FIC and other regulatory requirements is not optional. It is a legal obligation that all accountable institutions must fulfil, and the PPRA will continue to enforce it vigorously.
- COMPLIANCE IS A CONTINUOUS PROCESS:
Performing client onboarding and KYC checks as a once-off is not enough. Ongoing due diligence and monitoring of our client’s activities are necessary to ensure we remain compliant throughout the business relationship.
- INCREASED REGULATORY OVERSIGHT:
As South Africa works to exit the greylist, regulatory authorities will continue to heighten their enforcement efforts. Non-compliant institutions are likely to face more substantial penalties and more frequent audits.
OUR COMMITMENT TO COMPLIANCE
At Epping Property, we are fully committed to all regulatory requirements outlined by FIC and the PPRA. We must carry out proper KYC and due diligence before entering any business transactions.
Before proceeding with any new client onboarding, we must gather all necessary documentation and information as required by FIC. For this reason, we are also committed to supporting our clients in this process and ensuring a smooth compliance onboarding experience. We appreciate our clients’ understanding and cooperation, as protecting both parties from legal and financial risks is crucial.
If you have any questions or need assistance gathering the required documents, please don’t hesitate to contact us.