FSCA slaps R1.2m fine on investment firms for non-compliance

Both companies were in breach of the FIC Act aimed at combating money laundering and the financing of terrorism.

The Financial Sector Conduct Authority (FSCA) fined two financial services companies for serious breaches of the Financial Intelligence Centre (FIC) Act, it announced in a statement on Wednesday.

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Prime Collective Investment Scheme got a R1.6 million administrative sanction, of which R600 000 was conditionally suspended, while Wealth Portfolio Managers – a licensed financial services provider – was sanctioned R200 000.

Risk and compliance falling short 

The FSCA says it conducted inspections on Prime and Wealth as part of its supervisory activities and found both to be in contravention of the FIC Act, which is legislation aimed at combating money laundering, the financing of terrorism, and other criminal activities.

In February 2023, South Africa was placed on the Financial Action Task Force (FATF) grey list for not meeting international standards on money laundering, terrorist financing, and proliferation financing. It has until February 2025 to address the remaining action items to be removed from the grey list.

As part of the measures, all accountable institutions in South Africa need to develop a proper risk management and compliance programme (RMCP) for anti-money laundering and counter-terrorist financing.

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Although both Prime and Wealth indeed developed such programmes, they were found to be deficient, and neither could demonstrate that their RMCPs were implemented effectively, the FSCA notes.

Insufficient due diligence 

Financial institutions also need to conduct customer due diligence, which includes obtaining beneficial ownership information, establishing whether clients or beneficial owners of clients are politically exposed persons, and conducting ongoing customer due diligence.

“Both institutions failed to conduct the requisite customer due diligence,” the FSCA notes.

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Prime failed to establish and verify beneficial owners of clients who are legal persons and trusts, while Wealth failed to conduct ongoing due diligence and verify client information to determine whether or not certain clients are politically exposed persons.

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In addition, institutions must scrutinise their client information to determine if any of their clients are listed on targeted financial sanctions lists.

In this instance, Wealth failed to scrutinise client information against the United Nations Security Council Targeted Financial Sanctions Lists (TFSL).

The FSCA notes it considers the compliance deficiencies of both companies to be “serious breaches” of the FIC Act.

“The effective implementation of an RMCP is vital because it helps contribute to the integrity of the South African financial system as a whole. The above sanctions serve as reminders that the FSCA will not tolerate non-compliance with the FIC Act.”

The authority cautions that it will not tolerate non-compliance and that failure to do so will result in “firm regulatory action”.

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