The Financial Intelligence Centre Act (FICA) 38 of 2001 was promulgated in SA to assist in the identification and prevention of money laundering. Money laundering is the process of converting money obtained through illegal means - for example, drug trafficking, hijacking, copyright fraud, tax evasion - into legal money in the financial markets. The `laundered` proceeds may be used to finance organised crime and terrorism.
One of the pillars of FICA is a requirement that all participants in the financial sector - banks, attorneys, investment managers, stockbrokers, life assurors - are required to fully understand who their clients are. This requirement is commonly known as KYC/VYC - Know Your Client / Verify Your Client, and includes obtaining proof of identity, name, date of birth and residential address from clients who are individuals. Different requirements are to be met for legal entities (not individuals), but typically include registration details, operating details and identity details of certain individuals associated with the legal entity.
The requirement to KYC/VYC their clients was introduced on 30 June 2003 for new clients - those clients with whom the financial institution does not have a current relationship - and, from 30 June 2004, the requirement was to be met for existing clients.
The banks and some of the other financial institutions raised concerns around the stringent deadline for existing clients (approximately 18 million clients) to be KYC/VYC`d within one year. Urgent requests were made to the minister of finance to extend the deadline, which was recently granted by publishing a range of dates and requirements in the Government Gazette.
These dates have identified certain criteria that financial institutions are to apply to their client base in order to determine which date is to apply to which client. Some of those criteria are based on the type of products used by the client, the frequency and value of transactions and certain demographic details about the client. These details form an element of risk-weighting clients in terms of an ability to conduct money laundering.
Some of the more important dates to be aware of for KYC/VYC compliance are:
* 31 October 2004 - all trusts and partnerships
* 31 December 2004 - banks to have concluded all `high risk` clients
* 30 June 2005 - investment managers and members of exchanges to have completed all their clients
* 30 September 2005 - banks to have completed all `medium risk` clients
* 30 September 2006 - banks to have completed all clients
The Act also requires that financial institutions take reasonable steps to ensure that information and associated proof thereof, which is susceptible to change, remains correct.
Individuals are urged to visit their local bank and produce their green bar-coded ID book and proof of their residential address that is addressed to them and reflects the residential address or stand number and suburb. Examples of such documentation would be a telephone account, municipal rates and taxes invoice, lease or rental agreement, and any insurance document detailing the physical address of the insured.
IQ has been intensively involved in assisting a large financial institution with its FICA implementation since August 2003 and has on occasion had in excess of 40 staff members involved in the programme.
For further information on FICA and compliance, and how we can help you, please contact The IQ Business Group.
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