Latest draft guidance for accountable institutions

​​​​​​​​​​​The Financial Intelligence Centre (FIC) has recently published various pieces of guidance and draft guidance relating to beneficial ownership and the Risk Management and Compliance Programmes (RMCPs) of accountable institutions. The draft guidance is currently undergoing public consultation and accountable institutions are welcome to provide their comments to the FIC.

The draft guidance follows from previous iterations provided by the FIC on the interpretation of beneficial ownership and the implementation of RMCPs by accountable institutions.

    1. ​​​​Draft Public Compliance Communication 121A guidance on beneficial ownership and the application of section 21B of the Financial Intelligence Act (FICA), 38 of 2001 (Draft PCC 121A).

​Draft PCC 121A was issued for public consultation on 14 June 2024 and provides guidance ​for accountable institutions to identify and verify the beneficial owners of various types of organisations with a focus on combatting money laundering, terrorist financing and proliferation financing risks related to beneficial owners. Previously, the FIC released Draft Public Compliance Communication 121 which should be read in conjunction with Draft PCC 121A.

Similarly to the Draft PCC 121, 121A comprises of five parts:

  • Part A – Legal Persons
  • Part B – Trusts
  • Part C – Partnerships
  • Part D – Non-profit organisations
  • Part E – Adequate, accurate and up-to-date information.

Establishing the beneficial owner of a client

Draft PCC 121A retains the three-step process set out in draft PCC121. A three-step process of elimination for establishing the beneficial ownership of a client unfolds as follows:

    1. Identify the natural person who independently or together with another person, has a controlling ownership interest in the legal person;
    2. If in doubt, whether a natural person owns a controlling ownership interest or no natural person owns a controlling ownership interest, identify the natural person/s who exercises control by other means, including through his or her ownership or control of other legal persons, partnerships, or trusts; or
    3. Identify the natural person/s who exercises control over the management of the legal person.

It is worth noting that the third elimination step can be applied only in exceptional cases as the identification of natural persons who exercise control over the management should not supersede the identification of the beneficial owners.

Given the focus of 121A, it is important to highlight the circumstances in which a legal person is deemed to pose a high risk for money laundering, terrorist and proliferation financing. The accountable institution's risk-based approach provides that a person is deemed to pose a high risk where:

  • ​​the natural person is a foreign politically exposed person, a high-risk domestic politically exposed person or a high-risk prominent influential person;
  • there is significant adverse media on the natural person; or
  • the client or person is the subject of numerous reports, or there are suspicions that the person is linked to terrorist or terrorism financing or related activities, or proliferation of weapons of mass destruction.

Distinction between legal owner and beneficial owner

​Draft PCC 121 and 121A create a distinction between legal and beneficial owners as the legal owner may not always be the beneficial owner. A natural person may be considered a beneficial owner on the basis that they are the ultimate owner or controller of a legal person and this control may be exercised through means other than legal ownership.

Establishing the beneficial owners of legal persons

Section 21B(2) of the FICA requires accountable institutions to take reasonable steps to verify the identity of the beneficial owners of clients who are legal persons.

In determining a threshold figure the FIC has stated that accountable institutions must identify the person who holds five percent or more of ownership interest in a legal person. Additionally, accountable institutions must determine whether other natural persons exercise effective control over the legal person despite that person not having five per cent or more ownership interest in the legal person.

Further, the FIC is of the view that accountable institutions are still required to follow the three-step process of elimination when identifying beneficial owners of exchange-listed companies.

Establishing the beneficial owners of trusts, partnerships and non-profit organisations

In the case of trusts, the FIC requires accountable institutions to identify all natural persons including the founders, trustees and beneficiaries.

Similarly to the obligations with trusts, every partner in a partnership is required to be identified by accountable institutions regardless of the percentage of their interest in the partnership. This obligation applies regardless of whether the person is a partner in an anonymous partnership or a partner en commandite.

Non-profit organisations are not exempt according to the FIC as accountable institutions are still required to identify and verify the identities of every founder.

Adequate, accurate and up-to-date beneficial ownership information

Accountable institutions are required to identify and verify "who" the beneficial owners are, "why" they possess that beneficial interest and "how" they possess that interest.

Further, accountable institutions are required to routinely ensure that all the information they have on record is up to date.

Inability to identify and verify

Accountable institutions are prohibited from establishing a business relationship or transacting with clients in instances where the accountable institutions are not able to identify and verify the beneficial ownership information of those clients.

Draft PCC 121A was initially available for comment and consultation from 14 to 21 June 2024, however, this period has been extended until 5 July 2024. Submissions can be made to: Consultation on Draft Public Compliance Communication 121a (Office.Com)

​​​​ii. ​Draft Guidance Note 7A on the implementation of various aspects of the Financial Intelligence Centre Act, 38 of 2008: Amendments to chapter 4 of the Guidance Note 7 of October 2017 – third round of consultation

The FIC published draft Guidance Note 7A (draft GN 7A) on 18 June 2024 for a third round of consultation. The draft GN 7A is intended to replace Chapter 4 of Guidance Note 7 of October 2017 (Guidance Note 7).

Chapter 4 of the Guidance Note 7 guides the board of directors, senior management and persons holding the highest authority in accountable institutions regarding their obligations in relation to the RMCP obligations of an accountable institution as set out by section 42 of FICA.

The draft GN 7A was issued for the first round of consultation from 1 April 2022 until 2 May 2022 and for a second round from 30 September 2022 until 21 October 2022. Given the nature of the feedback, material amendments were further considered, and draft GN 7A has been published for a third-round consultation to provide further guidance on RMCP obligations.

The draft GN 7A integrates the comments which were received after the second-round consultation, with new material amendments to chapter 4 of the Guidance Note 7. The following are some of the material amendments introduced by the draft GN 7A:

Adequacy of RMCP approval

Draft GN 7A notes that the board of directors, senior management or person with the highest authority must only approve an RMCP that is described comprehensively and adequately.

The RMCP documentation is required to demonstrate that the board of directors, senior management or person(s) exercising the highest level of authority have applied their minds before approving the RMCP.

Proof of approval from the board of directors, senior management or person(s) with the highest authority must be documented with the RMCP documentation when submitted to the FIC or another supervisory body.

The board of directors or senior management role is extended by the draft GN 7A by requiring that additionally to creating the culture of compliance, it should also ensure that such culture of compliance is maintained adequately. Draft GN 7A notes that person(s) with the highest level of authority should also be fully engaged in decision-making processes and take ownership of the risk-based measures as they will be held accountable for non-compliance.

The FIC recommends the provisions to be included in RMCP documentation by considering the section 42(1) and 42(2) provisions of FICA.

Risk management

Draft GN 7A proposes that a business risk assessment must be conducted by the accountable institutions to identify, money laundering, terrorist financing and proliferated financing risks prior to determining the compliance controls required to mitigate these risks to ensure the development of an appropriate RMCP which is adequate for the nature of business an accountable institution conducts.

The FIC differentiates between a business risk assessment and a client risk assessment. The latter is part of the business risk assessment. The risk assessment should not be limited to the client risk assessment but must be broader to cover all the business aspects of the accountable institution.

It is also noted in draft GN 7A that accountable institutions may implement a group-wide RMCP. However, if accountable institutions elect to implement a group-wide RMCP, that group-wide RMCP must describe what applies to different entities and what does not apply to different entities within the group.

Comments on draft GN 7A closed on 28 June 2024.

​​​​iii. FIC Booklet​

Following the amendment of various pieces of legislation over the past few years the FIC booklet was published in May 2024.  The FIC Booklet provides copies of the latest versions of the following 4 pieces of legislation:

  • The Financial Intelligence Centre Act (FICA)
  • Money Laundering and Terrorist Financing (ML & TF) Control Regulations
  • Prevention of Organised Crime Act (POCA)
  • Protection of Constitutional Democracy Against Terrorist and Related Activities Act (POCDATARA)

The previous version of the booklet was released in 2018. The booklet can be found at ​Anti-Money Laundering and Counter-Terrorism Financing Legislation​.​


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