At the end of 2022 we published an article to communicate the new categories made in Schedule 1 to the FICA, which is the schedule listing all Accountable Institutions (AIs), and which are now subject to the full suite of FICA obligations.
In order to provide these new AIs with assistance in practically implementing and understanding their new FICA obligations, the FIC has released several useful interpretative guidance notes, of which a few industries will be discussed below:
One of the more considerable AI inclusions, which will affect a wide variety of entities, is that of credit providers. A credit provider is classified as either a person who carries on the business of a credit provider as defined in the NCA or a person who carries on the business of providing credit in terms of any credit agreement that is excluded from the application of the NCA.
Practically what this means is that where a natural person or entity only extends credit in terms of a credit agreement on an ad hoc basis and which doesn’t form part of its main business, it is nevertheless still deemed to be a credit provider in relation to the credit agreement. Credit providers in terms of the NCA include a broad spectrum of entities including a party who extends credit under a credit facility, the mortgagee under a mortgage agreement, the lender under a secured loan and the lessor under a lease.
A credit agreement includes a credit facility, credit transaction, credit guarantee, or any combination of these. This excludes insurance policy products, leases of immovable property and stokvels, and excludes the South African Reserve Bank, government and organs of state under its ambit. Practical examples of these credit agreements are microfinance loans, low cost housing loans, revolving credit agreements and instalment agreements.
Importantly, only credit providers that provide new loans from 19 December 2022 will be included under the scope of a credit provider in terms of Schedule 1 where that business acquires the rights of a credit provider under a credit agreement after the credit agreement was entered into. There is also no monetary threshold applicable when determining if an entity is a credit provider.
A HVGD is defined as a person (natural or juristic) who carries on the business of dealing in high-value goods in respect of any transaction where such a business receives payment in any form to the value of R100 000 or more, whether the payment is made in a single operation or in more than one operation that appears to be linked. The term “high-value goods” means any item that is valued in that business at R100 000 or more.
Most notable within the umbrella of HVGDs are motor vehicle dealerships (previously reporting institutions, which category has now been repealed) and dealers in precious metals and stones eg: Kruger rand dealers (also previously reporting institutions), but these examples are by no means exhaustive. HVGs, however, are intended to refer to movable, physical items such as gold, diamonds, antiques, fine art, helicopters, aircraft, luxury yachts and motor vehicles rather than shares and trading stock. These previously reporting institutions will automatically be converted to AIs on the FIC’s registration and reporting platform, goAML, but should deregister from goAML should they not meet the above definitions’ requirements.
There is a focus on this AI in the retail sector, where these HVGs are consistently, and as part of the general ordinary course of business, being traded, sold or bought. The means of payment for these HVGs is also not limited so therefore could be bought, sold or traded for cash, via EFT or through cryptocurrency. The full R100 000 threshold amount does not have to be paid at once for a business to be considered a HVGD, as long as the total payment made is R100 000 or more. For FICA purposes, a HVGDs client who purchases an item (eg: a diamond ring) of R100 000 is required to undergo the full suite of CDD obligations, whereas if the client purchases a motor vehicle part, watch or piece of art for an amount below the above mentioned threshold, FICA would not need to be performed on this client, but a reporting obligation would still arise nonetheless should a transaction or activity be deemed as suspicious.
A CASP is defined as “A person who carries on the business of one or more of the following activities or operations for or on behalf of a client–
(a) exchanging a crypto asset for a fiat currency or vice versa;
(b) exchanging one form of crypto asset for another;
(c) conducting a transaction that moves a crypto asset from one crypto asset address or account to another;
(d) safekeeping or administration of a crypto asset or an instrument enabling control over a crypto asset, and
(e) participation in and provision of financial services related to an issuer’s offer or sale of a crypto asset”.
Importantly, this definition excludes persons conducting a crypto asset activity in a personal capacity as opposed to for commercial gain under an ordinary business course and scope. The emphasis for whether a natural or legal person falls under the purview of the above definition is focused rather on the activities being performed by the business instead of the crypto asset being used for the transaction.
In terms of CDD for clients of CASPs, and due to the non face-to-face, anonymous nature of the industry, the FIC suggests for additional information to be obtained during the CDD process, including obtaining information regarding the client’s Internet Protocol (IP) addresses, time stamp, geolocation and all linked crypto asset wallet addresses. CASPs, as a matter of course, may deal with other CASPs (eg: foreign CASPs for purposes of trading on foreign exchanges) and therefore the South African CASP should assess the counterparty CASP’s controls in relation to AML/CFT/CPF and accordingly risk rate such entities and apply enhanced due diligence measures as appropriate. The FIC also highly recommends that CASPs record a list of “bad wallets addresses”, that have previously been subject to regulatory reports, which can be used to screen client information from a risk appetite perspective, prior to entering into the crypto transaction.
You can read more here about the other recent important FICA Amendments you should be aware of.
As always we aim to keep you updated with all the latest information regarding FICA and SA’s greylisting. Please note that our software and services are updated according to all the changes.