Lethubuhle Ncube | The impact of greylisting on the SA insurance industry

In November 2019 the Financial Action Task Force (“FATF”), the global body that sets international standards relating to the combating of money laundering and terrorist financing performed a Mutual Evaluation of South Africa’s (“SA”) Anti Money Laundering (“AML”) and Counter Finance Terrorism (“CFT”) systems and controls. Unfortunately, SA was found to have deficiencies in its system as a result 67 recommendations were made by the FATF.

SA was then placed under a one-year observation period in October 2021, giving the country time to address the Recommended Actions. In January 2023 an assessment of SA’s progress found that the country had made positive progress, reducing the 67 Recommended Actions to 8 strategic deficiencies. Despite the governments best efforts, passing two major Amendment Acts in 2022, the FATF placed South Africa on its grey list on the 24 February 2023.

Implications for the insurance industry

There are a few implications paired with being placed on this list by the AFTF, especially for those insurers whose business models and strategies rely on reinsurance programmes concluded with foreign reinsurers. These insurers are likely to experience enhanced Customer Due Diligence (CDD) and Know your Client (KYC) requirements, potentially increasing the cost of compliance and reinsurance.

Some global companies have internal policies that prevent them from doing business with grey listed countries. This could mean that some foreign reinsurers may not be willing to do business with South African insurance companies and this could have dire financial consequences.

It remains incumbent upon every company in the financial sector to ensure that they do their part to comply with national regulations. At Maksure Risk Solutions, there now exist stringent accountability and compliance measures aimed at ensuring that SA is taken off the grey list as soon as possible.

Below are some of the initiatives Maksure has taken in this space, amongst other things:

1. Ensure registration as an Accountable Institution with the Financial Intelligence Centre (the (FIC);
2. Continuously train employees on AML;
3. Adopt and implement a Risk Management and Compliance Plan that speaks to its business model;
4. Keep a record of transactions;
5. Keep a record of the information obtained to verify a client’s identity and the nature of the business relationship, and the source of the funds that the client is expected to use to conclude transactions;
6. Conduct Customer Due Diligence which places responsibility on Accountable Institutions to know who they are doing business with; and
7. Conduct sanctions screening and in certain circumstances report to the FIC.

Accountable institutions must note that it’s not enough to have policies and procedures in place, they also have to demonstrate effectiveness of their internal systems and controls.

A lot of organisations that have been fined by the FIC are not fined for money laundering itself but due to failure to show implementation and compliance with Customer Due Diligence, risk assessment, staff training and ongoing monitoring.

In this ever changing regulatory environment, Maksure Risk Solutions has continued to demonstrate agility and adaptability as the company constantly invests in, and tightens its internal systems and controls to ensure that it is in compliance with legislation. Its commitment to always keep abreast of the trends and ensure strict and timely compliance is what makes it the broker of choice.

*Article written by Lethubuhle Ncube, Legal and Compliance Officer – Europe, Asia & Africa, Maksure Risk Solutions.