Living With Regulation – What We Learn From South Africa’s FATF Grey Listing – And it’s not all Bad!

Marcus Swanepoel
Marcus Swanepoel – BSG Manager

In the banking industry, one person’s ‘fair’ regulator is another person’s ‘brutal’ bureaucrat. Discussions about regulation in the banking world produce reactions of varying intensity, from a shrug of the shoulders to explosive denunciations. So when I read the recent Businesstech article: It’s time to be realistic about South Africa’s greylisting, it made me think about the scope of regulation and whether the burdens of complex international law can be alleviated or even avoided.

South Africa was placed on the Financial Action Task Force’s (FATF) global greylist on 24th February 2023. It surprised no one, despite the South African Government’s efforts to fast-track new laws to address the FATF’s highlighted issues.

Businesstech said: “But even though the greylisting was expected, it was met with quite a varied response – from the national government trying to downplay its impact to economists warning of worse to come – and many South Africans have been left feeling uneasy about what the greylisting means for the country, and where we are heading from here.”

The FATF is a global inter-governmental body that promotes policies and sets international standards for fighting money laundering and terrorist financing. FATF has 39 members, including South Africa, and two regional organizations (the Gulf Cooperation Council and the European Commission)

Evaluating The Future

Global bodies in the financial sector, such as the FATF, International Monetary Fund (IMF), and Basel Committee, use peer reviews to assess compliance with internationally agreed standards by member countries. A mutual evaluation exercise is the peer review that FATF conducts. The joint evaluation also includes an assessment of the effectiveness of a country’s implementation of the standards through 11 “immediate outcomes”.

Countries strengthen their financial systems by enhancing the integrity of the country and the entire global financial system. The results of a mutual evaluation exercise identify deficiencies. The FATF’s two grey lists refer to its practice of publicly identifying countries with strategic Anti- Money Laundering and Countering the Financing of Terrorism deficiencies.

Who Grey Listed South Africa and why?

According to National Treasury magazine South Africa did badly in its 2021 mutual evaluation. It had too many weaknesses in its legal framework and needed to be more compliant. South Africa was given time to address sixty-seven Recommended Actions and made significant progress during the observation period, passing two principal Amendment Acts in 2022. A January 2023 assessment found that South Africa had made positive progress, reducing the 67 Recommended Actions to 8 strategic deficiencies. That is a good effort! South Africa was grey-listed while these were addressed, even as the FATF recognized good progress made since 2019.

The most significant implication of a grey list is reputational damage, as it puts combatting financial crimes such as corruption, money laundering and terror financing below international standards.

The second implication arises from cross-border transactions, particularly by foreign banks providing banking services.

Institutions founded in a grey-listed country that work in cross-border trade may be subject to above-average customer due diligence outside that country. This means better vetting of clients and understanding the sources of their funds.

How long Do You Spend on the Grey List?

Generally, countries take one to three years to be removed from the grey list. South Africa is expected to address the eight strategic deficiencies identified by the FATF by the end of January 2025. However, the Government hopes to address them sooner, possibly in 2024.

African Countries that have been Grey listed

Ten African Countries currently on the Grey list:

  • Burkina Faso
  • Democratic Republic of the Congo
  • Mali
  • Mozambique
  • Nigeria
  • Senegal
  • South Africa
  • South Sudan
  • Tanzania
  • Uganda

African countries that have been on greylist and have been removed after completing their action plans

  • Mauritius
  • Botswana
  • Zimbabwe
  • Ghana
  • Morocco

Temenos AML Solutions—Why Not Keep Compliant As You Go?

Planning ahead and prevention is better than languishing in the international naughty step with non-compliant banks. Temenos’ Financial Crime Mitigation (FCM) product family is used by over 300 banks globally (from the global tier 1 to smaller regional Financial Institutions (FIs)) and enables banks and FI’s to avoid regulatory fines, detect fraud and mitigate reputational risks whilst improving throughput and optimizing cost all in line with the banks’ Risk Based Approach.

Regarding deployment, Temenos FCM allows you to focus on the business problem of financial crime and compliance, offering ultimate flexibility, allowing clients to choose from the private or public cloud, On-premise or to be consumed as a fully managed service (SaaS). As international regulators now understand the power, flexibility, scalability and accuracy of SaaS. South African banks can partner with Temenos safely, knowing that we are handling the complex arena of international compliance.

Once you are on a grey or red list, you must follow the strict remediation process to come off that list. What you need to be planning for is avoiding the situation altogether with long-term planning, and SaaS is the solution.

Temenos Regulatory Maintenance allows our clients to enjoy the certainty that regulatory compliance and critical market standard changes will be applied to their Temenos solutions on time. Implementing these changes using Temenos’ market-proven packaged software approach reduces compliance risk and costs.

Whether you stand on the side of ‘strong’ regulation or are a ‘light touch’ person, your bank has to stay compliant, and letting Temenos and its long-term partners look after your standing and reputation makes sense. You needn’t ever be on the naughty step again!

Marcus Swanepoel
Marcus Swanepoel – BSG Manager