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Banks fined R125m for Fica lapses

File picture: Denis Farrell

File picture: Denis Farrell

Published Apr 17, 2014


The penalty of R125 million imposed on the country’s four major banks for deficiencies in controls on money laundering and terrorist financing would add to the burden on the sector and its clients as tighter checks were imposed on transactions, analysts said yesterday.

Banks have in the past complained of the burden and cost of compliance with the Financial Intelligence Centre Act (Fica).

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The fines imposed by the Reserve Bank may now mean banks will not complete transactions unless all documents are tendered.

“The banks will probably need to invest more money in compliance requirements and clients will face a bigger burden for information required,” 36One Asset Management analyst Jean Pierre Verster said.

It was unclear yesterday whether the Reserve Bank’s vigilance was a matter of routine or whether it has become more alert after the £7.6m (R134m) fine imposed in January on Standard Bank’s British subsidiary by the UK’s Financial Conduct Authority for failures in money laundering controls.

But the consensus was that the Reserve Bank was under pressure to comply with international regulations.

HSBC Holdings agreed in 2012 to pay a record $1.92 billion (R20bn) in fines to US authorities for allowing itself to be used to launder a river of drug money flowing out of Mexico, among other lapses in controls.

The Reserve Bank announced yesterday that it had fined Standard Bank R60m, FirstRand R30m, Nedbank R25m and Absa R10m after finding deficiencies in their controls to combat money laundering and terrorist financing.

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The central bank emphasised that the fines did not indicate the banks had facilitated transactions involving money laundering and terrorist financing but centred on deficiencies in verifying customer details, maintaining records, and managing and processing suspicious transactions.

FirstRand indicated that its stock dropped 1.2 percent, the most in two weeks, after the fine was announced. But it ended 5c higher on the day at R37.49.

“International syndicates have tried using the banking system to launder money, so banks have to be more vigilant,” Verster said.

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It was not clear whether smaller banks such as Capitec and African Bank were left out of the spring cleaning, but analysts said it was probably because they did not handle many foreign exchange transactions. Investec, with significant businesses in the UK and Australia, might have learnt best practice from its offshore operations.

“Compliance might have been easier for Capitec because it has a narrower range of transactions, mainly unsecured loans and deposits, to process and relatively little, if any, forex to handle. Investec is mainly an investment bank without the mass numbers of clients handled by the others,” Stephen Meintjes, the head of research at Imara SP Reid, said.

Meintjes said it was difficult to tell whether the Reserve Bank’s tighter rein was because it was under pressure from its global peers and whether it would result in higher costs of compliance for the banks.

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“Who knows? That is exactly the problem with giving officials arbitrary power to impose penalties without due process,” he said.

Standard Bank and Absa said they had taken steps to address the weaknesses identified by the central bank, while Nedbank said it had prepared a plan of remedial action.

FirstRand said it was committed to resolving outstanding weaknesses, including anti-money laundering monitoring.

“It’s concerning the banks were not complying,” Tracy Brodziak, a banking analyst at Old Mutual Investment Group South Africa, said.

“I don’t think it was intentional, but there were issues and the banks need to tighten up and make sure this does not happen again.”

The seven-member FTSE/ JSE Africa banks index had declined 0.5 percent by early afternoon, but ended 0.47 percent higher on the day. Absa parent Barclays Africa Group rose 0.72 percent to close at R150.70, Nedbank shed 0.33 percent to R217.14 and Standard Bank was 0.66 percent higher at R136.90. – Additional reporting by Bloomberg

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