In our previous articles, we discussed that South Africa has until the end of February 2023 to meet a tight deadline to amend its Financial Intelligence Centre Act, 2001 ("FICA") or face the consequences of its financial institutions being grey listed by the Financial Action Task Force ("FATF").
We also mentioned that, on 21 July 2022, the standing committee on finance released the draft amendments to Schedules 1,2, and 3 of FICA. If these draft amendments are passed in their current form, a number of entities, including persons who carry on the business of a money/value transfer provider service ("MVTS") and a clearing system participant as defined in section 1 of the National Payment System Act, 1998 ("NPS Act") that facilitates or enables the origination or receipt of any electronic funds will be obliged to register as accountable institutions and be regulated by FICA.
Of relevance in interpreting the provisions relating to MVTS, we turn to the "FATF Recommendations, the international anti-money laundering and combatting the financing of terrorism and proliferation (AML/CFT) standards, and the FATF Methodology to assess the effectiveness of the AML/CFT system".
FATF recommends that countries should take measures to ensure that MVTS are subject to effective systems for monitoring and ensuring compliance with the relevant measures called for in the FATF Recommendations. Countries should also take action to identify MVTS without a license or registration and apply appropriate sanctions.
The FATF, in its "Guidance for a Risk-Based for Money Services Businesses", describes "money or value transfer services" as "financial services that involve the acceptance of cash, cheques, other monetary instruments or other stores of value and the payment of a corresponding sum in cash or other forms to a beneficiary by means of communication, message, transfer, or through a clearing network to which the MVT belongs. Transactions performed by such services can involve one or more intermediaries and final payment to a third party and may include any new payment methods. Sometimes these services have ties to particular geographic regions and are described using a variety of specific terms, including hawala, hundi, and fei-chen" (parallel or underground money transfer systems).
The guidance also provides that in the market of non-banking MVTs, the size and complexity of providers vary significantly and various business models are adopted. Providers include:
- international MVTs;
- post offices;
- micro-finance institutions;
- mobile network operators (these can also be MVTs if they provide remittance services);
- exchange houses;
- payment institutions;
- escrow account services;
- bill payment;
- IT and digital payment services and;
- money transfer operators.
Providers of MVTS services typically specialise along retail, commercial and wholesale lines.
The Constitution Paper on the Amendments to the Schedules by the FIC refers to the FATF's 2009 assessment, in which it was found that "the authorities have not taken any substantial action to address the informal remittance sector". Based on this finding, it is proposed to include "value transfer providers".
In the EU, the Directive (EU) 2015/849 – prevention of the use of the financial system for the purposes of money laundering or terrorist financing, which applies to "obliged entities" (accountable institutions), regulates financial institutions.
However, in terms of Recital 47, persons who merely convert paper documents into electronic data and are acting under a contract with a credit institution or a financial institution and persons that provide credit institutions or financial institutions solely with messaging or other support systems for transmitting funds or with clearing and settlement systems do not fall within the scope of this directive.
It is therefore unclear at this stage whether third party payment providers ("TPPPs ") will be caught in the accountable institution net.
Whereas a third party payment provider is an intermediary appointed by either the payer or the beneficiary of a payment where money is due, clearing in terms of the National Payment System Act, 1998 is the exchange of payment instructions. A payment instruction is an instruction to transfer funds or make a payment and therein lies the key difference between the two.
A TPPP handles money or the proceeds of a payment instruction, and not the payment instruction itself. A clearing system participant receives payment instructions, directly from its client and exchanges and sends those instructions to the counterparty. Where a clearing system participant "facilitates or enables the origination or receipt of any electronic funds", it would in all likelihood soon be an accountable institution as that term is defined in FICA. This will also apply to TPPP if a purposive approach is adopted
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