Winston Churchill’s famous quote about never letting a good crisis go to waste has been overused and risks becoming a cliché. That’s unfortunate because it holds an empirical truth that the strongest organisations emerge from crises stronger, while the weak succumb.
South Africa’s financial credibility is in tatters and banks will feel the heat. South Africa had already asked the FATF to reassess the country in June 2023 during its plenary – a tacit admission the country had not done enough, but also another tight deadline for all stakeholders to pull in the same direction.
The greylisting means there will be increased scrutiny, which in turn means that the country broadly and banks in particular are racing against the clock to bring their processes of detecting threats of fraud and criminality, prosecuting the perpetrators and confiscating the proceeds of crime up to international standards.
Seen through this lens, South Africa has a financial compliance credibility crisis.
While the instinct may be to throw more bodies and man-hours at the crisis, which will have a host of cascading costs passed along until it hurts the man and woman on the street, the surest route to success and being re-welcomed with open arms into the global financial system is through the adoption of purpose-built technology.
Artificial intelligence and automated pattern and threat detection automatically shifts the point of departure from reactive to proactive. But will there be an appetite to turn to technology?
There really is no alternative. The global pandemic accelerated the adoption curve of a host of technologies, not least collaboration technology to keep workforces working.
And so, the greylisting crisis represents a Black Swan moment for the banking sector where it can adopt bleeding-edge technology to improve customer due diligence and reduce the risk of non-compliance in a more robust and reliable way that is cost effective and highly efficient. Once the ducks are in a row, an eventual national move towards a central Know Your Customer (KYC) repository could future-proof the country’s compliance.
Why?
Paradigm shift
Let’s break down where we are to demonstrate how that paradigm shift is not a wishful ideal but rather a sound approach to compliance and the integrity of the global financial system.
A greylisted country must deal with significant challenges for the banking sector and its customers. South African banks are likely to face increased compliance costs and difficulty in accessing international markets. Holders of offshore accounts may also be considered higher-risk clients by financial firms, triggering more onerous due diligence processes and increased costs.
South Africa now faces this reality. It is a cold-hard truth.
It took Iceland a year to get off the list, and Mauritius was the quickest African country to exit the list in under two years.
How long SA remains on this list depends entirely on what the country does next.
However, the need for technology-driven anti-money laundering (AML) and counter-terrorist financing (CTF) investments does not end with greylisted countries scrambling to regain confidence and acceptance into the global financial system. Even countries that are not on the greylist need to be good corporate citizens. As South Africa’s Finance Minister Enoch Godongwana said recently, everyone needs to be more effective in implementing the country’s laws, particularly in fighting organised and sophisticated financial crimes.
To avoid being greylisted again, a country’s banks have an ongoing responsibility to implement effective AML and CTF measures that comply with international standards. This includes ensuring regulatory compliance, conducting risk assessments, automating compliance processes, and having a centralised repository for customer data. The day a country emerges from the greylist it must continue, and intensify, these measures to remain off the list.
So, where do we find ourselves in South Africa today?
Adoption of technology that provides a comprehensive AML/CTF solution will help banks implement effective policies, procedures and controls while reducing the risk of errors and increasing the efficiency of compliance operations. This can help minimise the impact on banking customers and maintain the integrity of the global financial system. In other words, the immediate solution is to implement robust technology that uses international best practice for their KYC activities.
In the longer term, the country would do well to work in a coordinated manner towards a centralised KYC registry, as has been done in other countries with much success. A centralised repository of customer data would help banks manage customer information more effectively, improving customer due diligence and reducing the risk of non-compliance.
When we understand that KYC is not a competitive advantage for an individual bank if the country as a whole is seen as being non-compliant, the discussion around a centralised, national approach makes sense.
However, starting today, it is crucial for banks in South Africa to remain vigilant in their efforts to combat money laundering and terrorist financing to work towards being welcomed back by their global financial peers. The adoption of best-of-breed technology that provides a comprehensive AML/CTF solution can go a long way towards achieving this while maintaining the integrity of the global financial system.
Albert Janse van Vuuren is head of business development at Andile
