LOA SUBMISSION
ON THE DRAFT FINANCIAL INTELLIGENCE CENTRE AMENDMENT BILL, 2008
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The LOA wishes to comment on the proposed amendments as contained in the draft 2008 Financial Intelligence Centre(“FIC”) Amendment Bill against the background of our previous comment submitted in January 2007 on the FIC consultation document. A copy of our previous submission is attached.
The primary focus of our comments is once again on broader principle and policy issues. The main concerns raised in the previous comments referred to above are repeated in this document.
Our approval and general agreement with the proposed introduction of administrative enforcement measures and the empowerment of the supervisory bodies designated under the FIC Act are matters of record.
- Areas of concern highlighted in previous comment.
We would like to repeat the following areas of concern addressed in our previous comments. In our opinion, these concerns have not been addressed in a manner that removes our concern.
- Positioning of the FICA vis-à-vis other statutes.
We believe that the potential drastic implications of the proposed section 1A relating to the prevailing powers under FICA is sufficient to justify a detailed reference to specific acts targeted and the relevant sections of such acts.
- Relationship between the regulator and the regulated.
We previously expressed the concern about the impact of proposed amendments on regulatory certainty. Despite the insertion of the proposed section 45 1(D), this concern remains. Please refer to numbered paragraph 2 of our earlier comment.
It is not clear if accountable institutions will be consulted in the process of the drafting of the proposed memorandum of understanding (MOU) between the Centre and the relevant supervisory body. It is in fact not clear if the accountable institution would be allowed the benefit of insight into the MOU ex post facto. Transparency and clarity on the respective roles of the Centre and the supervisory bodies are absolute imperatives if regulatory certainty is to be achieved.
- Powers to inspect.
We have previously raised some concerns about the very wide powers to inspect afforded to the Centre, supervisory bodies and inspectors appointed by the aforementioned bodies. Please refer to numbered paragraph 4 of our previous comment.
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LOA Submission – Comment on the Draft FICA Amendment Bill – 30 April 2008
The concern remains in as far as the powers to inspect records are not limited to relevant records and there is no requirement that an inspection should only be ordered where reasonable grounds exist. The powers to share information gained during an inspection are also not limited to information relevant to efforts to combat money laundering or the financing of terrorism.
The almost unlimited powers to demand access to information raise serious concerns around issues of privacy, consumer protection and constitutional rights to inter alia self-incrimination. We suggest that the powers to demand access be curtailed, at least sufficiently to protect the rights mentioned herein.
- General comments.
We appreciate the fact that some of our general comments of the previous round under numbered paragraph 5 have been addressed.
Some comfort is taken from the appeal process introduced. It is however noted that the proposed section 45D (11) (a) & (b) seeks to amend the general principle that the lodging of an appeal restores the original position. We are not convinced that such an amendment is justified.
We would like to specifically repeat the concerns raised in sub-paragraphs 5.2 and 5.4 of the previous round. The burden of unjustified inspections can cripple institutions, whilst they have no control over or input into the inspection process.
- Conclusion.
The LOA wishes to emphasise that we are committed to the efforts to combat money laundering and the financing of terrorism. As an industry association we will continue to engage with our member offices, the Financial Intelligence Centre and the Financial Services Board through direct contact as well as participation in any appropriate forum to ensure that our members are adopting adequate control measures to comply with international standards.
Contact:
Ms Anna Rosenberg
Deputy Executive: Legal and Policy
Life Offices’ Association of SA
Tel: 021 4212586
E-mail:
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LOA Submission – Comment on the Draft FICA Amendment Bill – 30 April 2008
LOA SUBMISSION -
FINANCIAL INTELLIGENCE CENTRE CONSULTATION DOCUMENT RECOMMENDING AMENDMENTS TO THE FINANCIAL INTELLIGENCE CENTRE ACT NO 38 OF 2001______
The LOA welcomes the opportunity to comment on the consultation document and would like to position its comments against the background set out in the preface of the consultation document. The primary focus of our comments is therefore on broader principle and policy issues and not on detailed comment on for example the proposed Amendment Bill.
We wish to, at the outset, express our approval and general agreement with the proposed introduction of administrative enforcement measures and the empowerment of the supervisory bodies designated under the Financial Intelligence Centre Act. There are, however, a number of areas that require further consideration and refinement in our opinion. We will provide a broad overview of these areas and related issues before responding to the specific requests in the consultation document.
- Positioningof the Financial Intelligence Centre Act (FICA) vis-à-vis other statutes.
We believe that the potential drastic implications of the provision relating to the prevailing powers under FICA is sufficient to justify detailed references to specific acts targeted and the relevant sections of such acts.
- Relationship between the regulator and the regulated.
The requirement for adequate regulation of financial institutions is entrenched in the FATF recommendations and we agree with this principle. Adequate and successful regulation will be achieved if solid relationships are established between the respective regulators and the institutions regulated by them. It is our firm opinion that such a successful public-private sector partnership forms the basis for an effective anti-money laundering regime.
Certainty is a key element of any effort to establish a sound regulatory environment and regulated institutions require certainty in respect of:
●Who will regulate their activities;
●What the approach by their regulator will be;
●What rules and standards their regulators will apply and when; and
●What opportunity the regulated institution will have to engage with the regulator and on what terms.
We believe that the proposed model put forward in the consultation document does not promote certainty with regulated institutions and that the risk of duplication of regulatory oversight is in fact increased by the proposed co-jurisdiction afforded to the FIC and the respective supervisory bodies. It is important that the respective jurisdictions of the FIC and the supervisory bodies be demarcated in a clear and unambiguous manner.
- Administrativelawconsiderations.
The potential duplication of regulations was pointed out above in respect of the relationship between regulators and the regulated, but it may also have administrative law implications. Clarity is required if administrative justice is to be achieved and the requirements of the Constitution and the Promotion of Administrative Justice Act are to be met.
A general concern raised by members of the LOA relates to the apparent lack of an opportunity of regulated institutions to be heard prior to decisions being made by the FIC and the respective regulators. We believe that the proposals should be tested against the provisions of the Constitution, related statutes and recent Constitutional Court decisions in this regard.
The requirement of reasonability should also be entrenched in respect of any administrative actions or enforcement procedures foreseen in the proposed amendments in as far as it is not done already.
It is proposed that during criminal sanctioning the administrative sanctions be taken into account. We would like clarity on which transgressions will carry criminal or administrative sanctions, alternatively if it is envisaged that an accountable institution who is given an administrative sanction could still face criminal sanction on the same issue.
- Powers to inspect.
Clear guidelines must be formulated in respect of the proposed inspections of accountable institutions that are foreseen. We would like to propose that the following aspects are to be dealt with in detail to ensure certainty and eliminate arbitrary and inconsistent actions:
- the grounds to be considered when ordering an inspection;
- the basis for determining if the inspection is to be conducted by the FIC or by the supervisory body, or both; and
- the practical arrangements foreseen in paragraph 4.3 of the consultation document where reference is made to the “division of labour, resources etc in this regard will have to be dealt with in terms of practical arrangements between the Centre and each of the supervisory bodies”.
The authorities are afforded very wide powers to embark on data mining exercises as they see fit by the proposed amendments. We once again propose that these powers be described in more detail to ensure that access to data and documents is limited to what is relevant to compliance with the FICA and so as to not promote a situation where the right to privacy of clients of institutions are infringed upon. Even the objectives of the FICA and POCDATRA cannot justify carte blanche where access to information held by accountable institutions is concerned.
We also propose that the requests for information must be subject to the reasonability test with reference to, for instance, the existing systems and processes of institutions and the costs and resources required to establish such systems where they do not exist.
- General comments.
- Review process.
There are a number of areas of uncertainty in respect of the proposed review process. It should be clarified when the exercise of powers by the FIC and the regulators are subject to review and what the position of existing appeal bodies of regulators, for instance the Financial Services Board’s Appeals Board, will be. We are also of the opinion that provision should be made for an appeal process regarding the findings of the Review Board
The position of accountable institutions awaiting the decision of the Review Board should be clarified as this process may take some time. It should be clarified if they can continue with business where they have been directed to cease a certain action until the finding of the Review Board is given or not.
It should be considered to provide for wider representation on the proposed Review Board than judges or retired judges. Members of the Money Laundering Advisory Council (“MLAC”) may, for instance, provide a potential pool of candidates for appointment to the Review Board.
5.2Regulatory approach.
Mention is made in FATF recommendation 23 of a so-called risk based approach that may be adopted by regulators and a lot of discussions took place on this issue, both within the FIC and within the MLAC. The consultation document and the proposed legislative amendments however do not address this issue in clear terms and it is therefore not clear if a risk based approach to regulation and anti-money laundering is foreseen as a matter of policy.
5.3Labour law implications
The proposed legislative amendments contain a number of provisions that could, at least in our opinion, infringe on the rights of employers and employees in terms of the South African labour legislation. We are not convinced that the objectives of the FICA justify such infringements and that such drastic measures would withstand the scrutiny of the courts. We believe that there are sufficient alternative procedures and safeguards that can ensure the termination of offensive relationships and the provisions referred to above should be reconsidered.
5.4Costs of inspections to be borne by accountable institutions
We are of the opinion that the proposal that accountable institutions inspected may be burdened with the costs of inspections is unacceptable in its current format. The current proposal does not seem to distinguish between inspections where misconduct is found and inspections where no misconduct is found. This could lead to a situation where an innocent institution, which is proven to have been fully compliant by an inspection ordered in terms of the
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LOA Submission – Comment on the Draft FICA Amendment Bill – 30 April 2008
proposed provisions, may be crippled by the costs of the very inspection that cleared it of any wrongdoing.
It is an undisputed fact that the cost of compliance with the provisions of the FICA and legislation aimed at the countering of the financing of terrorism adds hugely to the cost of doing business in South Africa and the rest of the world. We are fully aware of the importance of these measures imposed on business and accept the responsibility to bear these costs. We are however of the opinion that the State and the supervisory bodies should also accept the added costs to them caused by the need for increased regulation and counter-measures. Most supervisory bodies are currently funded almost entirely by levies paid by their regulated institutions and the institutions will therefore in any event, at least indirectly, carry the costs of the added powers.
The FIC should in our opinion not be allowed to recover the costs of inspections in the manner proposed and as a government funded institution the costs should be included in the normal budget for expenses to be incurred. We propose that the costs of inspections conducted where misconduct was found be added to the list of factors to be considered in the determination of an appropriate penalty to be imposed. This proposal will ensure that the additional costs are borne by offending parties and not by the innocent and the guilty alike.
5.5Monetary penalties
Monetary penalties should only be imposed on accountable institutions for breaches and not on natural persons in their personal capacity. Criminal penalties are what should be imposed on natural persons who have been involved in breaching the FICA requirements.
5.6Financial Advisory and Intermediary Services Act (FAIS)
The consultation document states that where a “fit and proper” determination is being made on an office bearer one needs to consider whether he/she has been involved in money laundering or terrorist activities. This may have the effect that the FAIS Fit and Proper requirements need to be re-drafted to include this requirement. It needs to be clarified whether this potential impact was intended or not.
5.7Other
The proposed legislative amendments on at least one occasion in section 45 (1) (b), appear to create a deeming provision that in effect amends other legislation. We are not sure that this is possible and, if it is in fact possible, do not believe that this promotes regulatory certainty.
We would once again wish to emphasise the need to introduce the requirement of reasonability into the proposed amendments and believe that accountable institutions should be given a reasonable time to respond to notification by the supervisory body that they intend to publish a statement. In our opinion the proposed amendments do not currently provide for this.
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LOA Submission – Comment on the Draft FICA Amendment Bill – 30 April 2008
- Conclusion.
The above comments and proposals were made on the basis that the consultation document represents the preliminary views of the Financial Intelligence Centre and that the document would attract interest and comments from a wide range of stakeholders and interested parties.
We therefore appreciate that there might be substantial changes to the document and we would appreciate an opportunity to consider any amended version of the consultation document and legislative proposals that may be drafted and may be available. The LOA will in any event seek continued and meaningful engagement in the process through its participation with the MLAC and its interaction with the Financial Services Board as the primary regulator of its members.
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Contact:
Ms Anna Rosenberg
Deputy Executive: Legal and Policy
Life Offices’ Association of SA
Tel: 021 4212586
E-mail:
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LOA Submission – Consultation document : Amendments to FICA