Risk-based approach for Estate Agents
In October 2017 the FIC Act was amended to create greater transparency in the financial system and to advance the fight against money laundering and terrorist financing.
As part of the amendments, one of the changes brought about was the adoption of a risk-based approach to establishing the identity of a client. The risk-based approach allows institutions greater flexibility in the identity verification measures for their various customers, based on the customer risk profile against the institution’s product and service offering. This is also a more cost-effective alternative for institutions and a less burdensome approach for the customer. Furthermore, it is less prescriptive than the previous know your customer regime.
What does the risk-based approach mean for estate agents?
This approach requires estate agents (as well as all other accountable institutions listed under Schedule 1 of the FIC Act), to identify and assess the risk of doing business with their customers with a view to deciding how best to manage that risk.
The estate agency would be expected to rate their clients in terms of risk for money laundering and terrorist financing against specific product or service offerings and other factors. In this way, estate agents will be able to allocate their resources more efficiently using the risk-based approach. Where money laundering or terrorist financing risks are amplified stronger controls, and therefore more resources, will be needed. On the other hand, where there is a low level of risk, fewer or reduced levels of controls will be needed.
As part of the implementation of their risk-based approach, estate agencies need to know and practice the following:
- Their institutional risk framework needs to be in writing i.e. they are required to write a risk management compliance programme (RMCP)
- The estate agency’s RMCP needs to be updated regularly
- When doing client profiles in regard to money laundering and terror financing risks, consider these scenarios as high risk:
- Type of client – politically exposed persons, legal entities, non-face to face clients
- Product type – high value properties
- Geographical location – countries listed on terror and sanctions lists of governments and international organisations and non-members of the Financial Action Task Force (FATF).
RISK MANAGEMENT AND COMPLIANCE PROGRAMME
A new focus of compliance obligations introduced with the amendments to the FIC Act, was the requirement for all accountable institutions, including estate agents, to put in place a risk management and compliance programme (RMCP).
This requirement works hand in glove with the risk-based approach which was also introduced with the 2017 amendment to the FIC Act.
For estate agents, the RMCP means that they need to develop a thorough understanding of the risks associated with their business and how they plan to manage this across their client base. Estate agents must develop this understanding, document it and implement the programme. Also, the document must be keep updated.
How the RMCP ties in with the risk-based approach is that in order for institutions to know to what extent they are vulnerable to money laundering and terror financing, and what they need to do mitigate these risks in terms of their customer engagement, they need to conduct risk assessments. This in turn, will help them determine the extent of resources they require to mitigate that risk.
It is important that board members and senior management fully understand and endorse the content of the institution’s RMCP. They will need to actively lead the process to understand money laundering and terror financing risks that the organisation needs to take into account.
REPORTING SUSPICIOUS BEHAVIOUR
As one of the seven compliance obligations, the requirement for institutions to submit regulatory reports to the FIC is central to helping to combat money laundering and terror financing.
Accountable institutions listed as Schedule 1 in the FIC Act, which includes estate agents, are obliged to submit the following regulatory reports to the FIC: cash transactions of R24 999, 99 and above (cash threshold reports); where transactions arouse suspicion or appear unusual (suspicious or unusual transaction reports) and when the prospective client is linked to terrorism and related activities (terrorist property report). It is important to note that institutions must be registered with the FIC (another compliance obligation) before they can begin to submit reports.
Estate agents and other accountable institutions are at the transaction coalface. They have direct access to information on their customers, their customers’ transactions, their customers’ behaviour and other information. This unique insight enables accountable institutions to provide detail-rich regulatory reports if and when necessary.
The FIC uses the information in the regulatory reports to develop financial intelligence reports which are shared with competent authorities for their follow up action and investigations.
In submitting regulatory reports, estate agents can help in the fight against crime and contribute to a safer, more stable business environment and economic growth. Over and above this, being vigilant and reporting helps prevent the estate agent’s own business from being targeted and abused by criminals.
As a first step, all estate agents must register with the FIC. Registration can be done online, via www.fic.gov.za. Once the registration process is complete, estate agents will be able to submit reports to the FIC. Not knowing about the legal obligation to register and report to the FIC as an estate agent is not an acceptable excuse. If you are an estate agent and you have not yet registered, then do so today by accessing the FICs website on www.fic.gov.za.