In our previous articles, we have discussed the fact that South Africa has until the end of February 2023 to meet a tight deadline to amend its Financial Intelligence Center Act 2001 (“FICA”) or deal with the consequences of putting its financial institutions on the Financial Action Task Force gray list (“FATF”).
We also mentioned that on July 21, 2022, the Standing Committee on Finance published the proposed amendments to Schedules 1, 2 and 3 of the CIFA. If these draft amendments are adopted in their current form, a number of entities, including persons who carry on the business of a provider of money/value transfer services (“MVTS”) and a Clearing System Participant as defined in Section 1 of the National Payments System Act, 1998 (“NPS Act”) that facilitates or enables the origination or receipt of electronic funds will be required to register as a Responsible Institution and be regulated by FICA.
To interpret the provisions relating to the MVTS, we turn to the “FATF Recommendations, the international standards for the fight against money laundering and the fight against the financing of terrorism and proliferation (AML / CFT) and the Methodology of the FATF to assess the effectiveness of AML. /CFT system”.
The FATF recommends that countries take steps 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 steps to identify unlicensed and unregistered MVTS and apply appropriate penalties.
The FATF, in its “Guidance for a Risk-Based for Money Services Businesses”describes “money or value transfer services” as “financial services which involve the acceptance of cash, checks, other monetary instruments or other stores of value and the payment of a sum corresponding in cash or other forms to a beneficiary by way of communication, message, transfer or through a clearing network to which the MVT belongs.Transactions carried out by these services may involve one or more intermediaries and the final payment to a third party and may include new payment methods. Sometimes these services have ties to particular geographic regions and are described using various specific terms, including hawala, hundi, and fei-chen” (parallel money transfer systems or underground).
The guidance also anticipates that in the non-bank MVT market, the size and complexity of providers vary significantly and various business models are adopted. Suppliers include:
- international MVTs;
- post Office;
- micro-finance institutions;
- mobile network operators (which may also be MVTs if they provide money transfer services);
- exchange houses;
- payment institutions;
- escrow account services;
- Payment of bills;
- IT and digital payment services and;
- money transfer operators.
MVTS service providers typically specialize in retail, commercial, and wholesale lines.
The constitutional document on amendments to the annexes by the FIC refers to the FATF’s 2009 assessment, in which it was found that “the authorities have not taken any substantial measures to tackle the informal remittance sector “. Based on this finding, it is proposed to include “value transfer providers”.
In the EU, Directive (EU) 2015/849 – prevention of the use of the financial system for the purpose of money laundering or terrorist financing, which applies to “obligated entities” (responsible institutions), regulates the financial institutions.
However, according to recital 47, persons who only convert paper documents into electronic data and act under a contract with a credit institution or a financial institution and persons who only supply to credit institutions or financial institutions with messaging or other support systems for the transmission of funds or with clearing and settlement systems are outside the scope of this Directive.
It is therefore not clear at this stage whether third-party payment providers (“TPPP “) will be caught in the net of the responsible institution.
While a third party payment provider is an intermediary appointed by the payer or recipient of a payment when money is due, netting under the National Payments 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 main difference between the two.
A TPPP handles money or the proceeds of a payment instruction, not the payment instruction itself. A participant in the clearing system receives payment instructions directly from its client and exchanges and sends these instructions to the counterparty. When a participant in the clearing system “facilitates or permits the issuance or receipt of electronic funds”, it would most likely soon become a responsible institution as that term is defined in the FICA. This will also apply to the TPPP if a purposive approach is taken.