Guidance for accountable institutions on client identification and verification atters

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Financial Intelligence Centre Guidance Note 3AGuidance for accountable institutions on client identification and verification and related matters

These control measures, as contained in the Financial Intelligence Centre Act, 2001 (the“FIC Act”), are based on three basic principles of money laundering detection and investigation, i.e. that:intermediaries in the financial system must know with whom they are doing business;the paper trail of transactions through the financial system must be preserved;possible money laundering transactions must be brought to the attention of investigating authorities.The control measures introduced by the FIC Act include requirements for institutions to establish and verify the identities of their clients, to keep certain records, to report certain information and to implement measures that will assist them in complying with the FIC Act.

The majority of obligations under the FIC Act apply to “accountable institutions”. These are institutions that fall within any one of the categories of institutions listed in Schedule 1 to the FIC Act.The FIC Act also established the Financial Intelligence Centre (“the Centre”)as the agency responsible for the collection, analysis and disclosure of information to assist in the detection, prevention and deterrence of money laundering in South Africa. In addition, section 4(c) of the FIC Act empowers the Centre to provide guidance in relation to a number of matters concerning compliance with the obligations of the FIC Act.

Implementation of Guidance Note 1 in respect of a risk-based approach Although the FIC Act and the Regulations do not expressly make reference to a risk-based approach, these measures allow limited scope to apply a risk-based approach to the verification of certain client particulars. This issue is covered in Guidance Note 1 issued by the Centre in April 2004.Guidance Note 1 indicates that application of a risk-based approach to the verification of the relevant particulars implies that an accountable institution can accurately assess the risk involved. It also implies that an accountable institution can take an informed decision on the basis of its risk assessment as to the appropriate methods and levels of verification that should be applied in a given circumstance.Guidance Note 1 further states that the assessment of these risk factors should best be done by means of a systematic approach to determine different risk classes and to identify criteria to characterise clients and products. In order to achieve this,an accountable institution would need to document and make use of a risk framework. Such a risk framework should preferably form part of the accountable institution’s internal policies and procedures to address money laundering and terrorist financing referred to in paragraph 1, above.


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