The world is full of acronyms, but if you are an Accountable Institution then FICA is one you need to become accustomed to. While you may have heard about it, do you know what it is, and why it is important?


As with many laws, most people don’t take them seriously until an inspector comes knocking on your door. However, the difference with the FIC Amendment Act (FICAA) is that it was created not only to prevent financial crime, but following the guidance set out within the Act could also help protect your reputation, enhance your client onboarding, reduce your risk and ultimately improve the type of clients you attract.


What is FICA?


The Financial Intelligence Act (FICA) came into effect in July 2003 along with the establishment of the Financial Intelligence Centre (FIC) who are essentially responsible for overseeing compliance with the Act


The act is aimed at combating financial crimes such as money laundering, tax evasion and terrorist financing. According to the FIC Act, the responsibility as an Accountable Institution includes identifying and verifying your clients and ensuring that their information is correct and up to date.


Since its introduction in 2003, FICA has been amended and has become known as the Financial Intelligence Centre Amendment Act 1 of 2017 (FICAA). The Amendment Act brings South Africa closer to international anti-money laundering standards and the best practices recommended by the Financial Action Task Force (FATF). During the State of the nation 2021 address, in an attempt to further enhance the country’s fight against corruption and financial crime, President Cyril Ramaphosa went further and announced the formation of the National Anti-Corruption Advisory Council.


Why FICA is important?


As a member of the FATF, South Africa has agreed to play a role in the international fight against money laundering and terrorist financing. FICA is South Africa’s local legislation to achieve this.


FICA complements other South African legislation such as the Prevention of Organised Crime Act (POCA), the Protection of Constitutional Democracy Against Terrorism-Related Activities Act (POCDATARA), and the Prevention and Combating of Corrupt Activities Act (PRECCA).


Together these legislations introduce measures to combat and prosecute crimes such as organized gangs, racketeering, terrorist-related activities, and money laundering.


What does this mean for estate agents?


As per the Financial Intelligence Centre Amendment Act 1 of 2017 (FICAA), estate agents are included in the classification of Schedule 1 Accountable Institutions and therefore are required to comply with ALL the regulations included in the Amendment Act.


Until recently there has been very little guidance and enforcement of the Act for the property sector and this has led to many misconceptions of what it means to be FICA compliant.

Cash is received as a property purchase deposit or consistent rental payment, the client is a politically exposed person, works at a state-owned entity, the main source of funds is a gift or donation and the price of the property appears to be outside of the client’s financial capability, these combination of risk factors would likely result in the client being rated as high risk.

Next steps once the client has been identified as high risk:

For this relationship or transaction to continue, enhanced due diligence would need to be conducted, which includes senior management approval for the relationship or once-off transaction, the client’s wider source of wealth and funds being established for the transaction/s and enhanced ongoing monitoring conducted for the business relationship.

The client’s risk rating has a considerable impact on the level of due diligence focus clients receive. A higher risk client doesn’t necessarily in itself lead to illicit activities or intentions, rather it can act as a reminder that there may be a higher susceptibility. In the example above, enhanced due diligence would mean that instead of client disclosure in a client mandate or profile form being acceptable from a standard due diligence perspective for low or medium risk clients, sighted and certified copies of documents would be required as well as documentary evidence of source of funds and wealth from a higher risk perspective. If for example, a client approached you seeking to purchase or rent a property and they had a low risk business industry such as Accommodation, Travel & Tourism, the source of funds was from income from employment, the client has no adverse media surrounding them and the form of the funds transfer was an EFT, this may point towards the client being rated as low or medium risk and therefore subject to less stringent due diligence protocols as the money laundering risks are lower.

Assessing a client’s risk, and then if necessary performing enhanced due diligence is a vital and necessary element of the FIC Amendment Act as it assists the entity in identifying any potential terrorist funding or money laundering risk that a client can pose to a business.