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The Implications from the FATF Grey Listing of South Africa for B2B Payments

Verto
By Cameron Hatfield, March 2, 2023 · 12 mins read

As a Fintech that specialises in B2B cross-border payments, we understand the importance of complying with regulatory requirements to ensure the safety and security of our clients' funds. One such regulatory body that we keep a close eye on is the Financial Action Task Force (FATF), an international organisation that sets standards and promotes measures to prevent Money Laundering (ML) and Terrorist Financing (TF) activities.

In recent news, the Financial Action Task Force (FATF) announced its decision to place South Africa on its grey list. This decision was taken due to concerns over the country's lack of commitment to efficiently tackling issues such as money laundering and terrorist financing. While the implications of this decision are still being assessed, one area that is likely to be affected is business to business cross-border payments. In this article we will break down some of the most important information for your business to be aware of and how we can assist you to mitigate any risks when it comes to making your cross-border payments.

What is the Financial Action Task Force (FATF)

The Financial Action Task Force (FATF) is an intergovernmental organisation established in 1989 to combat money laundering and terrorist financing. The FATF sets standards and promotes measures to prevent these illicit activities and regularly evaluates countries' compliance with these standards. During its evaluation, FATF may take action, such as issuing warnings (grey list) or imposing sanctions (blacklist), against countries that do not comply.

The FATF identifies countries with deficiencies in their anti-money laundering and counter-terrorist financing (AML/CFT) regimes and places them on its "grey list." If a country is found to have deficiencies in its AML/CFT regime, it may be placed on the FATF grey list, which serves as a warning to financial institutions and businesses to exercise caution when conducting transactions with that country.

The grey list is not a blacklist, but rather a warning to financial institutions and businesses dealing with cross-border transactions to exercise caution when conducting transactions with the listed countries.

What is the FATF Grey List

The FATF grey list is a list of countries that the Financial Action Task Force (FATF) identifies as having strategic deficiencies in their anti-money laundering and counter-terrorism financing (AML/CFT) policies. Countries on the grey List are deemed to have some shortcomings in their AML/CFT frameworks but are not considered to pose as significant a risk compared to those on the FATF blacklist.

Being on the grey list means that a country is not fully complying with the international standards set by the FATF but is committed to addressing the deficiencies in its AML/CFT policies. The FATF expects countries on the grey list to take measures to address their shortcomings and enhance their AML/CFT framework.

Being on the grey List can have significant implications for a country's economy, as it can lead to reduced foreign investment, increased costs for businesses, and challenges in accessing international financial markets. Countries on the grey List are subject to increased scrutiny and monitoring by the international community and may face restrictions on financial transactions with other countries.

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Impact on South Africa being on the Grey List:

Businesses that engage in cross-border transactions into and out of South Africa will need to be aware of the potential challenges that may arise from the grey-listing. Here are some possible impacts of this decision:

  1. Increased scrutiny of transactions: With South Africa being grey-listed, financial institutions around the world will likely subject transactions involving South African businesses to increased scrutiny. This may lead to delays in processing payments as banks take extra precautions to ensure that they are not inadvertently facilitating money laundering or terrorism financing.

  2. Increased costs: The increased scrutiny of transactions may also result in higher costs for businesses. Banks may charge higher fees for processing transactions involving South Africa and businesses may need to invest in additional resources to ensure that they are complying with the new regulations.

  3. Reputational risk: Businesses that engage in cross-border transactions with South Africa may also face reputational risks. If a transaction is flagged by a financial institution or regulatory body, it may be viewed negatively by stakeholders and could damage the reputation of the business.

  4. Uncertainty: The grey listing of South Africa creates uncertainty for businesses. They may be unsure about how the new regulations will be implemented, what additional requirements they need to meet and how this will impact their operations.

Overall, the implications of being on the FATF grey list for South Africa are quite significant. The country may face increased scrutiny from regulators, resulting in delays in payment processing and increased compliance costs for businesses dealing with cross-border transactions to and from South Africa. Additionally, South Africa's reputation as a reliable financial centre may be negatively impacted, leading to a decrease in investor confidence. However, the full extent of the impact will depend on how the new regulations are implemented and how businesses respond to the new requirements.

Verto’s approach towards combating Anti-Money Laundering and Terrorist Financing

As a regulated Fintech specialising in cross-border payments, we take our compliance obligations seriously and have strong measures to limit Money Laundering and Terrorist Financing risks. These measures include:

  1. Know Your Customer (KYC) procedures: One of our top priorities is to ensure that we have a thorough understanding of our client’s business and the risks associated with their transactions. To achieve this, we require all our clients to undergo a thorough Know Your Customer (KYC) process. This involves providing us with accurate and up-to-date information about themselves and their business, including proof of identity and ownership.

  2. Transaction monitoring: Verto also monitors all transactions processed through our platform for any suspicious activity and takes appropriate action if necessary. This includes implementing transaction monitoring tools and conducting regular audits to ensure that our compliance measures are effective.

  3. Compliance training: We ensure that all our employees receive regular training on the latest AML/CFT regulations and our internal policies and procedures.

  4. Partnership with reputable institutions: Verto also partners with reputable financial institutions and payment providers to ensure that our clients' funds are processed securely and efficiently. Our partners are subject to the same strict compliance requirements as we are, and audited regularly to ensure that they are meeting these requirements.

In conclusion, the FATF grey list is a warning to financial institutions and businesses to exercise caution when conducting transactions with countries that have deficiencies in their AML/CFT regimes. Despite South Africa's inclusion on the FATF grey list, it is important to note that being on the FATF grey list does not necessarily mean that South Africa is a high-risk country for all transactions. Instead, it indicates that there are deficiencies in the country's AML/CFT regime that need to be addressed.

Our clients can feel confident that they can continue to use our services for B2B cross-border payments. We take our compliance obligations seriously and have strong measures in place to ensure that our platform remains safe, secure, and compliant with AML/CFT regulations. By working with reputable partners and implementing appropriate compliance measures, we can continue to facilitate cross-border payments while mitigating the risks associated with the grey list.

If you have more questions about how the Grey Listing will impact your business or how Verto can support your businesses international payments and access to foreign exchange please email sales@vertofx.com.