Following the decision of the FATF to add South Africa to its grey list, some clients and individuals have requested clarity on what this will mean for their existing investments, as well as for potentially externalising any funds in the future. Grey listing essentially refers to a designation given to countries that are not fully compliant with established rules or regulations of the FATF but are not yet considered fully non-compliant or blacklisted. The FATF (Financial Action Task Force) is the global money laundering and terrorist financing watchdog which sets international standards that aim to prevent illegal activities and the harm they cause to society. In this article we will explore the consequences of grey listing, with a particular focus on the enhanced administrative burden faced by entities (like NFB) and our clients, including the need for additional reporting, monitoring and compliance efforts.
Heightened Reporting Requirements
One of the immediate consequences of grey listing is the imposition of heightened reporting requirements. Countries on the grey list are required to provide more frequent and detailed reports to regulatory bodies to demonstrate their efforts towards compliance. These reports often cover areas such as financial transactions, risk management, client due diligence, and internal controls. The increased frequency and depth of reporting can be time-consuming and resource-intensive, placing a significant administrative burden on financial entities. At NFB, we have a large and skilled administrative workforce who work hard to ensure the admin process is as slick as possible for our clients. Whilst the grey listing does not alter our promise to you (in terms of our service offering), the reality is that these increased reporting requirements have resulted in increased paperwork and time delays (especially with regards to offshore investing).
A particular example of where there will be an increased administrative burden on both the client and NFB would be in the form of investments for Trusts and Companies. These entities, which manage assets on behalf of beneficiaries, can involve multiple parties and there will be increased requirements in understanding who these parties are. This involves conducting enhanced due diligence on all parties involved, monitoring transactions, and implementing robust anti-money laundering (AML) and know-your-customer (KYC) procedures. These compliance efforts demand additional documentation, record-keeping and reporting, placing a heavier administrative burden on such entities.
For NFB, the onboarding process, be it for an Individual, Trust or Company now comes with an increased administrative burden due to the grey listing. Every connected person (founder, trustee, beneficiary, director or shareholder) needs to be FICA risk rated in their own personal capacity and all sources of wealth and source of funds need to be accurately defined. Whilst the increased admin is clear for all to see, NFB’s admin team is here to guide you through the process.
Stricter Documentation and Record-Keeping:
Due to SA being placed on the grey list, wealth management practices face more stringent documentation and record-keeping requirements. We need to maintain extensive records to demonstrate compliance with regulatory standards, including client profiles, transaction details, risk assessments and compliance reports. The administrative burden arises from ensuring the accuracy, accessibility and retention of these records, which can require additional resources and efficient systems to manage the growing volume of documentation. As a client, this may mean we need to request updated documentation from you on an ongoing basis. This, to account for changes in residential address, occupation, or anything else that may affect KYC/FICA. Again, whilst we acknowledge the inconvenience of this, it is something which we unfortunately cannot avoid.
A potential way to ease this administrative burden, especially when it comes to share portfolios, is to make use of offshore wrappers or endowments. These are tax efficient structures that we can help set up for you. In these structures, all tax is paid within the vehicle (often at a lower rate) and no reporting or filing is needed for tax purposes, thereby reducing the administrative burden.
What this means for you as a client of NFB
We understand that being grey listed has created concerns and questions among our client base and the purpose of this article is to address these concerns as best we can. It is however important to be transparent and admit that we do not have all the answers and the grey listing is also a new phenomenon to us as a business. What we can say with confidence is that we will not compromise on our promise of excellent service and will endeavour to guide our clients through these administrative burdens as best we can.