Financial service providers, estate agents, and attorneys operating in South Africa face a critical challenge: aligning their processes with Directive 8.
In the view of Sybrin, this directive mandates a shift towards a risk-based approach to employee screening, crucial for the management of Money Laundering (ML), Terrorist Financing (TF), and Proliferation Financing (PF) risks.
It’s essential for organisations to understand the specific steps needed to comply fully with the new requirements and address the existing gaps that might hinder their efforts.
Adopting a risk-based approach allows institutions to customise their screening processes. This method considers the varying degrees of risk associated with different employee roles, thus facilitating targeted and efficient risk assessment, monitoring, and management practices.
By adjusting the intensity of the screening based on the role’s risk level, organisations can ensure that those in higher-risk positions undergo more thorough checks, enhancing the overall effectiveness of their compliance measures.
Directive 8 sets clear expectations for the timing of compliance measures, requiring that competence and integrity screenings occur not only before an employee’s appointment but also periodically throughout their tenure. This continuous scrutiny is vital in maintaining a compliant and secure operational environment.
The directive also advises institutions to vary the frequency of screenings based on the associated risk level of each role. High-risk positions may require annual screenings, while those in lower-risk roles might only need to be reviewed every three to five years. This differentiated approach helps in allocating resources more efficiently and ensures a focus on the most critical areas.
Certain roles, such as senior management and individuals with significant decision-making authority in AML/CTF/CPF matters, are identified as high-risk. These key positions demand more frequent and detailed scrutiny to prevent ML, TF, and PF risks effectively.
Evaluating the competence of employees is a core component of Directive 8 compliance. Organisations should examine a candidate’s previous work history, references, qualifications, and any relevant certifications. This helps in building a robust defence against potential risks and ensures all personnel are well-equipped to handle their responsibilities safely.
Assessing the integrity of employees is crucial. This can be done by checking for any criminal records related to financial crimes and scrutinising past roles and associations concerning AML, CTF, and CPF compliance. Such checks are vital in maintaining a trustworthy workforce.
Screening against the Targeted Financial Sanctions (TFS) list is mandatory for all employees, aligning with Directive 8’s requirements. This process should occur at the time of hiring and whenever the list is updated, ensuring ongoing compliance.
Failure to comply with Directive 8 can result in severe consequences, including remedial orders, suspensions, or fines up to R50m. Compliance is not just a regulatory requirement but a critical element of business continuity and reputation management.
Despite these guidelines, many organisations still struggle with effective implementation. Issues often arise in continual monitoring, with many institutions reviewing employees annually despite daily updates to sanctions lists. Furthermore, manual and unscheduled screening processes, coupled with inadequate record-keeping, complicate compliance efforts.
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