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Financial Intelligence Centre Act, 2001 (Act No. 38 of 2001)


Guidance Note 3

Guidance for Banks on Customer Identification and Verification and Related Matters

International Standards and Best Banking Practice

24. Extent to which international standards (FATF Recommendations, Core Principles) and best banking practice, (the Wolfsberg Principles) apply to South African banks wherever they operate


In interpreting and applying the relevant legislation, international best practice should serve as a reference to clarify what is expected from the banking industry. The FATF Recommendations form the contextual basis for the implementation of the FIC Act. International standards such as the FATF Recommendations and the Core Principles provide the minimum requirements with which countries must comply.


The international standard for banking supervision is based on the Core Principles, which set out the standards that have been designed to be applied by all countries in the supervision of the banks in their jurisdictions. Similarly, all banks supervised by a banking supervisor that adopts the Core Principles are duty bound to adhere to the Principles as a matter of best banking practice.


The approach of the Basel Committee on Banking Supervision to KYC adopts a wider prudential method of review.


Sound KYC procedures must be seen as a critical element in the effective management of banking risks. KYC safeguards go beyond simple account opening and record keeping and require banks to formulate a customer acceptance policy and a tiered customer identification programme which involves more extensive due diligence for higher risk clients and which includes proactive account monitoring for suspicious activities.


In terms of principle 15 of the Core Principles, banking supervisors must determine that:


"Banks have adequate policies, practices and procedures in place, including strict "know-your-customer" rules, that promote high ethical and professional standards in the financial sector and prevent the bank being used, intentionally or unintentionally, by criminal elements".


As a result it is fundamental to the market integrity and financial stability of the South African domestic banking system that international standards, as set out in the Core Principles and best banking practice, is adopted by the banking industry as an extra prudential measure when legislation does not adequately address a specific issue. Supervisory bodies should be enforcing the implementation of best practices in the industries that they supervise.