The risk-based approach to anti-money laundering laws and its implications for financial inclusion in South Africa

Abstract

The global imperative t o combat money laundering and terrorist financing (ML/TF) has necessitated the implementation of increasingly stringent regulatory frameworks. In South Africa, this evolution was formally marked by the 2017 Amendment to the Financial Intelligence Centre Act (FICA), which solidified the shift from a prescriptive, rules-based approach to a flexible risk-based approach. This legislative pivot was designed to achieve a critical regulatory balance of maintaining the integrity of the financial sector, while advancing the objective of financial inclusion. The risk-based approach mandates that financial institutions allocate resources and apply preventative measures commensurate with the assessed ML/TF risk, allowing for simplified customer due diligence requirements for low-risk clients, particularly the poor and low-income earners. This flexibility was explicitly intended to dismantle barriers to formal financial services and promote greater access. This dissertation investigates the efficacy of the RBA as implemented under the Amendment Act in promoting financial inclusion within the South African context. The researcher found that while the RBA has demonstrably reduced certain compliance burdens and, to some extent, positively impacted the promotion of financial inclusion, its adoption has introduced a new and subtle form of exclusion. The researcher concluded that the successful implementation of the RBA requires regulators to carefully monitor the RBA to ensure banks do not prioritise risk avoidance over inclusion.