KYC Requirements for Banks in South Africa

Know Your Customer (KYC) compliance is one of the key processes today in the constant fight against money laundering and financial crimes. Being at the driving end of the financial economy, banks in South Africa are mandated to comply with KYC requirements or risk penalties. This is especially a priority due to the recent rise of fraud on banking apps, hitting 36% in 2022 as discussed in our State of KYC in Africa report. KYC requirements for banks in South Africa are laid out by FICA and in this article, we discussed the key requirements to note to stay compliant today.

What is KYC? An Overview for Banks and Financial Institutions

KYC is the process of verifying a customer's identity to ensure they are who they claim to be and for the bank to conduct a proper risk assessment. This can be achieved in several ways including verifying the identity document they provided or verifying their ID number against trusted data sources, both of which can be conducted alongside biometric authentication. In the case of a business, a business verification is conducted. 

Banks are mandated to conduct these checks to verify and assess the risk customers pose before rendering their services. Depending on the outcome of the risk assessment, ongoing monitoring, and other measures may also be put in place to protect the financial institution against money laundering, fraud, and other financial crimes.  

Along with KYC, banks are also mandated to adhere to AML requirements and other laws laid out by the Financial Intelligence Center Act 38 of 2001. South Africa is committed to combating money laundering and other financial crimes in line with international best practices. 

Want to learn more about KYC compliance for Banks in South Africa? Read our full KYC Guide in South Africa whitepaper.  

Understanding FICA Act for Banks Compliance in South Africa

Introduced in 2001, the Financial Intelligence Center Act (FICA) is the foundational AML law of South Africa. However, it has faced several amendments in recent years to align with the most recent Financial Action Task Force (FATF) recommendations. The act lays guidelines for the following: 

• Terrorism financing
• Money laundering
• Tax evasion
• Fraud
• Other financial crimes

FICA was designed to make South Africa a safe country to conduct business. It outlines the requirements for banks to adopt to combat money laundering. The FICA Act also grants the Financial Intelligence Center (FIC) the power to enforce and oversee the implementation of these guidelines in affected institutions. According to FICA, banks need to register with the Financial Sector Conduct Authority (FSCA), verify customer identity, and conduct ongoing monitoring afterward. 

Read also: KYC for Fintech in Africa - A Comprehensive Guide

What KYC Documents are Required for Banks?

Typically, banks in South Africa are required to verify an identity document. Depending on the kind of account or business relationship to be established, they may also need to verify the custom address. 

Generally, the following documents could be used for customer identity verification:

• Original certified copy of a valid South Africa Identification Document or a valid unexpired passport in the case of a foreign national.
• Proof of residential address, e.g., a utility bill such as a water and electricity bill, a telephone bill (not older than three months), or a current lease agreement. The documents must be in the name of the applicant.
• Proof of income tax number, e.g., a copy of an official document issued by the South African Revenue Services (SARS). Note that an IRP5 may not be accepted.
• Canceled cheque or a certified copy of your bank statement (not older than 3 months). The name of the bank account must be in the name of the applicant.
• Proof of the tax clearance certificate issued by SARS, in respect of the utilization of your annual offshore investment allowance, if applicable.
• Proof of authority (should a person be acting on behalf of another in the banking relationship)

Proof of address can be obtained and the address verified through any of the following documents: 

• Utility bills
• Rental and housing contracts
• Maintenance bills

Depending on the type of account, banks may also request proof of income or source of funds. Documents that can be requested to confirm a customer's financial state include: 

• Bank account statements
• Tax forms
• Recent pay slips or contracts etc

Regulations are getting stricter due to the hard clampdown on financial crimes, therefore, making KYC compliance for banks more crucial. Fortunately, with the right technological solutions, banks in South Africa do not have to invest a lot of manual time and money into KYC compliance processes. The process can simply be automated.

This is one of the key reasons why banks in South Africa are turning to Smile ID's digital KYC onboarding solution as it makes the process affordable and totally automated. Customers can easily scan and verify their documents for quicker onboarding without compromising on compliance. They can also run AML checks and integrate fraud prevention processes for extra security. Book a free demo to learn more today.

How to Comply with KYC Requirements for Banks in South Africa

Banks have to register with the FSCA and obtain a license, after which they are required to submit frequent regulatory reports to the institution. Failure to comply will attract fines. They also need to implement the following AML measures to fully register and operate in South Africa: 

• Establishment and implementation of proper Simplified Due Diligence (SDD), Standard Customer Due Diligence (CDD), and Enhanced Due Diligence (EDD) procedures.
• Proper risk assessment processes
• AML screening processes against Politically Exposed Persons (PEPs), sanctions, and watchlists. 
• Adequate staff training on AML compliance processes
• Ongoing monitoring of customer transactions and behaviour
• Appointment of a Money Laundering Reporting Officer (MLRO)
• Transaction monitoring
• Record keeping
• Suspicious activity reporting

Achieving KYC Compliance for Banks in South Africa with Smile ID

Businesses can customize Smile ID’s solutions to meet their specific KYC needs by following the processes below:

Step 1: Identity Verification

Smile ID offers an array of identity verification solutions to help businesses meet their KYC compliance needs. This includes: 

• Document Verification: empowers businesses to verify 8500+ identity documents across 226 countries globally using biometric authentication and OCR technology.
• Government KYC Checks: leverage direct access to databases from ID issuing authorities across Africa to verify customer identity. 
• Enhanced Document Verification: Combine the functionality of Document Verification and Government KYC checks in one robust solution for a more detailed compliance check.

Step 2: AML Check

Take extra precautions by running an AML check on the customer against PEP, Sanctions, and watchlists.

Bottom Line

With the right solutions, KYC requirements for banks in South Africa can be easily satisfied. Achieving compliance protects the bank as well as customers from risks associated with onboarding criminals. Smile ID offers comprehensive KYC verification across Africa, allowing organizations to verify customers' identity via APIs, SDKs, or no-code integration. 

Book a free demo to learn more today.