KYC Requirements in South Africa

South Africa boasts one of the largest and most technologically advanced economies in Africa. As a result, it's home to some of the biggest financial institutions and startups operating in Africa. The rapid growth in technology has also led to the quick adoption of digital technologies, and identity verification has become a mainstay in the country's financial system. However, this has also led to an increase in criminal activities like identity theft and other financial crimes. KYC requirements in South Africa have become more stringent and businesses need to learn to adapt or face penalties. 

Regulators in South Africa have established multiple guidelines to protect the economy against money laundering and terrorism financing. Businesses are mandated to perform certain KYC and AML procedures to prevent them from being used as tools for criminal activities. 

This article provides an overview of key KYC requirements in South Africa, discussing laws, best practices, and other key information businesses need to know today.

Who are the Regulatory Bodies in South Africa?  

The Financial Sector Conduct Authority (FSCA) is South Africa's premier financial regulator. It ensures that businesses operating in the country adhere to the guidelines laid down by the Financial Action Task Force (FATF) and other global regulatory bodies.

There are also other key bodies like the South African Reserve Bank (SARB), which is the central bank in charge of the nation, among its other responsibilities. These regulatory bodies are guided by the Financial Intelligence Center Act (FICA) 38 of 2001 to fight terrorist financing, money laundering, and other financial crimes. 

Is KYC mandatory in South Africa?

Yes. KYC is mandatory for all businesses that operate in the sectors identified in the FICA Act. Not performing KYC for any reason while operating in any of those sectors will attract regulatory punishments.  

What are the Industries bound by the South African KYC Regulations?

Companies that operate in the following sectors are required to adhere to South Africa’s AML regulations: 

• Financial institutions (e.g. banks, investment firms, fintechs)
• Money service businesses and payment processors
• Casinos and gaming/ gambling organizations
• Foreign exchange providers and money remittance services
• Brokers (e.g. securities, trust, and asset management companies)
• Accounting firms and other businesses providing financial services
• Real estate agents
• Crypto firms
• Attorneys and trustees
• Dealers of higher value items (e.g precious stones and metals, car dealerships, etc)

These businesses are required to adhere to compliance laws by putting in measures to curtail money laundering and report suspicious activities to the relevant authorities. Not sure if your industry is covered? Read our full South African KYC Onboarding Guide.

What are the Key KYC Requirements in South Africa?

KYC requirements in South Africa are laid out by the Financial Intelligence Center (FIC) under the FICA Act of 2001. The act lays down procedures to be adhered to for combating money laundering, terrorist financing, and other financial crimes. 

Businesses are required to perform the following to satisfy KYC requirements: 

a. Customer Identification

This is the very first step to satisfying KYC requirements in South Africa. Businesses need to establish the identity of the customer. 

How is Customer Identification Performed in South Africa? 

Specific documents are required for customer identification, depending on the institution in question. However, the following documents are generally requested: 

• Proof of Identity (government-issued IDs like Passports, Drivers’ License, Smart ID Card, etc.)
• Proof of Address (e.g. utility bills)

Businesses then need to proceed to verify the documents provided and the key information contained in them. This is to prove that the customer is who he claims to be and not a bad actor with malicious intent. This process can be automated using a robust document verification solution.

b. Customer Screening

In this stage, the documents provided and key information about the customer are evaluated to assess the financial risk profile of the customer. It involves running the customer information through sanction lists, Politically Exposed Persons (PEP), adverse media, and watch lists. Customers are then classified based on their risk level and profiles e.g. high risk, medium risk, and low risk. Connected to 1000+ global watch lists, Smile ID AML Screen solution helps businesses achieve this reliably.  

How is Customer Screening Performed in South Africa?

Generally, customers are screened against specific lists. This includes: 

i. Sanction List Screening

Sanction list screening is the process of checking customers against sanction lists. These official lists are published by the government and international authorities and contain names of people who are involved in illegal activities. Examples include: 

• United Nations Sanction List
• Money Laundering Lists
• Financial Action Task Force (FATF) grey and black lists
• Terrorist financing lists
• Office of Foreign Assets Control (OFAC) Sanctions List
• Drug trafficking lists, etc. 

ii. PEP Screening

Politically Exposed Persons (PEPs) are individuals who are exposed to high risk because they hold a high-profile government position or are leaders of international organizations. Their position gives them influence over international and governmental bodies, which can pose a high risk if compromised in any way. 

PEP screening is carried out to identify these persons and evaluate their risk profiles to be sure they are not compromised.

iii. Adverse Media Screening 

This is the process of assessing customer risk profiles by identifying and evaluating potentially damaging information about them from reliable news and other data sources. By doing so, businesses can easily identify high-risk customers and those with a history of money laundering or terrorist financing. 

With the customer screening information at hand, the business can then make an informed decision about whether to conduct business cautiously with the customer or cut ties completely to protect its reputation. 

c. Continuous Monitoring

Just as the name implies, customers need to be consistently monitored after identification and screening. This is to immediately spot changes in their risk profiles and take precautions accordingly. 

How to Comply with KYC Requirements in South Africa

Businesses need to adopt the following measures to satisfy KYC requirements in South Africa:

1. Customer Due Diligence

This process involves identifying and verifying the identities of customers, as stated earlier. Businesses need to conduct comprehensive Customer Due Diligence on individuals before fully onboarding them. Important information like the nature of the business, source of funds, ultimate beneficial owners (for B2B relationships), etc., also need to be verified. This can be achieved using a proper business verification solution.

2. Fraud and Transaction Monitoring 

Fraud check and transaction monitoring processes should also be implemented to detect suspicious activities. This can be done consistently or based on the customer risk assessment. Businesses can also implement biometric authentication triggers when customers try to conduct irregular transactions. This way, the transaction is validated in case it is a fraud attempt. 

3. Record Keeping

Beyond simply verifying and monitoring customers, businesses operating in South Africa are also mandated to keep records. Information and records related to Anti Money Laundering (AML) and Combating the Financing of Terrorism (CFT) should be kept for at least five years from the date of the transaction or termination of the business relationship. 

4. Suspicious Activity Reports (SAR)

All unusual and suspicious activities are to be promptly reported to the Financial Intelligence Center (FIC) and other relevant authorities depending on the industry and scope of business. 

5. Frequent Audits

This process involves conducting regular internal audits to identify gaps and weaknesses in your AML compliance program as a company. 

6. AML Policy Development  

It is important that you develop robust AML policies, procedures, and control. These policies can be designed to address specific risks unique to your industry and business as well as other common business activities. 

How to Verify and Onboard Users in South Africa

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.

Businesses can perform this via our no-code platform or API/ SDK integration.

Bottom Line

Understanding the KYC requirements in South Africa is nonnegotiable for businesses looking to operate in the country. Smile ID’s solution empowers businesses to meet these requirements seamlessly and automate the process from start to finish through our APIs and SDKs. Book a free demo today to learn more.