Late last year, South Africa changed the Financial Intelligence Centre Act (FICA) to alter the status of several business types, including motor vehicle dealers. Under the new changes, dealerships are accountable institutions. How does this affect their operations, and can they adapt to the new requirements?
The first question, though, is why this change? South Africa needed to make essential adjustments to financial reporting, especially around money laundering and cash transactions. We’ve read headlines of busted criminals who flaunted their ill-gotten wealth online, usually properties, expensive luxury items and cars. They tend to buy those items with illicitly-gained cash, effectively money laundering.
Vehicle dealers used to operate as reporting institutions, which required a limited amount of reporting. Certain tasks were not their problem, such as vetting a person’s identity, also called Know Your Customer or KYC.
Before the FICA change, dealerships were already responsible for reporting suspicious transactions and individuals. But as reporting institutions, they could pass the responsibility of identifying a person to financial service providers, which are accountable institutions. Under a credit-based transaction, that isn’t a problem. Ensuring a buyer is who they claim to be reduces the dealership’s risk of being defrauded. It was a win-win: the dealership was paid for goods, and the financial institution could offer an interest-bearing loan.
But when someone buys a vehicle with cash, that symbiosis doesn’t come into play. Hence the change to FICA: vehicle dealers are accountable institutions under the new rules and have several extra responsibilities, such as better risk and compliance management and vetting customer identities.
As mentioned earlier, dealerships must now report suspicious transactions. But now they have an added responsibility to vet the customer. This change applies to any company that transacts in high-value goods. Non-compliance will lead to financial and legal penalties, though the FIC has provided an 18-month grace period starting in December 2022 for dealerships to get their processes in place.
Still, that leaves a lot to do and will be more challenging for smaller companies. How can they tackle this complex transition and still gain business value? I suggest that dealerships consider using digital platforms. For example, a modern identity-management platform provides the processes and checks that create a seamless, automated system that integrates with existing workflows.
Platforms are different from other software. They cost less and are modular, simplifying the choices of what functions to add to a business. They scale easily, so what starts as a KYC process can expand into managing identity for other risks, such as cybercrime. And the best identity platforms already integrate with major financial institutions, thus accelerating financing clearance for people buying on credit.
Dealerships have known about this change but avoided adaptation because it seems complex without apparent business benefits. Now they don’t have a choice. But with platform systems, they can avoid the headaches and instead create additional business value through automation and integration, including reduced fraud and simplified reporting.
The shift to accountable institutions will not change. SA has since been greylisted for insufficiently tackling illicit financial flows, so enforcement will increase to reverse the greylisting. Dealerships could treat this as a grudge. But they can turn a grudge into new business benefits with the right platforms.
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