Staying Positive through Uncertainty:

Understanding South Africa's Grey-Listing by the FATF and its Investment Implications.

The news that South Africa has been grey-listed by the Financial Action Task Force (FATF) has been widely covered by the media recently as a matter of public interest, and as a more significant matter for individuals and businesses operating within the country's financial sector. However, much of the coverage has had negative undertones, while a good portion of the public may not even know or understand what this action means. We believe it is important to consider that this decision could actually be a positive step towards improving the country's financial system and its ability to combat money laundering and terrorist financing, which is why this blog will be covering:

• Who the FATF are, and what they do;

• What it means for a country to be grey-listed;

• Why South Africa has been grey-listed; and

• What this means for your investments.

THE FATF

The Financial Action Task Force is an independent and international organisation that sets global standards to combat money laundering, terrorist financing, and other related threats to the international financial system - with the aim of monitoring and preventing financial crime in its member countries.

But what does it mean to be grey-listed by the FATF? Based on a country's own reporting, and/or through the FATF's own assessments; the FATF may identify a country whose measures are insufficient in combatting these threats, and will then provide guidance to this country based on where the concern and deficiency lies. The country is given a timeline to address these issues and take the necessary action - failing which, they will be placed on the "grey-list".

Put simply: Being placed on the grey-list means that a country has not taken the action necessary to address its deficiencies in

anti-money laundering and counter-terrorist financing. However, this will often result in increased monitoring and scrutiny of the country's financial transactions by international banks and financial institutions - hence the concern and unease that has been created surrounding the topic.

SOUTH AFRICA'S POSITION

Anyone who follows financial news (and we know that is not everyone!) will know the "good" news that South Africa's grey-listing has not come as a surprise. Why is this good, you may ask? Old Mutual's economic update alludes to the fact that since this was expected, it was very likely priced into the country's budget for the year, and that this will help to combat any substantial economic or market fall-outs.

So, why have we been grey-listed?: In 2021, the FATF highlighted areas of inadequacy regarding financial crime in South Africa, and despite the acknowledgment of "significant progress" being made in some areas since; SA was given until November 2022 to redress and rectify specifically the handling of anti-money laundering and countering the financing of terrorism.

An absolute vote of the FATF members has since determined that there has not been acceptable headway made in this area, sealing SA's fate, and placing us on a watchlist of higher-risk territories (i.e.: the grey-list).

A key factor to consider here is that South Africa is the only African country to have become a member of the FATF, according to The National Treasury. The knowledge that our Government has opened itself up to scrutiny in the financial sector by applying to be a member may be a glimmer of hope for citizens, as it seems that South African officials are hoping for and committed to positive advancements in these areas.

THE WAY FORWARD

It should be made clear that being grey-listed is not an irreversible issue, will not result in any legal consequences for South Africa, and will likely not have any immediate or significant effects on our markets or economy at this time. In fact, being placed on the grey-list provides us certainty that the country is being strictly monitored by, as well as working closely with, the FATF to address and rectify the areas that need closer attention. Another positive here is that the FATF frequently review their grey-list, meaning that we could be placed back on the list of equivalent countries within a year to 18 months - in the best case scenario.

When it comes to your personal investments, these will not be directly affected. However, the financial service and investment product providers that handle your investments will likely have more stringent measures in place to ensure that any risks associated with financial crime are avoided, while global financial institutions will be more likely to monitor local businesses and transactions more closely.

We are grateful to work and be contracted with multiple FSPs who have made the effort to assure us and the clients who invest with them that their practices are, and always have been, compliant with regulatory requirements locally and in offshore jurisdictions. While the decision to place SA on the grey-list is certainly a cause for concern, we have the utmost faith in the service providers that we are contracted with, and believe that we, along with them, will be key role-players in the combating of financial crime, and ultimately the consideration of the FATF to remove us from this list.

As independent advisers, we have the added responsibility of privately ensuring that our clients' accounts and investments are secure using the guidelines of the Financial Intelligence Centre (FIC), and keeping in line with all compliance regulations regarding the FIC Act (which you can read more about here). For many investors, the grey-listing of SA has created anxiety and a sense of unease about the future. However, rather than making investment decisions based on fear and emotion, it is important to seek out professional guidance and advice from independent financial advisers like ourselves. Historical financial evidence has always demonstrated that maintaining investments during periods of market turbulence has proven to be a more effective approach for achieving long-term returns. By working with Finpas, you will be taking a proactive approach to managing your investments, rather than reacting to events that are outside of your control. This will help you feel more confident and empowered as an investor in South Africa, even in the face of uncertain market conditions.

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