SA ramps up coordinated efforts to get off grey-list

South Africa is intensifying efforts across key institutions to secure the country’s removal from the global financial watchdog’s so-called grey list which denotes nations with shortcomings in tackling illicit financial flows.

“The implications are too ghastly to contemplate should we not be able to be removed from the grey list within the 24-month period,” Unathi Kamlana, commissioner at the Financial Sector Conduct Authority said in an interview with Bloomberg Thursday. “Our focus is on getting ourselves off.”

The Paris-based Financial Action Task Force placed South Africa on its watchlist in February citing deficiencies in tackling illicit financial flows and terrorism financing, and gave the country until January 31, 2025 to address the shortfalls.

The grey-listing followed an era of endemic government corruption — referred to locally as state capture — under former President Jacob Zuma that his successor Cyril Ramaphosa estimates cost the economy at least R500 billion. While FATF’s decision has not had an immediate impact on South Africa’s credit ratings, missing the 2025 deadline to get off the grey list could damage investor sentiment toward South Africa, leading to capital and currency outflows.

Some of the measures South Africa must take to exit the grey-list is, to step up corruption investigations and prosecutions and ensure the authorities have timeous access to accurate and up-to-date beneficial ownership information.

National Treasury is leading talks with  government departments, the South African Reserve Bank and regulators such as the FSCA, which is primarily focusing on increasing capacity by hiring more people, developing supervisory expertise and skills, as well as deepening the stringency of its sanctions and penalties, in line with FATF’s recommendations, according to Kamlana.

“We have already started with the work around that and allocated a budget to increase headcount, so that’s not an issue that will be outstanding for long,” he said. “The second part, which is tricky, one needs to be very risk-based and proportional in terms of that, so you don’t just increase the amount of the fine for the sake of it.”

The squeeze

South Africa is also battling with a “cost of living crisis” as rising interest rates, inflation, high unemployment and stagnant economic growth continue to put pressure on consumers and households. The FSCA has engaged organisations in the financial sector about the inherent risk, according to Kamlana.

“I think that customer resilience or household resilience is definitely challenged significantly,” he said. “The more desperate people get, the more they are prone to making less informed financial decisions.”

Consumer confidence dropped to its lowest level in one year in the second quarter, according to data from FirstRand’s First National Bank and the Bureau for Economic Research. Household debt outstripped growth in incomes in the first quarter, climbing to 62.1% from 61.6% in the previous quarter, the Sarb said in its latest quarterly bulletin.

The Sarb predicts interest rates may remain higher for longer, as inflation remains sticky. The central bank’s monetary policy committee has raised the benchmark rate by 475 basis points since it began tightening in November 2021.