Conservative compliance behaviour (2011)

Cenfri managed a FinMark Trust funded study to investigate the reasons for the apparent lack of universal response by financial insitutions to the flexibility allowed by South Africa's anti-money laundering (AML) and combating of terrorist financing (CFT) regulatory requirements in relation to low-risk clients.

 

Click here to download the report (PDF, 506KB)  

The quest for inclusive financial markets is challenging both business and regulatory models as it requires new and largely unknown portions of the market to be saved. This quest can at times be frustrated by regulatory barriers to inclusion that make it costly to provide financial services to low-income people. In South Africa, the regulator recognises this fact, at least in so far as AML and CFT requirements are concerned, and has allowed for some flexibility for low-risk customers. The analysis presented in the document suggests, however, that such regulation may not have the desired impact in all cases. Some financial institutions may ignore or may tend to respond in an overly conservative manner to the scope for discretion. The authors develop a compliance response continuum that best depicts the range of such responses by financial institutions. Responses range from non-compliance to over-compliance with balanced compliance often viewed as the ideal response by a financial institution.

 

The document goes further to identify drivers of over-compliance behaviour, which includes the following:

  • An institutional compliance culture that encourages conservative compliance responses;
  • A conservative approach to risk in the industry;
  • A need for uniformity in business management processes;
  • Lack of management experise;
  • Foreign compliance examples that inform local compliance responses.

The  report concludes by providing recommendations (or guidelines) to avoid over-compliant responses. These include the following:

 

  • Consult with regulated institutions when drafting new laws to ascertain potential compliance responses
  • Address policy and policy conflicts expressly
  • Clarify legal obligations and ensure that they support financial inclusion
  • Allow adequate time for the implementation of regulatory requirements
  • identify and manage interaction between hard and soft law requirements
  • Regulate for the long-term
  • Provide certainty about regulator's approach to compliance and enforcement
  • Cooperate with industry to increase compliance expertise
  • Build mutual trust. 

Additional Info

  • Country: South Africa
  • Institution: Cenfri, FinMark Trust
  • Date Published: 2012
  • Document Type: Impact assessments, Research Papers, Discussion paper

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Conservative compliance behaviour (2011)

Cenfri managed a FinMark Trust funded study to investigate the reasons for the apparent lack of universal response by financial insitutions to the flexibility allowed by South Africa's anti-money laundering (AML) and combating of terrorist financing (CFT) regulatory requirements in relation to low-risk clients.

 

Click here to download the report (PDF, 506KB)  

The quest for inclusive financial markets is challenging both business and regulatory models as it requires new and largely unknown portions of the market to be saved. This quest can at times be frustrated by regulatory barriers to inclusion that make it costly to provide financial services to low-income people. In South Africa, the regulator recognises this fact, at least in so far as AML and CFT requirements are concerned, and has allowed for some flexibility for low-risk customers. The analysis presented in the document suggests, however, that such regulation may not have the desired impact in all cases. Some financial institutions may ignore or may tend to respond in an overly conservative manner to the scope for discretion. The authors develop a compliance response continuum that best depicts the range of such responses by financial institutions. Responses range from non-compliance to over-compliance with balanced compliance often viewed as the ideal response by a financial institution.

 

The document goes further to identify drivers of over-compliance behaviour, which includes the following:

  • An institutional compliance culture that encourages conservative compliance responses;
  • A conservative approach to risk in the industry;
  • A need for uniformity in business management processes;
  • Lack of management experise;
  • Foreign compliance examples that inform local compliance responses.

The  report concludes by providing recommendations (or guidelines) to avoid over-compliant responses. These include the following:

 

  • Consult with regulated institutions when drafting new laws to ascertain potential compliance responses
  • Address policy and policy conflicts expressly
  • Clarify legal obligations and ensure that they support financial inclusion
  • Allow adequate time for the implementation of regulatory requirements
  • identify and manage interaction between hard and soft law requirements
  • Regulate for the long-term
  • Provide certainty about regulator's approach to compliance and enforcement
  • Cooperate with industry to increase compliance expertise
  • Build mutual trust. 

Additional Info

  • Country: South Africa
  • Institution: Cenfri, FinMark Trust
  • Date Published: 2012
  • Document Type: Impact assessments, Research Papers, Discussion paper

Search news, publications and events