Blue Chip Issue 86

BLUE CHIP On the money

BLUE CHIP On the money Making waves this quarter Regulations and a new range of model portfolios RESTRAIN OR REACT: GREYLISTING IN SOUTH AFRICA By Webber Wentzel In 2019, the Financial Action Task Force (FATF) red-flagged South Africa for high levels of corruption. That means South Africa must address its partial compliance or non-compliance with 20 of the FATF’s “40 recommendations” by February 2023. South Africa has taken various steps to tackle corruption. The National Prosecuting Authority has enrolled cases, the Asset Forfeiture Unit has frozen or granted preservation orders, the Special Investigating Unit has instituted High Court cases and SARS has launched investigations. South African banking institutions have sound policies in place to combat terrorist financing. However, many loopholes remain, and this makes it urgent to enact the necessary regulations in place and ensure institutions have appropriate systems in place. Webber Wentzel will be conducting sessions on the implications of greylisting by the FATF for South Africa with our financial and corporate clients to address these issues. MITONOPTIMAL LAUNCHES HEDGE FUND MODEL PORTFOLIOS We are extremely excited to launch our much-awaited ASTUTE range of model portfolios, containing only absolute return funds and hedge funds. We saw a gap in the market for these types of investments due to their ability to limit the downside in market drawdowns, but still benefit from risk asset exposure. Our range includes: • MitonOptimal ASTUTE Guarded Model. Focused on capital preservation while targeting a total return of CPI +4% after all fees. This model was created with the living annuity market in mind, especially those clients in the early years of retirement, where “sequence-ofreturns” risk is at its highest. • MitonOptimal ASTUTE Bold Model. Focused on capital appreciation and looking to benefit from the underlying managers’ best ideas. This model will target all-out risk and is not for the faint-hearted. Due to Reg 28 restrictions, these products will only be available in discretionary products, endowments and living annuities. For more information on the range, please contact george@mitonoptimal.com. MitonOptimal South Africa (Pty) Limited is an Authorised Financial Services Provider License No. 28160 regulated by the Financial Sector Conduct Authority (FSCA). Registration No. 2005/032750/07. Jacques de Kock, Quantitative Analyst and Portfolio Manager, MitonOptimal IT TAKES A TSUNAMI As a child, an intense interest in property meant that Rael Levitt was early in the game. A chance encounter as a teenager led him to his first auction that ignited a fervent passion. By 17, he regularly attended property auctions and at 20, he had bought and sold 20 bank-foreclosed houses. While studying law at UCT, Levitt launched an auction company from the canteen, which changed the face of auctioneering in South Africa. His company, Auction Alliance, transformed the industry, bringing glamourised high-profile sales to the public eye. In 2004, Levitt was caught in the historic tsunami that claimed so many lives in Thailand. Seven years later, he faced a different kind of tsunami that destroyed his reputation. The Quoin Rock Wine Estate auction was the last time Levitt ascended the auction podium. The wine estate, belonging to billionaire Dave King, was being bid on by Wendy Applebaum, the country’s wealthiest woman. The series of mistakes Levitt made following the auction would herald Auction Alliance’s rapid demise. Levitt became a subject of “trial by media” in the court of public opinion – later cleared of wrongdoing by the country’s courts. A decade later, Levitt reflects on the lessons he has learnt. In the wake of his last-ever auction, he built a successful new property business, Inospace, which has become the largest owner and operator of logistics parks in South Africa, having grown into a R3-billion company. It takes a tsunami is a riveting read that incorporates the story of one of the biggest property scandals of recent times into a deep reflection on failure and fallibility – and what it takes to survive and bounce back. Available at bookstores nationwide or www.ittakesatsunami.com.

PRACTICE MANAGEMENT | Compliance BLUE CHIP COMBAT FINANCIAL CRIME Financial service providers must apply a risk-based approach to assist in combating money laundering. The products and services that financial service providers (FSPs) offer can be abused by criminals for money laundering, the financing of terrorist activities and proliferation of weapons of mass destruction activities. It is important that FSPs implement a risk-based approach to combating money laundering, terrorist financing and proliferation financing. Comprehensive guidance on implementing a risk-based approach is available in Financial Intelligence Centre (FIC) Guidance Note 7 and FIC public compliance communication 53 (which are both found on www.fic.gov.za). In 2019, the Financial Action Task Force (FATF) assessed South Africa’s capability and capacity for combating money laundering, terrorist financing and proliferation financing and identified certain weaknesses, including the inadequate adoption of a riskbased approach among designated non-financial businesses and professions. “South Africa should ensure that accountable institutions adequately implement a risk-based approach, including through better assessing and understanding their inherent risks as well as refining and implementing their risk management and compliance programmes to mitigate their risks,” FATF highlighted in its assessment report published in October 2021. Implementing a risk-based approach As part of the risk-based approach, an FSP must conduct businesslevel assessments, new product and process-risk assessments as well as client-level assessments. The controls the FSP implements must be in proportion to the level of inherent risk identified. Where there is a heightened risk of money laundering and terrorist financing, the FSP must have more stringent controls in place such as enhanced due diligence and monitoring. Various factors may impact the level of money laundering, terrorist financing and proliferation financing risk the accountable institution may face. These factors include the client, product or service type, the delivery channel, the geographic area as well as any other factor the accountable institution deems relevant. Practically speaking, different client types pose different levels of risk; for example, it is widely accepted that foreign prominent public officials and certain domestic prominent influential persons pose a heightened risk. See Public Compliance Communication (PCC) 51 for additional information. There are various other client types that may be deemed as high risk. Where a client’s beneficial owners pose a heightened risk, this should be considered as part of the client-level risk assessment. The different delivery channels or way the client is onboarded presents different risk levels. For example, where a client is onboarded face-to-face there is less risk of client identification misrepresentation, whereas non-face-to-face scenarios where a client is onboarded digitally could present a heightened risk. FSPs must understand the vulnerabilities of the different type of products and services that they offer, for example a product that allows for third-party payments to high-risk countries would potentially pose a heightened risk. PCC 49 and PCC 54 set out additional guidance on geographic area risk factors that should be considered. In addition to the factors highlighted above, the FSP may take into account any other relevant factors when conducting the risk assessment. Risk factors must be assessed holistically to determine an overall risk that the particular business relationship or single transaction with a client may pose. Risk management compliance programme The manner in which the FSP implements a risk-based approach and the controls implemented in accordance with section 42 of the FIC Act must be set out in the risk management and compliance programme. For more compliance information and guidance offered to FSPs, refer to the FIC website (www.fic.gov.za). For further information contact the FIC’s compliance contact centre on +27 12 641 6000 or log an online compliance query on the FIC website. www.bluechipdigital.co.za 15