Ever wondered why you need so many documents before you can transact?

These requirements are a legacy of regulations meant to ensure that the financial system is sound and is not abused for fraud, money laundering or the financing of terrorism. However, they have unwittingly contributed to the continued exclusion of many of the most vulnerable members of society from the financial system.

Anyone who has tried to open an account at a financial services institution will have gone through an ordeal of providing the requested documentation before the account can be opened. These include copies of identity documents to prove who you are, utility bills to prove where you live, bank statements and pay slips to prove the source of your funds.

For most of us, these documentation requirements are a headache and inconvenience, but for our poorest neighbours these requirements are a serious hardship and present a major impediment to accessing much needed financial services. For example, the requirement to prove residence is difficult to satisfy for those living in informal dwellings. Similarly, informally employed or unbanked people will have difficulty showing proof of income.

These requirements are a legacy of regulations meant to ensure that the financial system is sound and is not abused for fraud, money laundering or the financing of terrorism. However, they have unwittingly contributed to the continued exclusion of many of the most vulnerable members of society from the financial system. Fortunately, there is a move towards applying a less rigid approach to managing these risks.

In October 2017 the Financial Intelligence Centre Amendment Act (‘the Act’) came into force, which introduced a risk-based approach to the compliance obligations of financial institutions. Essentially, this new risk-based approach moves away from the rigid, ‘tick-box’ methodology under the rules-based regime which demanded a set list of documentation requirements and rather allows institutions to fashion their own approaches to identifying and managing money laundering and terrorist financing risks and to ensure that it has implemented appropriate measures to prevent or mitigate such risks.

While this is a welcome development, it also raises concerns for some financial institutions who may not be prepared to implement a comprehensive risk management programme focused on preventing money laundering and terrorism finance. Some institutions, especially those serving entry-level clients with low-value accounts and transactions, may decide against directing the resources needed to build such capabilities and instead focus on higher value clients. Such de-risking would be a negative result that hurt the poorest consumers the most.

At FinMark Trust, we focus on promoting the financial inclusion of the poorest and most vulnerable members of our society by conducting research, assisting in the formulation of policies that promote financial inclusion and providing assistance to regulators and market participants. As part of our mission to build a more inclusive financial system, we are currently running a pilot project to assist a number of financial institutions in developing and implementing a risk-based approach to anti-money laundering and anti-terrorism financing compliance. This ground-breaking project is the first of its kind in South Africa and focuses on providers of low-value cross-border remittances and banking services. Furthermore, the methodologies developed under this project will be made publicly available for other institutions to implement.

FinMark Trust is excited about the innovative new approaches to customer due diligence and on-boarding and will be publishing regular updates and reports on this project. For more on this exciting project, keep posted on new updates coming soon…

About the author


Farai Muronda

Farai Muronda is the Head of the South Africa Financial Inclusion programme with FinMark Trust. He is a credentialed Actuary with extensive experience in the space of financial services: which expands to Strategic Financial Planning, Investment, Pricing and Anti-Money Laundering. Farai is experienced in the field of providing insurance solutions and also providing and developing insurance tools i.e. an insurance calculator as well as an advisory framework. He currently works alongside multiple partners such as National Treasury in promoting and developing Financial Inclusion in South Africa.