The role of industry associations within the Risk Based Approach system –  By Nkateko Nkhwashu  



The recent amendments to the Financial Intelligence Centre act 38 of 2001 (FICA) by the Financial Intelligence Centre Amendment Act 1 of 2017 (FIC Amendment Act) focused much on how the new Risk-Based Approach (RBA) to customer identification and verification was going to change the way of doing things for the accountable and reporting institutions and to some extent that of both the regulatory and supervisory bodies. Both the latter are already a step ahead and seems to be a bit mature when it comes to regulating and assessing institutions’ compliance on a risk sensitive basis. In all these however one cannot help but ask the question “what then does this mean for the industry associations or representatives?”.

As Moorcroft, amongst others, would agree that industry associations play a very significant role in all developments within a country’s financial regulatory framework, thus any book or literature, on banking for instances, that claims to be comprehensive must include a chapter or discussion on industry associations. Industry associations are not a mere ‘post-box’ for financial institutions and other financial services providers when it comes to influencing policy as well as the formulation of regulatory positions but are rather the very core that shapes the same and ensures a weighty and consolidated ‘one voice’ of the industry on regulatory issues. Thus, industry associations are as equally important and on the same footing with other key stakeholders on all regulatory development initiatives.

Prior looking at the role of industry associations within the RBA perhaps it is important to take a step back and reflect on what the RBA entails as well as look at some of the ways or methods of engagement which were recently used by the regulator, Financial Intelligence Centre (the Centre), throughout all the processes which culminated in the current FIC Amendment Act. This will then be looked at against one of the primary roles of industry associations which is to influence policy, amongst others, through formulated and consolidated industry positions on regulatory issues.

Loosely, an RBA entails a situation wherein accountable and reporting institutions are now given the discretion as to how they come up with ways to identify and verify clients based on each institution’s risk assessments. This then do away with the one-size fits all rules-based or tick-box approach used previously. Under the latter approach institutions sort of followed what was prescribed to them by the regulatory authorities when carrying out and complying with their legal obligations. This approach further ensured that there was certainty and consistency on the application of various legal requirements. Thus, more often than not, accountable and reporting institutions applied the law in a similar fashion. These then further resulted in industry associations being able to easily formulate consolidated industry positions to present to the regulatory authorities when dealing with such issues. This, however, as evident from the recent developments ushered in by the RBA is set to change. Accountable institution’s responses to issues and interests are going to vary and as such industry associations needs to redefine and reposition themselves within the new regulatory framework or else loose relevance as well as value.

It should be noted that the afore-mentioned concern for industry associations is not only in respect of the FIC Amendment act but also other legislative prescripts which also advocates for an RBA within various fronts of the financial regulatory framework.

Through-out the consultation processes to the FIC Amendment Act and owing to the new approach (RBA) there seem to be a shift or preferred new way of engagement with the industry by the Centre and the National Treasury (Policy-maker). For instances, during the first half of 2017 when various draft guidance notes as well as withdrawal notices were issued by the Centre it was suggested and strongly encouraged by the Centre that accountable institutions were to respond individually and directly to the Centre as opposed to doing so via industry associations. I submit that the suggested approach was and is justifiable within the new RBA. However, a question comes as to how then do industry associations ensure that they play meaningfully within this space?

As once suggested by the regulatory authorities, do industry associations then look at, identify and address common themes on the issued documents or do they simple provide an environment or forum where all these issues can be discussed prior responding to the regulatory authorities or what. If the latter is the case then it becomes difficult to have formulated and consolidate industry positions to take to the regulatory authorities and most important it further becomes difficult for industry associations to add value to the entire regulatory process. In this instance, the least industry associations can do is to merely play the ‘chairmanship’ or the ‘coordinator’s’ role. If that is the case then the value-add question remains. Lastly the industry association’s perception on the new engagement approach is very key. Do they view it as a divide and conquer strategy by the regulatory authorities or as an inevitable consequence of the new RBA wherein individual institutions respond differently to identified risks?

As already alluded to elsewhere in this article industry associations, if they want to continue adding value to various regulatory developments, need to regroup and redefine themselves as well as their role as ‘voices’ of respective industries within the new regime. One, they can hire strategic competent staff with the technical know-how on various regulatory issues who can shape and lead positions and issues for the sector. Additionally, such staff needs to be able to see and understand the regulatory framework five-to-ten years from now as well as the previous or historical underpinnings of issues. These can be the very same people who would ensure that they hold seminars and conferences specifically on regulatory issues for the sector and thus be at the fore front and add value. Lastly, industry associations should be steeped in thorough research so as not to blemish the reputation of the sector on various forums.

Since the RBA is formally being introduced for the first in South Africa but has been in existence in other countries for quite some time, industry associations have the luxury to tap into and learn from their international counterparts. There are various forums in which SA’s industry associations are participants to. The question to ask is whether are we taking advantage of these membership forums and thus participate meaningfully or are we merely there for a free-lunch and ride? If we are not there to add value then the efficiency question comes to fore when it comes to attending each and every international forum on an annual basis.

Still on the issue of efficiency perhaps it is now time for us to looking at the United Kingdom’s experience wherein industry associations have now been consolidated and put under one umbrella which is an organization called UK Finance. UK Finance include, for instance, one of the biggest banking industry association which is the British Bankers Association. I submit that this is one approach or model worth looking at as it allows for sharing of expertise and saving of costs. If such was to materialize in SA it would pull together the likes of Banking Association South Africa (BASA), Payments Association of South Africa (PASA), Association for Savings and Investment South Africa (ASISA) and South African Insurance Association (SAIA), etc.

In support of my suggestion and submission above I call the audience’s attention to the recently introduced conglomerate supervision ushered in by the Financial Regulation Act 9 of 2017 or the often talked about Twin Peaks regulatory framework. Conglomerates or huge international financial institutions usually offers both banking and insurance services under the same roof, for example. Arguably, these can be represented by one industry association as oppose to the now fragmented or scattered arrangement.

Finally, industry associations, for example, ASISA can play the role of holding the policy-makers as well as the regulatory authorities accountable on behalf of their members with respect to promises as well as undertakings made by the authorities. For example, with the new requirements of the FIC Amendment Act and through-out the consultation processes it was acknowledged by all relevant stakeholders that practical application of some of the mandatory new requirements was going to prove to be difficult. In response to this the policy-maker and the regulator promised and undertook to convene various workshops wherein these issues were to be dealt with each in detail. This is yet to take place and no one is being held to account. This is concerning given the fact that during all the processes leading up to the promulgation of the FIC Amendment Act it was clear that there was a trust deficit between the authorities as against the industry.


In summary, in as much as the new RBA holds advantages and challenges for accountable and reporting institutions together with the regulatory authorities it also holds the same for industry associations or representatives. However, the voice of the latter has been missing on recent discourse on the same issue. For instances, Prof de Koker’s recent book which also looks at the challenges to implementation of the RBA fails to discuss some of these issues (see de Koker et alMoney Laundering and Terror Financing Law and Compliance in South Africa 2017-2018 LexisNexis). Finally, industry association or representatives needs to revisit their mandate and revise the same in order to remain relevant and add value with respect to regulatory issues.





Financial Intelligence Centre Act 38 of 2001

Financial Intelligence Centre Amendment Act 1 of 2017

Financial Sector Regulation Act 9 of 2017

Financial Intelligence Centre Homepage

Banking Law and Practice by J Moorcroft and ML Vession LexisNexis

Banking Association of South Africa Homepage

British Bankers Association homepage

De koker et al Money Laundering and Terror Financing Law and Compliance in South Africa 2017-2018 LexisNexis






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