T Team Khomanani Working together Sheralee Morland Charles

T Team Khomanani ‘Working together’ Sheralee Morland Charles Jenneker Bongani Tontsi Tyrone Govender Bank collaboration in an attempt to mitigate the spiralling cost of compliance Page

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9/11 Where were you on this day? ? • What did this mean for business? • What did this mean for BANKING? ? Page 3

Consequences of 9/11 Key USA AML regulations 1) Bank Secrecy Act 1970 2) USA Patriot Act signed into law by President Bush in October 2001 following the terrorist activity of Sept 11 The result, • Sweeping changes to money laundering regulations • Expanded scope to include other financial institutions • A global industry expectation enforced by the USA Page 4

How did the Countries Respond? • USA - immediately EXPECTS all countries to adopt more stringent AML principles • Canada - applies the spirit of the law-heeds the call - reflects, negotiates a client centric implementation • South Africa - applies the letter of the law-impact on clients is punitive Page 5

The challenge Convince South African banks to collaborate as an industry, to deliberate and negotiate with government/regulators, to ensure that when laws are promulgated, these are practical and efficient for all stakeholders. Page 6

Analysis of Learning South African experience Canadian experience Costs Banks work in isolation to comply with regulation Collaborate on non – competitive matters Systems developed unique to individual banks System upgrades to engage with client for KYC at point of sale (CIF) Duplication of effort and additional resources Increased costs by way of additional staff True cost of implementation/ compliance is not known Page 7

Analysis of Learning cont Multiple impacts on stakeholders: South African experience Banks Canadian experience Banks Burden of demanding/impractical compliance – All existing clients had to be FICA’d – FICA timelines had to be met • Deliberation and negotiation prior to implementation ensured no ‘retro’ fitting requirements for existing clients. • Clients KYC’d when next transacting with their banks at their convenience. Page 8

Analysis of Learning cont Multiple Impacts on stakeholders: South African experience Canadian experience Regulators Applied the letter of the law Applied the spirit of the law – Onerous implementation requirements for banks – Punitive consequences for - Less onerous compliance requirement - No threat of account closure customers – Accounts closed Page 9

Analysis of Learning cont Multiple Impacts on stakeholders: South African experience Canadian experience Customers FICA’d repeatedly, often by the same bank and for different products e. g. Home Loan, ABF, Credit Card applications etc. Banks made system enhancements to provide client centric solutions particularly for front line staff. Clients KYC’d when next transacting with their bank at their convenience. FICA’d at other banks where they have accounts Accounts closed if not FICA’d within time lines FICA’d at other banks where they have accounts Clients were at no time threatened by account closure. Page 10

Our Key Findings • Distinct difference in the way KYC legislation was interpreted and implemented by Canadian and South African banks. - Rule Based VS principles based • SA organisations working in isolation • Innovation – current solutions are reactive with little or no evidence of innovation • South African customers inconvenienced and frustrated (often) • Collaboration has worked in SA before……. . The Mzanzi account collaboration was a banking industry success !! Page 11

Our Key Findings cont • The impact on Sales - SA and Canada: – Additional support staff required – Sales staff obtaining additional documentation and information – not selling! • SA banks implementation of legislation: – High degree of ‘Blind compliance’ – Blind compliance may lead to overly regulated environment deterring investment • Attitude towards compliance: – Principles versus rules based approach to comply with and give effect to the spirit of the law Page 12

Our Key Findings cont • Compliance is a business cost: – Banks work in isolation to comply with regulation – System developed unique to individual banks – Duplication of effort and additional resources – Increased costs by way of additional staff – System upgrades to engage with client for KYC at point of sale (CIF) True cost of compliance is unknown!!!!! • Costs will continue to escalate as legislation is promulgated. Page 13

Proposal Banks to collaborate in a joint effort as an industry initiative, in non-competitive aspects of business , to work smartly, reduce costs of compliance, improve customer experience while contributing to the worlds efforts to reduce financial and other crime…. Page 14

Recommendations We support collaboration by banks in non-competitive aspects of business, working together as an industry by: 1 ) The formation of an active operations committee, mandated to: – Lobby with government on relevant legislation – Interpretation of the legislation – Pro-actively monitoring of pending legislation (Privacy Law) – Foster relations with eg USA – to get firsthand information on proposed legislation – Consider the practical implementation of compliance – Being a mouth piece for the industry Page 15

Recommendation We support collaboration by banks in non-competitive aspects of business, working together as an industry 2) To make a call re the STOP/GO decision for the Bank. SERV industry wide automated solution bearing in mind: • Size of SA unbanked population (+/- 40%) • How much more FICA’ing can the client tolerate • FICA bi-annual refreshes • Significantly reduced cost of FICA (R 1, 74) Page 16

Proposed Industry Automated Solution MICRO LENDERS / LENDERS (BANKS) Questions / Answers NPOs Register (Charities) Address Education Work History Loan Registers Photo SAS ACI Search Space FICA Document Image FIC ANALYSTS FIC Source: BANKSERV South African Bankers Services Company Limited: 2006 ID Proof Residence Finger Print FICA Compliant Users Page 17

Benefits Client/general public • Seamless integration of regulatory requirements. (WOW the client with client centric adoption of requirements) Regulator • Rests assured that a ‘win-win’ compliance environment to meet firstworld standards is created and sustained Page 18

Benefits In conclusion Banks and accountable institutions • Prevent SA from becoming an over-compliant country: – Could result in foreign and local disinvestment • Proactive representative body: – Pre-emptive dialogues with relevant stakeholders. – Constructive relationship with government and regulators – Agreement on application of relevant legislation – Intent to comply within practical timelines • Sales consultants will focus on improved cross selling and relationship management. Page 19

Anti Money Laundering 2) Automated Industry Solution (Repository) SUSPICIOUS TRANSACTIONS KNOW YOUR CLIENT CANADA S. A Interpretation of Law Spirit Letter • No Retro-fit • Retro-fit of entire client base • No Punitive time lines • No threat of account closure • Threat of account closure Banks / Financial Institutions, Regulator Maximize opportunity to really get to know the client. (Sales opportunity/cross-selling) 1) Operations Committee Administration intensive Industry Collaboration Page 20

T Thank YOU, Questions…. . Sheralee Morland Charles Jenneker Bongani Tontsi Tyrone Govender Bank collaboration in an attempt to mitigate the spiralling cost of compliance Page

For consideration by the panel T Please refer to your pack. Packs contain: 1. Executive Summary 2. Detailed report 3. Presentation slides Page