Ashburton Fund Managers fined R16 million for not complying with FICA

The FSCA directed Ashburton Fund Managers to pay R10 million of the total imposed penalty on or before 28 February 2024.

The Financial Sector Conduct Authority has imposed an administrative sanction of R16 million on Ashburton Fund Managers for failing to comply with certain provisions of the Financial Intelligence Centre Act.

Ashburton Fund Managers, a wholly owned subsidiary of FirstRand Limited, is a licensed financial services provider under the Financial Advisory and Intermediary Services Act and an accountable institution under the Financial Intelligence Centre (FICA).

The FSCA is responsible for supervising and enforcing compliance with FICA to help combat money laundering, the financing of terrorism and other related criminal activities. All accountable institutions must comply fully with its requirements.

When the FSCA conducted an inspection at Ashburton Fund Managers between 17 October and 15 November 2022 in terms of section 45B of the Act, it found that the fund manager breached these provisions of the Act by not developing, documenting, maintaining and implementing a risk management and compliance programme for anti-money laundering and counter-terrorist financing.

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Ashburton’s risk management and compliance programme

The programme was developed, but failed to set out the manner it would comply in regarding:

• examining complex or unusually large transactions and unusual patterns of transactions
• performing customer due diligence when, during the course of a business relationship it suspects that a transaction or activity is suspicious or unusual as contemplated in section 29
• terminating existing business relationships as contemplated in section 21E
• enabling Ashburton Fund Managers to determine when a transaction or activity is reportable to the financial Intelligence Centre and;
• the implementation of its programme.

The FSCA says it also found that Ashburton Fund Managers did not identify and verify the identity of clients, the persons acting on behalf of clients and clients acting on behalf of someone else when it engaged with a prospective client to enter into a single transaction or establish a business relationship.

In addition, the fund manager did not establish the nature of some clients’ business, their ownership and control structure and establish the identity of the beneficial owners of clients.

The FSCA also says accountable institutions are required to scrutinise client information to determine whether such clients are listed in terms of section 25 of the Protection of Constitutional Democracy Against Terrorist and Related Activities Act and the Targeted Financial Sanctions Lists issued by the United Nations Security Council.

If an accountable institution finds that a client is on the TFSL, it must, as soon as possible, report that fact to the Financial Intelligence Centre and take steps to freeze the assets of the clients. At the time of the inspection, Ashburton Fund Managers failed to screen its clients, including beneficial owners, against the TFSL.

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FSCA serious about risk of money laundering and terrorist financing

“The FSCA views this as serious violations of the Act, particularly considering the nature, size, complexity and potential risk exposure of its business. The requirement to understand and mitigate money laundering and terrorist financing risks through the implementation of the programme is vital; not only because it assists accountable institutions to protect and maintain the integrity of their own businesses but also because it helps contribute to the integrity of the South African financial system as a whole.”

In addition, the FSCA says proper customer due diligence and screening of clients is also crucial to help identify and mitigate against suspicious and criminal elements from infiltrating the financial system.

“This makes it especially important for institutions that operate as part of large financial services groups to demonstrate an elevated level of vigilance when managing their financial crime risks.”

The financial regulator says in recognition of the remedial action Ashburton Fund Managers already took until now, the FSCA agreed to suspend R6 million of the total imposed penalty for a period of three years, on condition that the fund manager fully complies with a directive to remediate the remaining deficiencies and remains fully compliant with certain sections of the Act during this time.

“The sanction serves as a strong reminder that non-compliance with the FIC Act will not be tolerated. All accountable institutions are urged to continue reviewing and strengthening their anti-money laundering and terrorist financing risk and control environments. Failure to do so will result in firm regulatory action.”

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Ashburton Fund Managers working on remediation programme now

Ashburton Fund Managers confirmed the sanction and said it has already started a remediation programme to address the shortcomings the FSCA found and has met the first key milestones already.

“This programme includes enhancements to Ashburton’s financial crime policies and frameworks, as well as improvements to its client due diligence and screening processes.”

The fund manager also emphasised that the FSCA did not find any evidence that Ashburton facilitated any transactions involving terrorist financing or money laundering.

“Ashburton’s clients’ funds and investments are not affected by this in any way. Ashburton fully supports the FIC Act and believes that a robust regulatory environment is crucial to protect our industry, considering South Africa’s greylisting,” the fund manager said in a statement.