Industry’s Favourite Regulatory Solution: South Africa’s AML Regulation

Each Quarterly Update will feature one proposal for ‘industry’s favourite regulatory solution’. Our goal is to feature good examples of regulation which already exist in the market as a starting point for discussion. In each feature, we will explain which elements of the regulation work for the industry and why. We will also seek to identify areas for potential improvement. Most importantly, we want to elicit and collect your views to move the discussion forward, ultimately leading to improved regulation. We appreciate that each market is unique and that regulatory solutions from one market cannot be replicated in exactly the same manner elsewhere. Nevertheless, what we want to focus on are the underlying regulatory principles of examples of good regulatory solutions. In this edition, which is preceding our first MMU Working Group meeting in Cape Town on 15th and 16th April, we have chosen the AML (anti-money laundering) regulation for mobile money in South Africa. This example has been chosen as ‘industry’s favourite regulatory solution’ because it is proportionate to risk and it allows a mobile experience for customers. Whilst regulation promoting mobile money has to be efficient in preventing money laundering and financing of terrorism, it also has to be proportionate to the given risks and allow for a good customer experience. By mobile experience, we mean that the regulation takes into account the needs of the customer to use the mobile money service anywhere and at any time.

What we like about South Africa’s AML/KYC regulation

Mobile experience and proportionality
A customer in South Africa can register for a mobile banking service with a truly ‘mobile experience’ by opening their bank account with their mobile phone. There is no need to go to a bank branch initially if the customer has a valid South African identity number and if the following limits are observed:

• daily transfer limit of approx. US$100 (approx)
• monthly transfer limit of approx US$2,500 (approx)
• maximum balance of US$2,500

The customer can start using the service by transacting small amounts without going to a bank branch
to provide an address.

This approach is proportionate to risk, because the identification requirements become more onerous as the transaction sizes increase. The customer has to provide identification when transacting up to US$500 with the same monthly limit and maximum balance of US$2,500 respectively. If the customer wants to transact higher amounts, a full identification and proof of address has to be provided in person to a bank representative.

The appropriateness of the actual daily/monthly transfer limits as well as balance limits may depend on the risks of the service and on the customer group. In addition, different transaction limits may be appropriate in different markets. However, the underlying principle of low transaction sizes constitute low risk and should be less onerously regulated than higher transaction sizes which constitute higher risk, is what is key for a proportionate regulatory solution.

Potential for improvement
This solution is limited to customers who have a South African identity number. This means that migrant
workers do not qualify.

Question for Discussion: which elements of South Africa’s AML/KYC solution can other countries replicate? Which regulatory solution should we focus on in our next Quarterly Update?

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