Three banks hit with sanctions in South Africa

The Prudential Authority has given HBZ Bank Limited, Citibank and Bank of Taiwan administrative sanctions for failing to comply with the Financial Intelligence Centre (FIC) Act.

The Prudential Authority is part of the South African Reserve Bank (SARB) and is mandated to supervise and enforce compliance by accountable institutions with the provisions of the FIC Act.

It oversees banks, insurers, and other financial institutions to safeguard the soundness of the financial system and promote economic stability. 

Ensuring compliance with the FIC Act means financial service providers can identify and report suspicious transactions and maintain strong internal controls to prevent money laundering.

The Prudential Authority will impose administrative sanctions when financial service providers fail to meet these obligations, which can include monetary penalties.

That said, the sanctions do not imply that the banks were involved in criminal conduct, but rather that their compliance systems can be improved.

With South Africa being placed on the FATF greylist in 2023, there has been a rise in major financial service providers receiving administrative sanctions, including Absa, Capitec and Standard Bank.

The new administrative sanctions for HBZ Bank Limited, Citibank and Bank of Taiwan all relate to failures to comply with specific provisions of the FIC Act, following inspections conducted in 2022.

The Prudential Authority said all three banks cooperated and undertook remedial action to address the identified compliance deficiencies and control weaknesses.

HBZ Bank Limited

HBHBZ Bank Limited is a subsidiary of Habib Bank AG Zurich, a Swiss bank founded in 1967, and received a financial penalty.

The administrative sanctions imposed on HBZ consist of three cautions not to repeat the conduct, which led to the non-compliance, two reprimands and a financial penalty totalling R9 million.

R1.5 million of the financial penalty is conditionally suspended for 24 months as from 5 March 2025.

The Prudential Authority said that the administrative sanctions stem from several examples of HBZ’s non-compliance.

This includes failure to comply with customer due diligence in that it failed to adequately conduct CDD and enhanced due diligence on 18 active medium-risk-rated and five active high-risk-rated client files.

The Prudential Authority imposed a caution not to repeat the conduct, which led to the non-compliance, as well as a financial penalty of R6 million, R1 million of which is conditionally suspended.

The bank also failed to keep records of one of its high-risk trade finance active and terminated client relationships.

It received a caution not to repeat the conduct which led to the non-compliance and a reprimand.

Finally, it failed to comply with section 42 of the FIC Act in that it failed to:

• Provide a documented rationale for reaching the conclusion that trade finance as a transaction type is assigned an inherent risk rating of ‘medium’ in the context of its business model.
• Provide a precise or confirmed residual risk rating for trade finance as a transaction type.
• Implement its Risk Management and Compliance Programme (RMCP) with seven of the assessed advance payment transactions; and 
• Implement its RMCP about its CDD and record-keeping obligations.

For this, the Prudential Authority imposed a caution not to repeat the conduct, which led to the non-compliance, a reprimand and a financial penalty of R3 million, with R500,000 conditionally suspended. 

Citibank

The Prudential Authority also imposed administrative sanctions on the South African branch of Citibank, one of the largest banks in the world.

The administrative sanctions imposed on Citibank consist of a caution not to repeat the conduct, which led to the non-compliance and a financial penalty totalling R6 million.

The fine is, however, fully and conditionally suspended for a period of 12 months as from 5 March 2025.

The administrative sanctions stem from Citbank’s failure to implement its Risk Management and Compliance Programme in relation to the assessed advance payment transactions.

Bank of Taiwan, South Africa Branch

Bank of Taiwan, South Africa Branch (BOTSA) was opened in 1992 and features a global correspondent banking network.

Its administrative sanctions stem from BOTSA’s failure to comply with section 42 of the FIC Act, in which it failed to:

• Provide evidence that material amendments relating to its Risk Management and Compliance Programme (RMCP) Introduction Manual had been approved by the Executive Committee of BOTSA before their implementation;
• Adequately manage the recording of the yearly review of its RMCP Introduction Manual, as stated in its governance policy;
• Implement its RMCP and undertake the requisite due diligence measures in relation
  to two of its assessed correspondent banking relationships in respect of Vostro
  accounts; and
• Provide evidence that the Screening of Customers and Transactions Manual had been
  reviewed and approved after 2020.

Unlike HBZ Bank Limited and Citibank, BOTSA received no financial penalty from the Prudential Authority.