South Africa’s financial sector is currently facing intense scrutiny as it strives to rebuild trust and
meet global compliance standards. Following its grey listing in 2023 by the Financial Action Task Force
Force (FATF), the country is under pressure to improve its anti-money laundering (AML) and counter-
terrorist financing (CTF) controls to prevent long-term economic repercussions.
Banks and financial institutions are instrumental in this effort, ensuring strict adherence to local
regulations set by the Financial Intelligence Centre Act (FICA) as well as international expectations.
The stakes are exceptionally high; failure to take decisive action could damage investment inflows,
escalate borrowing costs, and undermine the country’s financial credibility.
Regulatory authorities in South Africa have recently acted against some financial institutions for non-
compliance with AML and CTF regulations. Several local institutions have been penalised for
inadequately monitoring transactions, failing to conduct proper due diligence, and neglecting to
report suspicious activities as required by the FICA.
Measures imposed on these banks include financial penalties, formal reprimands, and mandatory
improvements in compliance practices. Concerns raised by regulators include deficiencies in risk
assessment, client onboarding, and transaction monitoring. The impact of non-compliance by financial institutions on capital flows is evident.
Research by the International Monetary Fund (IMF) found that among 89 emerging and developing countries, grey-listed between 2000 and 2017, capital flows declined by an average of 7.6% of GDP over nine months. Foreign direct investment (FDI) inflows dropped by approximately 3.0% of GDP, while
Portfolio inflows fell by 2.9%.
On a positive note, the National Treasury recently announced that South Africa has completed all 22
action items in its FATF plan and is preparing for an on-site review by FATF officials. If the country
passes the on-site assessment, it is anticipated that it will be removed from the grey list by October
2025, thereby restoring confidence in its financial system and enhancing its global standing.
A Shifting Compliance Landscape
Compliance remains a top priority for financial institutions, necessitating a consistent verification of
customer identities, protection of sensitive data, detection of risks, and reporting of suspicious
activities. These tasks must be performed diligently, particularly as regulations evolve and digital
banking continues to grow.
Additionally, managing compliance poses a significant operational challenge. It requires dedicated
teams, strong technology systems, and regular updates to policies and procedures. Many institutions
perceive compliance as a costly obligation that diverts resources from innovation and business
growth. However, failing to follow regulations can lead to costly penalties, harm a company’s reputation, and attract increased scrutiny from authorities.
The Role of PaaS in Compliance Classification – Internal Use
As compliance becomes more demanding and expensive, financial institutions are looking for
smarter ways to manage regulations. One growing solution is Platform-as-a-Service (PaaS), a cloud-based system that helps banks simplify compliance without the need for costly in-house
infrastructure.
PaaS enables banks to integrate and automate key compliance tasks, making processes more
efficient. While banks remain responsible for regulatory obligations, these platforms provide
advanced tools and real-time monitoring, ensuring compliance is handled smoothly and effectively.
PaaS solutions help banks streamline compliance by digitising customer onboarding, monitoring
transactions, tracking risks, and automating regulatory reporting; all within a single system. This
reduces manual work, minimises errors, and keeps banks up to date with changing regulations.
Beyond simplifying operations, PaaS offers scalability, allowing banks to adjust quickly to new
compliance requirements without expensive system upgrades. It also strengthens data security,
ensuring sensitive financial information is protected. As compliance demands increase, adopting
PaaS can help banks operate efficiently, cut costs, and stay focused on growth while meeting
regulatory standards.
A Strategic Approach to Compliance
Outsourcing compliance does not mean losing control. It allows financial institutions to adhere to
regulations more efficiently while keeping their focus on core operations. With tight profit margins
and the need for innovation, banks must find ways to streamline compliance while maintaining integrity.
For many banks in Southern Africa, the question is no longer whether they should adopt a platform-based compliance solution, but when. As regulations become stricter and deadlines approach, institutions must evaluate whether their current systems are effective or if new approaches are needed to stay ahead.
Compliance is constantly evolving.
Regulations change, financial products evolve, and digital banking continues to reshape the financial industry. Banks that adapt, whether through automation, outsourcing, or integrated platforms, will be better equipped to handle regulatory challenges, reduce costs, and remain competitive in an increasingly demanding industry.
By Richard Kadiaka, Regional Managing Director at Network International, Southern
Africa