Financial Compliance

Case Study on Domestic Prominent Influential Persons

The South African Reserve Bank issued a notice on 17 September 2021 that administrative sanctions had been imposed on two life insurers following an investigation that found financial compliance weaknesses in their money laundering control measures. This case study, which forms part of a series, will have a closer look at these sanctions, specifically the section 21G finding, and how the Rahn Financial Compliance Platform can be employed to strengthen anti-money laundering control measures.

Section 21G of the FIC Act

“Domestic prominent influential person“

If an accountable institution determines that a prospective client with whom it engages to establish a business relationship, or the beneficial owner of that prospective client, is a domestic prominent influential person and that, in accordance with its Risk Management and Compliance Programme, the prospective business relationship or single transaction entails higher risk, the institution must—

(a) obtain senior management approval for establishing the business relationship;

(b) take reasonable measures to establish the source of wealth and source of funds of the client; and

(c) conduct enhanced ongoing monitoring of the business relationship.“

Practically what must happen in your Financial Compliance Processes?

To identify Domestic Prominent Influential Persons (DPIPs), organisations typically make use of third-party sanctions listings to identify potential high-risk individuals in their client base. The identification of these individuals typically revolves around a matching system that provides a hit list of potential matches between the sanctions listings and the client base. In order to meet financial compliance requirements, case managers take these hit lists and work through each hit to identify actual hits and separate these from false-positive hits.

Once identified as an actual high-risk hit, the case manager will typically begin the due diligence process whereby all the available information about the hit is collected and compiled into a due diligence report. This report is then submitted to a committee of senior managers within the affected business unit to determine the risk associated with the individual and whether the risk can be accepted or not.

Should the risk be accepted the Accountable Institution is tasked with ongoing monitoring of the business relationship which typically entails periodic reviews of the risk associated with the client through the KYC (know your customer) process.

How does the Rahn Financial Compliance Platform solve for this?

The Rahn Financial Compliance Platform was developed to use the two largest international sanctions listing providers that are currently available. For institutions that only serve the South African market, we developed our own in-house sanctions listing, combining the most prominent listings available. This ensures that the systems can screen a client base no matter the size of the organisation.

The Rahn Financial Compliance Platform was built with the premise of; simplifying and automating the process of identifying, monitoring, and managing financial crime and money laundering risks within any organisation. One of the most common complaints received from Case and Financial Compliance Managers is that the sheer volume of hits that must be cleared simply overwhelms their daily tasks. To solve this Rahn developed a proprietary matching hierarchy that assists Case Managers with identifying the highest risk hits first, and thus applying a truly risk-based approach to working potential hits.

To further assist Case Managers, we apply a ‘hit typography’ that signals the potential treatment of the hit based on predefined matching rules. In using this typography one of the main issues in the identification of hits, namely data quality, can be addressed and presented to data remediation teams in a structured and prioritized approach.

As a result, the Rahn Financial Compliance Platform can accurately identify clients within the client base against the sanctions lists applied and provide Case Managers with a clear path to clearing each hit in a timely and accurate manner. Through the built-in workflow process each level of approval and sign off can be obtained and stored for future reference when required to provide proof of each step in the process.

The workflow was further developed to provide specified notification of ongoing monitoring requirements through periodic review notifications based on the risk allocated to each client through the risk rating process.

Conclusion

When dealing with DPIPs the Act stipulates specific requirements which Accountable Institutions need to comply with. The Rahn Financial Compliance Platform can assist in this through:

Identifying DPIPs at on-boarding, exit and in the active client base.
Developing Risk Ratings for DPIPs to identify potential issues.
Provide detailed data quality remediation reporting.
Ensure Senior Management approval of business relationships through automated workflow processes and storing the required information for future proof of approval.
Data capture capabilities to update due diligence outcomes with source of wealth and source of funds declarations.
Automated periodic reviews to ensure ongoing monitoring of business relationships.