Monday, 25 June 2012

FICA: a bureaucratic, tick-box slog

The primary intention of introducing the Financial Intelligence Centre Act ("FICA") was to prevent money laundering and combat terrorism related activity. Well, that was the benefit for government, and logically it should follow, society.

FICA is now an accepted piece of legislation and a concept most are familiar with. Speaking sometime after the fact, I feel it may be time to refine the implementation of FICA and consider introducing technology to alleviate the burden currently placed on consumers.

Regrettably, the position has not changed significantly since the aptly titled Mail and Guardian article “Fica’d to death” in 2006.  As you will probably glean from the article’s title, it discusses implementation costs and difficulty when FICA was a relatively new piece of law and everyone was asking - what the hell is FICA?

The director of the Financial Intelligence Centre (“FIC”) at the time noted that FICA gave many an opportunity to be “creative”.  In my view, FICA has predominantly become a bureaucratic, tick-box slog with the onus squarely placed on the often frustrated consumer. Creativity is a word far removed from the diction of most Accountable Institutions and the calls by the director of FIC at the time appear to have fallen on deaf ears.

An example of the FICA inefficiency and thoughtless implementation (a microcosm of our society?) is illustrated by the banking sector.  Notwithstanding the fact that a client may already have “FICA’d” themselves with a banking institution, a change in residential address or application for a new product will often negate the original process and render one starting from scratch.  An application for a child’s savings account may also involve the dreaded four letter word.

Some of our larger banks are really struggling with practical solutions for FICA and this after an estimated 750 – 800 million Rands were spent on its implementation.  A typical example involves staff who invoke their own personal interpretation of FICA, endless forms, mind-numbing inefficiency and a myriad of hoops for a regular customer to jump through.

By way of example, a colleague runs a cheque account and a credit card facility with Standard Bank. She has “FICA’d” her account on three occasions at two separate branches and recently had all of her accounts frozen when Standard Bank did not appear to realise this. They have all of her contact numbers (and physical address details) and I am told that not once did anyone bother to pick up the phone or contact her.  An irritated hour in a branch and three phone calls later and the issue was resolved and an apology extended.

How can a bank conduct itself like this?  The penalties imposed by FICA are stiff, bordering ludicrous, but a more pragmatic approach must be considered where the Accountable Institution bears more of the cost and burden and makes FICA more “user-friendly”.

Comparatively, and in summary, the United Kingdom and United States adopt a more lenient approach and did not require existing customers to retrospectively identify themselves (as opposed to FICA). Certain categories of accounts (potentially high risk or abnormal transaction loads) are treated differently to the ordinary Joe in the street’s account and a far more pragmatic attitude is adopted when dealing with money laundering legislation. We can learn a lot from this approach.

I do not profess to have all the answers, but surely statistical analysis will reveal what the average banking account processes in a month? If this is so, then a monetary or transactional threshold can be created where “high-risk” or “abnormal activity” accounts can be flagged and verified or re-verified.

The more “run-of-the-mill” account should be subject to a far lower standard of care and verification of the account in the first instance should be enough, unless there are reasonable grounds to believe otherwise.  These sorts of discussions should be taking place and refinements to the legislation must be considered - particularly its practical implementation and what this means for the average customer.

Somewhat unrealistic in the short term, but a system such as SARS E-Filing should be adopted or at least debated amongst all key stakeholders.  Here, consumers can electronically send all required documents and do so in a secure and efficient environment.  Technology is tearing forward and the legal industry (attached at the hip to the banking industry in this example) must keep pace, or at least attempt to do so.

Our banking industry generates enormous profit and it is time the industry realised that this profit stream will be eroded if the customer continues to pay the price for poor implementation and substandard service.

A search on google reveals that the issues described above are not unique nor are they restricted to one type of Accountable Institution. For the academics, a useful insight into cost-benefit of regulation in South African banking can be found here.   It is time to revisit the practical implementation of FICA and offer some pragmatic, technology driven solutions.