In a major setback for South Africa, the international financial watchdog, the Financial Action Task Force (FATF), announced on Feb. 24 that it had added the country to its “grey list.” The grey list is a group of countries that are “committed to resolving swiftly the identified strategic deficiencies within agreed timeframes.” The inclusion of South Africa in the list is seen as a major reputational setback for the country, as it potentially makes it difficult for South Africa to obtain loans from foreign banks.
The FATF’s move comes despite South Africa’s efforts to avoid being added to the list. Earlier this year, a South African financial industry regulator designated crypto as a financial product after the FATF reportedly voiced its concerns over the lack of regulation of such assets. However, the South African Reserve Bank (SARB) acknowledged that the country has not done enough to avoid getting grey-listed and vowed to “strengthen its supervision and further enhance the dissuasiveness and proportionality of administrative sanctions issued.”
The SARB also stated that banks and other financial institutions have a role to play in resolving the deficiencies identified by the FATF. It expects banks and other financial institutions within its purview to comply fully with all their obligations and applies a high standard of supervision that is necessary to safeguard and protect the integrity of the financial system. These actions, when coupled with measures and actions undertaken by law enforcement and other authorities within South Africa, serve to achieve an effective anti-money laundering (AML)/combating the financing of terrorism (CFT)/counter-proliferation financing (CPF) system.
Being on the FATF’s grey list could potentially make it hard for South Africa to secure loans from foreign banks perturbed by the watchdog’s move. According to a Reuters report, countries on this list will sometimes see the flow of capital into their respective economies getting disrupted. An International Monetary Fund document from 2021 also suggested that this could be the case.
The FATF’s move is a major setback for South Africa, as it could potentially make it difficult for the country to secure loans from foreign banks. The FATF’s decision is likely to have a significant impact on the flow of capital into the South African economy, as countries on the grey list often see their capital flows disrupted. The South African Reserve Bank has acknowledged the country’s shortcomings and has vowed to “strengthen its supervision and further enhance the dissuasiveness and proportionality of administrative sanctions issued.” It has also called on banks and other financial institutions to comply with their obligations and apply a high standard of supervision. Despite these efforts, it remains to be seen if South Africa will be able to avoid the potential disruption to its capital flows.