Access to Financial Services in South Africa: A brief case study of the effect of the implementation of the Financial Action Task Force Recommendations

This case study highlights the need for appropriate interpretation and implementation of the Financial Action task Force (FATF) recommendations in developing and middle income countries using the example of South Africa. The study states that:

• South Africa implemented the FATF recommendations in June, 2003;
• In line with international practice, financial institutions were required to obtain and verify the residential address of a client before entering into a business relationship:
  • This has not been possible because most people live in informal dwellings;
  • They lack the documents to verify their residential addresses.
• Despite the presence of a large immigrant community, remittances are low;
• There is an informal cash remittances sector;
• Most poor South Africans operate in informal cash based economy.

The study concludes with recommendations for reducing the contradictions between the need to include the poor in the formal financial sector, and more effective FATF outcomes:

• Implementation should be country sensitive. A cost-benefit analysis should be done before legislation is passed;
• An international yardstick should be designed to enable developing countries to follow a risk-based approach for those who are financially and socially vulnerable;
• Provision of low-cost, user-friendly products that require minimal administration will coax users of informal financial services to use formal services;
• Developing and middle income countries could use national identification to identify clients.