Reserve Bank tightens rules on ‘inappropriate’ cross-border banking

The Reserve Bank has issued a directive to the banking sector to cease executing low-value transactions within the Common Monetary Area (CMA) through “inappropriate” systems by March 2027 as part of measures to rein in potential money laundering.

The directive issued by the bank last week is geared towards efforts to get SA removed from the Financial Action Task Force’s (FATF) grey list.

Low-value transactions are categorised as transfers of cash valued at no more than R5m.

“The purpose of the directive is to direct settlement system participants that are routing low-value cross-border electronic funds transfer transactions to, and receiving cross-border electronic funds transfer transactions from, the CMA to regularise the execution of the transactions,” reads the directive.

The bank said the transactions are at present executed through “inappropriate systems including the Southern African Development Community (Sadc) real-time gross settlement (Sadc-RTGS) system,” and should be undertaken through an “appropriate retail payment system designed for low-value cross-border electronic funds”.

The Sadc-RTGS system is a regional electronic payment system developed by Sadc member states to settle cross-border transactions more quickly without having to rely on intermediary banks. It is primarily used for high-value payments and those exceeding R5m.

Since its inception in 2013, the system has processed more than 3.2-million transactions valued at more than R12-trillion.

Over the past few years, all four CMA countries — Eswatini, Lesotho, Namibia and SA — processed cross-border payments through SA’s domestic retail payment system, thereby offering a low-cost, effective and efficient payment service to their clients.

However, the payments were treated as domestic transactions in SA and needed to be regularised to comply with FATF recommendations in respect of cross-border payments.

The recommendation by the FATF aims to prevent criminals from having unfettered access to electronic funds transfers (EFTs) for moving funds and to detect such misuse when it occurs.

“To maintain the effectiveness and efficiency of the National Payments System (NPS), all SA participants in the NPS that are or become involved in cross-border payments as indicated herein are obliged to act in accordance with the NPS Act and this directive in particular,” the bank said in the directive.

“Settlement system participants that are routing low-value cross-border EFTs within the CMA through the Sadc-RTGS system are directed to, from the effective date of this directive, start to migrate all low-value cross border electronic funds transfers within the CMA to a regional retail payment system designed for low-value cross-border electronic funds transfers, namely the Transactions Cleared on an Immediate Basis (TCIB) payment scheme.”

According to BankservAfrica, TCIB is a cross-border low-value payment scheme that enables the immediate clearing of single credit “push” transactions, settled on a deferred basis.

The FATF in February said it deems SA to have addressed, or largely addressed, 20 of the 22 action items in its action plan. The remaining two will be addressed in the next reporting period that runs from March to June 2025, enabling the country to be considered for delisting from the FATF grey list in October.

The directive by the bank follows one in September 2024 ordering banks that view low-value EFTs, debit and credit payments made between CMA members be treated as cross-border transactions and subject to greater due-diligence requirements.

Another change is that financial institutions are no longer allowed to debit account holders in other CMA countries as if they were a domestic customer or policyholder.

Debit orders collected from customers’ accounts within the CMA countries will have to be initiated from an account domiciled in the respective country.

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