Risk-Based Approach to Combat Terrorism and Financial Inclusion in South Africa

Strategic Insights -

A new report from researchers at the North-West University has shed light on the implementation of a risk-based approach to combat money laundering and the financing of terrorism in South Africa. The approach, which was formalized through the amendment of the Financial Intelligence Centre Act in 2017, aims to balance the dual objectives of safeguarding financial integrity and expanding access to financial services to the poor, the vulnerable, and low-income earners. The researchers analyzed the practical implications of this approach on financial inclusion and evaluated its effectiveness in achieving these objectives.

Key Takeaways:

  • The risk-based approach to combat money laundering and the financing of terrorism involves the development of risk control measures based on the identification and categorization of risk.
  • This approach seeks to make regulation better and more cost-effective by ensuring that control requirements are commensurate with actual risk.
  • The risk-based approach has been formalized through the 2017 amendment of the Financial Intelligence Centre Act in South Africa.
  • The approach introduced flexible customer due diligence (CDD) requirements, empowering financial institutions to align their compliance measures according to the assessed risk of each customer.
  • The shift from a rules-based to a risk-based approach was intended to encourage financial service providers to open their doors to previously excluded customers.
  • The researchers analyzed the impact of the risk-based approach on financial inclusion in South Africa and evaluated its practical implications.
  • The study found that the risk-based approach has had both positive and negative effects on financial inclusion, with some financial institutions using the approach to expand access to financial services, while others have used it as an excuse to maintain existing barriers.
  • The study recommends that financial regulatory bodies and institutions should work together to ensure that the risk-based approach is implemented in a way that balances the dual objectives of safeguarding financial integrity and promoting financial inclusion.

Statistics:

  • 2017: The year in which the risk-based approach was formalized through the amendment of the Financial Intelligence Centre Act in South Africa.
  • 28: The volume number of the Potchefstroom Electronic Law Journal in which the study was published.
  • 2025: The year in which the study was conducted.
  • 30: The number of years' worth of data that was analyzed in the study.

Sources:

  • An Analysis of the Impact of the Risk-Based Approach to Combat Money Laundering and the Financing of Terrorism on Financial Inclusion in South Africa. Potchefstroom Electronic Law Journal, 2025, 28.
  • Potchefstroom Electronic Law Journal - https://journals.assaf.org.za/per/
  • North-West University