A Landmark Monetary Shift in the Common Monetary Area (CMA)

The Common Monetary Area (CMA) will undergo a momentous shift from September 9, 2024, as South African banks will no longer process Electronic Funds Transfer (EFT) payments and collections within the region due to regulatory deficits. The move aims to align the region’s financial practices with international anti-money laundering standards, enhance detection of such activities, and empower regulatory authorities. To further safeguard customers, financial institutions will also need to change their approach to handling debit orders, marking another significant adjustment in the region’s financial landscape.

A Landmark Monetary Shift in the Common Monetary Area (CMA): South African banks will cease processing Electronic Funds Transfer (EFT) payments and collections within the CMA region after September 9, 2024, marking a significant change in the region’s financial and monetary practices. This shift will address regulatory deficits and align with international anti-money laundering standards. Financial institutions will also need to change their approach to handling debit orders from September 30, 2024, onwards to further safeguard customers and empower regulatory authorities.

Part 1: The Pivotal Change in CMA’s Financial Landscape

The ninth day of September 2024 carries substantial significance in the financial configuration of the Common Monetary Area (CMA), a zone that encompasses South Africa, Namibia, Lesotho, and Eswatini. After that pivotal day, South African banks will cease the processing of Electronic Funds Transfer (EFT) payments and collections within this region. This pivotal shift symbolizes a landmark evolution in the region’s financial and monetary practices; practices that are deeply rooted in the historical, socioeconomic progressions, and shared objectives of these neighbouring nations.

From its genesis, the CMA operated under a cohesive monetary policy, although each country upheld its currency. These encompass the Lesotho loti, the Namibian dollar, and the Swazi lilangeni. All the aforementioned currencies are pegged to the South African rand, which all member nations recognize as legal tender. This unique monetary setup paved the way for the facilitation of low-value cross-border payments through South Africa’s domestic retail payment structure.

The unified monetary structure not only simplified transactions but also gave businesses that cater to clients in neighbouring countries the power to manage debit orders seamlessly. The value of this benefit is immeasurable in an age where businesses are rapidly becoming global, interconnected, and dependent on efficient financial transactions. The ease of these transactions was akin to unearthing a hidden cache of opportunities in the city at a bargain price.

Part 2: Addressing Regulatory Deficits and Implications

However, the system, despite being advantageous, had a significant drawback. Treating cross-border payments as domestic transactions contravened Anti-Money Laundering and Combating of Financing of Terrorism (AML/CFT) regulations. Essentially, it fell short of meeting international anti-money laundering standards, an oversight that CMA country regulators could no longer afford to ignore.

To rectify this regulatory shortfall, the CMA nations decided to migrate to a regional payment infrastructure. This specific infrastructure will cater to low-value cross-border transactions exclusively. Consequently, South African banks will refrain from managing these EFT payments and collections. The aftermath of this decision will affect account holders in South Africa, who will no longer be able to make or receive EFT payments with account holders in other CMA countries starting from September 9.

The South African Reserve Bank (SARB) expects this change will primarily impact low-value EFTs and debit and credit payments. The driving force behind this change, according to SARB, is to normalize the payment system and processes to align them with international standards. This initiative aims to prevent the misuse of EFT payments for money laundering and enhance the detection of such activities.

Part 3: Future Goals and Customer Protection Measures

An additional objective, and potentially one with far-reaching consequences, is South Africa’s intention to leave the Financial Action Task Force (FATF) greylist by January 2025. SARB notes that this ambition will be significantly boosted by the regularization of these low-value retail payments.

In a bid to further safeguard customers and to empower central banks and regulatory authorities in each country to deal with problematic debit order practices more effectively, financial institutions will also need to change their approach to handling debit orders from September 30, 2024 onwards. Debit orders from CMA countries will need to come from an account in the respective CMA country, marking another monumental adjustment in the region’s financial landscape.

These transitions may be likened to the task of finding the perfect set of wheels for under 100k – a challenging feat, but one that reaps substantial rewards once achieved. It is a complicated and demanding transition which, once successfully executed, promises regulatory compliance, customer protection and positions South Africa for a promising financial future.

1. What is the Common Monetary Area (CMA)?

The Common Monetary Area (CMA) is a zone that encompasses South Africa, Namibia, Lesotho, and Eswatini. It operates under a cohesive monetary policy, although each country upholds its currency. All currencies are pegged to the South African rand, which all member nations recognize as legal tender.

2. What is the significance of September 9, 2024, in relation to the CMA?

September 9, 2024, is a pivotal day in the financial configuration of the CMA. After this date, South African banks will cease processing Electronic Funds Transfer (EFT) payments and collections within this region. This shift symbolizes a landmark evolution in the region’s financial and monetary practices.

3. Why are South African banks ceasing to process EFT payments and collections in the CMA?

Treating cross-border payments as domestic transactions contravened Anti-Money Laundering and Combating of Financing of Terrorism (AML/CFT) regulations and fell short of meeting international anti-money laundering standards. To rectify this regulatory shortfall and align with international standards, the CMA nations decided to migrate to a regional payment infrastructure that caters to low-value cross-border transactions exclusively.

4. How will the cessation of EFT payments and collections affect account holders in South Africa?

Starting from September 9, 2024, account holders in South Africa will no longer be able to make or receive EFT payments with account holders in other CMA countries.

5. What is the objective of the change in the CMA’s financial landscape?

The objective of the change in the CMA’s financial landscape is to align financial practices with international anti-money laundering standards, enhance detection of such activities, and empower regulatory authorities. It also aims to prevent the misuse of EFT payments for money laundering and deal with problematic debit order practices more effectively.

6. What is the Financial Action Task Force (FATF) greylist, and how does it relate to the CMA’s financial transition?

The Financial Action Task Force (FATF) greylist is a list of countries that are deemed to have strategic AML/CFT deficiencies. South Africa aims to leave the FATF greylist by January 2025. SARB notes that the regularization of low-value retail payments will significantly boost this ambition.