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Gary Davids

Investment Analyst

As has been widely reported in the media recently, it now seems inevitable that South Africa will be included on the greylist of the Financial Action Task Force (FATF) early next year. If this does happen, what will be the impact on our economy, and on investments? Or has the possibility of greylisting already been ‘priced in’ by financial markets?


The FATF is an intergovernmental watchdog that helps formulate policy to control the flow of money globally while stamping out organised crime. The organisation works to generate the political will to bring about national legislative reforms to combat money laundering and terrorist financing.

The FATF maintains two public lists of countries with weak anti-money laundering (AML) and counter financing of terrorism (CFT) regimes:

  • ‘Jurisdictions under increased monitoring’ that ‘are actively working with the FATF to address strategic deficiencies in their regimes’ – the so-called greylist
  • ‘High-risk jurisdictions subject to a call for action’ that are not actively engaging with the FATF to address these deficiencies – known as the blacklist.

Countries on the FATF greylist are those that have committed to swiftly resolving identified strategic deficiencies within agreed time frames while being subject to increased monitoring. There are currently only two countries on the FATF blacklist: Iran and North Korea.

South Africa has been subject to a 12-month observation period by the FATF that will end this month, after which a post-observation report will be compiled. Failure to demonstrate sufficient progress in addressing the issues highlighted by the FATF will result in South Africa being moved onto the greylist at the next FATF International Co-operation Review Group (ICRG) meeting in February 2023.


The FATF doesn’t impose any direct obligations on its members to act against greylisted countries. Members are, however, asked to take the FATF assessment into account in their risk analysis or due diligence before conducting business in a greylisted country. The European Union has directed its member countries to ensure that relevant institutions apply enhanced due diligence to high-risk countries, which includes those on the greylist. A similar ruling has been introduced in the UK.

The most recent FATF Mutual Evaluation Report on South Africa found that our large local banks are relatively more developed in terms of their money-laundering risk and mitigation measures, while smaller financial institutions outside the banking sector are problematic. The report cited concern about state capture and corruption, which were highlighted as key threats, as was a lack of progress on South Africa’s ability to bring criminals to book.


Being greylisted carries with it reputational risk – it signals to investors that a country is at risk of being exposed to money laundering and terrorist financing. If South Africa is greylisted, it would have negative consequences for the local economy, although estimating the extent of the impact is difficult and depends on how quickly the country can meet the FATF requirements for being taken off the list. It has taken other greylisted countries on average two years to be removed. For example, Mauritius was on the list for 20 months, and was removed only after an extensive and committed campaign to meet the FATF requirements.


In general, the implications for South Africa of being greylisted include:

  • A strain on relationships with foreign banks and investors, who may reallocate resources to reduce exposure to a country deemed riskier than anticipated. This could lead to capital and trade outflows for South African companies. Enhanced monitoring and due diligence of local businesses will increase the cost of doing business with these companies.
  • Increased costs to ensure compliance with the FATF requirements. Failure to address inadequacies will result in fines for financial institutions by the South African Reserve Bank, and increased spend will be required to ensure compliance.


In our view, the inevitability of South Africa being greylisted early next year has been largely priced in by local equity and bond markets. We don’t view it as being much worse than a credit ratings downgrade – investors are already aware of the local political and macro environment as well as the perceived risks of doing business in South Africa, including the associated costs.

While greylisting may have a negative impact on local gross domestic product and capital flows, what is in our view more important is the progress South Africa demonstrates and the country’s commitment to meeting the FATF requirements for being removed from the list. We need to take swift action as a country – a prolonged greylist tenure would be more detrimental than the initial inclusion.

We provide daily reporting of trades, monthly portfolio evaluations and annual tax reports to clients.

Riaan Gerber has spent 13 years in Investment Management.

Riaan Gerber

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