Concern grow over end to low-value EFT
TEBOHO KHATEBE MOLEFI
MASERU – The decision for South African banks to stop processing electronic funds transfer (EFT) payments and collections within the Common Monetary Area (CMA) continues to court controversy among stakeholders.
The CMA Cross-Border Oversight Committee made the decision early this year to stop cross-border low-value EFT and starting Monday, September 9 South African banks no longer process EFT payments within the CMA, which includes South Africa, Namibia, Lesotho, and eSwatini.
CMA links these regional neighbours into a monetary union where a single monetary policy prevails, and the South African Rand, the union’s single currency, is legal tender throughout all CMA members with the Lesotho Loti, Namibian Dollar and the Swazi Lilangeni pegged to the Rand – though all countries inside the CMA have a right to their national currencies.
The arrangement has for years worked well and made transactions easy, including allowing companies to use debit orders to serve clients in neighbouring countries.
The agreement further gave Namibia, Lesotho, and eSwatini access to the South African financial markets while also enabling and simplifying cross-border electronic funds transfers without using systems like SWIFT.
The monetary union has during this time seen low-value cross-border payments within the CMA countries processed through South Africa’s domestic retail payment system until the decision to stop the practice.
However, treating cross-border payments as domestic transactions was faulted for not being compliant with money laundering laws, and was found to be violating international Anti-Money Laundering and Combating of Financing of Terrorism standards – resulting in regulators in CMA countries effecting changes.
Following widespread opposition to these developments by stakeholders, EcowaSadcSynergies (ESS) has added its voice to the chorus and thrown its weight behind local advocacy-based organisation, Section 2, regarding this issue that potentially seeks to disturb the regional integration process within the CMA.
Established in 2019, EcowaSadcSynergies is a media project borne out of media expertise covering ECOWAS and SADC regions and their institutions, and has its headquarters in Accra, Ghana.
ESS has offered its full support behind Section 2’s September 3 statement of concern over the decision by the CMA regulators and called on all CMA member states to immediately-engage the SADC Secretariat to help establish a consumer protection agency for the SADC/SACU/CMA regions, adding that “COMESA is one of the African regional economic communities touted world-wide as having significant best practice in this respect. COMESA’s Competition Commission offers much best practice worthy of emulation.”
It further believes consumer protection agencies and Chambers of Commerce within the CMA countries must immediately convene emergency meetings to assess the impact of recent decisions on citizens and businesses operating in the CMA zone.
The ESS has recommended for member states party to the AfCFTA to also consider calling on their respective central banks to strongly consider joining the Pan-African Payment Settlement Systems (PAPSS) so as to continue enjoying SWIFT-free cross-border transactions.
For EcowaSadcSynergies’ part, the group says, if it is true that PAPSS remains one of the operational successes of trading under AfCFTA, then it remains true that PAPSS must undertake consistent sensitisation of its products to help enhance ECOWAS-SADC synergies for AfCFTA operationalisation – and the continuous deepening of regional integration consistent with the seven aspirations of Agenda 2063.
While Section 2 had recognised the importance of enhancing compliance with international Anti-Money Laundering and Combating the Financing of Terrorism standards leading to the decision to stop processing EFT payments and collections, the advocacy group declared in their September 3 statement that this drastic measure undermines regional integration and imposes undue hardship on the people of Lesotho and other CMA countries.
They highlighted that the CMA was established to foster economic co-operation and financial integration among its member states, and that to treat cross-border payments as foreign transactions, requiring the use of the SWIFT system, runs counter to the spirit of this regional co-operation.
“By imposing greater barriers to financial transactions within the CMA, this change threatens to erode the economic ties that bind our countries together.
Moreover, the shift to a system that inherently treats intra-CMA transactions as cross-border payments risks undermining the very foundation of the CMA.
It is essential that any regulatory changes respect the unique status of the CMA as a monetary union, where financial flows have traditionally been facilitated by a shared commitment to regional integration,” Section 2 said in the statement.
This regulatory shift is particularly concerning for the hundreds of thousands of Basotho workers employed in South Africa and other CMA countries who rely on EFT payments to send their earnings back home.
Many of these workers maintain bank accounts in Lesotho, into which their salaries are directly deposited from South African employers, the group pointed out.
They added that discontinuation of EFT payments will now force these workers to navigate the complexities of the SWIFT system, which is not only more time-consuming but also costlier, and that “this will result in significant delays in the receipt of funds, which are often used to support families in Lesotho who are already struggling with the economic challenges of unemployment and food insecurity.”
Section 2 argued that the new requirements will place an additional financial burden on these workers, who must now pay higher fees associated with international transactions.
This runs counter to the principles of economic justice and fairness, as it disproportionately affects the most vulnerable members of our society who can least afford it.
They urged for the adoption of a more nuanced approach that distinguishes between high-risk and low-risk transactions, allowing for the continued use of EFT payments within the CMA for legitimate, low-value transactions.
The group demanded that the Central Banks of the CMA countries, particularly the Central Bank of Lesotho, should suspend this transition plan immediately.
“We call for a comprehensive review of the decision-making process that led to this situation, with a focus on transparency, accountability, and public consultation.
“The people of the CMA deserve to be heard, and their needs must be prioritised over the interests of financial regulators and institutions,” says the statement.
The advocacy group called for the immediate suspension of the transition plan for focus to be put on people-centered solutions and accountability for such decisions. It also states that central banks of the CMA must provide detailed accounts of how this decision was reached, including the consideration of alternatives and the rationale for dismissing them.
“The public deserves to know why their needs are being sacrificed in the name of regulatory compliance.”
The South African Reserve Bank (SARB) explained ahead of these changes that the change will affect low-value EFTs which will begin to be treated as cross-border transactions and subject to greater due diligence requirements.
“Our payment system and processes must be regularised to enhance compliance with international standards,” the Reserve Bank said, adding that doing so will prevent criminals from easily accessing EFT payments to launder funds and ensure that this misuse can be identified more effectively when it occurs.
The SARB said it would strengthen South Africa’s anti-money laundering, counter the financing of terrorism, and combat the proliferation financing regime.
Banks operating in the CMA have also elected to process these low-value retail payments using the regional payments infrastructure.
This infrastructure includes the Southern African Development Community real-time gross settlement system, which is primarily used for high-value payments.
In May the Bankers Association of Lesotho announced that cross-border collections will be prohibited and foreign entities that have presence in Lesotho must be collected via Lesotho counterparts, irrespective of whether the creditor commercial agreement is between the foreign collectors or entity and Lesotho customer.
“Foreign collectors or entities without a presence in Lesotho are urged to open bank accounts in Lesotho to collect all debit orders in line with the current Lesotho EFT payments Clearing House Rules.”
