The South African banking and finance landscape is continually evolving, driven by changing regulations as well as emerging trends. Recent amendments to the Financial Intelligence Centre Act, 2001 ("FICA") have brought about new obligations that trustees operating within the sector must be aware of. The changes to FICA (defining accountable institutions), effective from December 19, 2022, aim to enhance compliance and combat money laundering, the financing of terrorism and the proliferation of weapons of mass destruction. This was ahead of the grey-listing of South Africa by the Financial Action Task Force ("FATF") in February 2023.
In terms of the amendments, a person who carries on the business of preparing for or carrying out financial transactions (including as a trustee) related to investments, their safekeeping, control or administering of trust property within the meaning of the Trust Property Control Act,1988 ("Trust Act") is now an accountable institution in terms of Schedule 1 to FICA.
"Trust property" is defined in the Trust Act as movable or immovable property, and includes contingent property interests, which in accordance with the provisions of a trust instrument are to controlled by a trustee.
The FIC issued draft PCC 6A on 15 December 2022 ("Draft PCC") explaining what would constitute a trust and company service provider ("TCSP"). According to the Draft PCC "business", as used in Schedule 1 to FICA, is that of a commercial activity or institution, as opposed to a charitable undertaking or government institution. It follows that persons who are appointed as providing TCSP functions on an occasional basis, or who perform this function in a personal capacity, as opposed to doing so on a commercial basis as a regular feature of their business for clients are not required to be registered as a TCSP and would not constitute accountable institutions.
FICA places various obligations on accountable institutions, such as TCSPs. These include the obligation to:
- register as an accountable institution with the Financial Intelligence Centre ("FIC");
- formulate and implement a Risk Management and Compliance Programme ("RMCP");
- train employees;
- identify and verify new clients;
- ongoing due diligence in respect of existing clients;
- keep records of the identities of clients and transactions entered into with clients;
- sanction screening; and
- report certain transactions to the FIC.
A question for consideration is whether individual trustees can/must appoint a compliance officer and whether this role can be outsourced.
There is no grace period for compliance. In a letter released on 29 March 2023, the FIC warns that the period for registration of new accountable institutions, such as TCSPs, has closed and it has come to the FIC's attention that not all identified accountable institutions in designated sectors have as yet registered with the FIC as required. The FIC warns that accountable institutions that have not yet registered with the FIC in respect of all the items in which they conduct business, are currently non-compliant with FICA and are required to immediately register with the FIC to avoid attracting increasing administration sanctions for non-compliance and late registration.
Non-compliance with FICA can lead to hefty penalties, including imprisonment for a period not exceeding 15 years or a fine not exceeding ZAR100 million.
In addition to the amendments to FICA, the General Laws (Anti-money Laundering And Combating Terrorism Financing) Amendment Act, 2022 ("Amendment Act") has amended the Trust Act.
The amendments to the Trust Act, which commenced on 1 April 2023, now include:
- new requirements on trustees to:
- establish and record the beneficial ownership of the trust;
- keep a record of the prescribed information relating to the beneficial owners of the trust? and
- lodge a register of the prescribed information on the beneficial owners of the trust with the Master's Office.
- maintenance of a register containing information relating to beneficial ownership of trusts by the Master; and
- that the trustee/Master must make this information available to prescribed persons.
Trustees must be diligent in understanding and fulfilling their regulatory responsibilities to ensure adherence to FICA, its RMCP and the Trust Act. By embracing these obligations, trustees can contribute to maintaining transparency, mitigating money laundering, the financing of terrorism and the proliferation of weapons of mass destruction and eventually getting South Africa off the FATF's grey-list.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.