Auditors as trust and company service providers

Since the amended Schedule 1 of the Financial Intelligence Centre Act, 2001 (FIC Act of 2001) became effective, many questions have arisen in practice regarding its interpretation. The FIC has now issued a Public Compliance Communication to provide more clarity and guidance on which entities need to register as accountable institutions. It is of critical importance that practitioners understand and implement this as a matter of urgency, as there are penalties for late registration.

Definition of trust and company service providers (TCSPs)

The list of accountable institutions contained in the amended Schedule 1 of the FIC Act, as published in the Government Gazette No. 47596, dated 29 November 2022, includes several amended and new categories of entities. The category that impacts accounting and auditing firms the most is TCSPs. Schedule 1 of the FIC Act defines a TCSP as follows:

‘2. (a) A person who carries on the business of preparing for, or carrying out, transactions for a client, where–

(i) the client is assisted in the planning or execution of –

(aa) the organisation of contributions necessary for the creation, operation or management of a company, or of an external company or of a foreign company, as defined in the Companies Act, 2008 (Act 71 of 2008)
(bb) the creation, operation or management of a company, or of an external company or of a foreign company, as defined in the Companies Act, 2008; or
(cc) the operation or management of a close corporation, as defined in the Close Corporations Act, 1984 (Act 69 of 1984)

(b) A person who carries on the business of –

(i) acting for a client as a nominee as defined in the Companies Act, 2008; or
(ii) arranging for another person to act for a client as such a nominee

(c) A person who carries on the business of creating a trust arrangement for a client
(d) A person who carries on the business of preparing for, or carrying out transactions (including as a trustee) related to the investment, safekeeping, control or administering of trust property within the meaning of the Trust Property Control Act, 1988 (Act 57 of 1988).’

Persons

Public Compliance Communication No. 6A (PCC No. 6A), issued by FIC, clarifies the following:

1. Persons providing TCSP services in a personal capacity are not required to be registered as a TCSP. Only doing so on a commercial basis as a feature of their business for clients qualifies for registration.

2. A trustee, in terms of item 2(d), relates only to when the trust services activity performed by a person is done as part of a business undertaking, and not when a trustee is acting in their personal capacity.

3. Persons performing a TCSP activity as an employee for their employer’s legal structure would not be considered to be providing a service to a client.

Companies

The terminology used in item 2(a)(i) – ‘preparing for’, ‘carrying out’, ‘assisted’, ‘planning’, ‘execution’, ‘creation’, ‘operation’ and ‘management’ – are clarified in PCC No. 6A.

1. ‘Creation’ may include assisting a client with registering a company with CIPC, advising on legal requirements in this regard, drafting documentation for registration, and any form of secretarial service or facilitation of the registration process.
2.  ‘Operation’ of a company entails assisting with the ongoing operations of the client.
3. ‘Management’ includes performing an active role, or making decisions for the client’s business, i.e. steering the direction of the client’s operations or business.

It is further clarified that ‘operation’ and ‘management’ do not include:

1. Activities solely relating to recording or capturing company data/information, including book-keeping functions
2.  Administrative submissions of information or data, such as filing of tax returns
3.  Activities that are not decision-making within the client’s business activities
4.  Activities that do not steer, impact or influence the client’s business operations
5.  Fulfilling the statutory function of liquidator or business rescue practitioner.

Trusts

PCC No. 6A defines a ‘nominee’ as a person approved to act as a holder of securities or ownership interest in the entity on behalf of other persons.

  • When a TCSP acts as nominee for an entity, the entity is deemed to be their client. When a TCSP arranges for a nominee to act on their client’s behalf, both the client and person acting as nominee are the TCSP’s client. This could include instances where the TCSP acts as intermediary.
  • The term, ‘nominee’, does not apply where an entity provides custodial services as required by law on behalf of a financial services provider.

Nominees

Per PCC No. 6A, ‘trusts’ include trusts created between parties (inter vivos), and include both local and foreign trusts.

Trusts excluded from the TCSP definition are trusts created by:

  1. Testamentary disposition
  2. Court order
  3. Person under curatorship
  4. Trustees of a retirement fund, in respect of benefits payable to beneficiaries of that retirement fund.

In summary

Your firm may be required to register as an accountable institution, due to services provided falling within the definition of a TCSP. As the amendments are already effective and late registration penalties are charged, it is critical to analyse services provided and register as an accountable institution, if necessary, without delay.

LEAF can assist firms with technical consultations, and staff training on the relevant requirements and procedures.

References

1. FIC: Public Compliance Communication No. 6A, Guidance on trust and company service providers as item 2 in schedule 1 of the Financial Intelligence Centre Act, 2001 (Act 38 of 2001)
2. FIC: Government Notice No. 2800 issued in Government Gazette No. 47596, amending Schedules 1, 2 and 3 to the FIC Act, 2001.

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