How amendments to the Trust Property Control Act and Regulations impact fiduciary service providers
Significant amendments to the Trust Property Control Act (TPCA) and Regulations introduced several new compliance obligations for trustees on 1 April of this year. Surprisingly, many fiduciary service providers are still unaware of these legislative changes, never mind the profound implications they have on their roles as trustees. In this article, we delve into these amendments and examine how they impact the administration of trusts.
Why was the Act amended?
The legislative updates to the TPCA came off the back of the amendments made to the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act (GLAA). The GLAA, which was gazetted towards the end of last year, was introduced by the government to prevent South Africa from being placed on the greylist of the Financial Action Task Force (FATF), an international financial crimes watchdog. However, despite these amendments, the country was placed on the greylist in February of this year.
The GLAA’s primary objective is to give anti-money laundering (AML), combatting the financing of terrorism (CFT) and countering proliferation financing (CPF) legislation, including the TPCA, more teeth. The amendments to the TPCA aim to prevent the misuse of trusts and ensure that authorities have access to accurate and timely information regarding trust control.
What amendments were made?
The TPCA's legislative revisions introduced new provisions aimed at enhancing transparency, especially focusing on disclosing and keeping record of the identities of the beneficial owners of trusts.
Beneficial ownership, according to the TPCA, includes the founders, trustees, named beneficiaries and any individuals who exercise effective control of any trust. A beneficial owner is always a natural person. If a legal entity assumes the role of a beneficial owner, the natural person (or persons) who ultimately benefits from the legal entity must be documented as the trust's beneficial owner.
Regarding the newly imposed obligations on the Master of the High Court through the amendments, they are now required to maintain and regularly update a publicly accessible register of disqualified trustees. The Master must also maintain an electronic register of the beneficial owners of trusts, allowing trustees to submit, update and upload documents to this register. Only relevant trustees can access their information on this register. Both registers require secure protection.
The revisions also impose important obligations on trustees. Trustees that use accountable institutions as agents to perform trustee-related service or duties relating to the trust property must record information about the accountable institution, for instance, the institution's name; registration number or identification or passport number (if it’s a natural person); all business transactions; and, if applicable, the nature of the accountable institutions’ functions and services.
Trustees must record information for each beneficial owner, including minors, such as personal details, tax numbers, dates of becoming or ceasing as beneficial owners, and so forth. Trustees must also keep a certified copy of the beneficial owners’ official ID or passport. And they are required to add this information to the Master’s online register of beneficial owners.
When required, both the Master and trustees must share beneficial ownership information with law enforcement agencies and regulatory bodies to aid investigations into possible money laundering, terrorist financing or proliferation financing activities. However, specific procedural requirements must be met before divulging this information.
In addition, Schedule 1 of the Financial Intelligence Centre Act (FICA) was amended by Government Notice 2800. These amendments came into effect on 19 December 2022. Previously, Item 2 in the schedule referred to boards of executors, trust companies, and those handling trust property under the Trust Property Control Act. Now, the FIC Act requires that all trust service providers, regardless of their professional accreditation, who assist with certain trust-related activities or duties – for example, they create a trust arrangement for a client or are engaged in transactions related to trust property management – are accountable institutions and are subject to the legal obligations placed on accountable institutions by FICA. An example of this would be accounting firms that offer trust-related services to their clients. (Side note: The trust service provider, not each employee in the business, needs to register with the FIC and comply with all other FICA requirements.)
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How have these changes impacted trust administrators?
As previously mentioned, the TPCA and Regulations amendments have placed several responsibilities on trust service providers, summarised as follows:
These amendments impose significant obligations on trustees, particularly concerning beneficial ownership records and their ongoing accuracy. The term beneficial owner is clearly defined in Section 1 of the Act, but it can create practical challenges in term of reporting. For example, who is the beneficial owner of a trust that owns a company, which, in turn, is owned by 10 individuals? In addition, the beneficial ownership of such a structure can change on an ongoing basis, and there are no guidelines on how often accountable institutions should report on changes in beneficial ownership.
For businesses, the situation becomes even more intricate. For instance, major banks that administer numerous trusts must report on each one individually. There is also uncertainty about the extent of reporting for trusts that own shares in a company, which, in turn, owns shares in other companies. Legally, if all shareholders within this corporate structure meet the definition of a beneficial owner, each one must be reported. In practice, this will be a highly labour-intensive task.
Hefty penalties for non-compliance
While these amendments have introduced complex compliance obligations for fiduciary service providers, it is imperative for trustees to diligently comply with them and fulfil their newly assigned responsibilities.
Failing to do so can result in significant penalties, including fines of up to R10 million, imprisonment for a maximum of five years, or both.
For more information on how Masthead can assist you with becoming FICA compliant, click here to contact the regional office closest to you. ?
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