The Financial Intelligence Centre (FIC) has published a guidance on how to interpret Item 2 of Schedule 1 to the Financial Intelligence Centre Act (Fica): a trust and company service provider (TCSP). The guidance also includes examples of the money laundering and terrorist financing risks the sector faces.
Public Compliance Communication 6A takes into consideration the amended definition of Item 2, which, along with the other amendments to Schedule 1, took effect on 19 December 2022. It replaces PCC 6.
A TCSP is a business that helps its clients with the creation, operation, and management of a company, a close corporation, or a trust. A person who performs the activities of a TCSP, regardless of his or her professional accreditation, is an accountable institution and must register as a TCSP with the FIC. TCSPs can include financial institutions, legal professionals, and accountants.
One of the purposes of PCC 6A is to clarify who is and who is not a TCSP. It does this by explaining how the terms used in the Item 2 definition should be understood in the context of Fica.
A TCSP is defined in Item 2 as:
(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–
- 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;
- the creation, operation, or management of a company, or of an external company, or of a foreign company, as defined in the Companies Act; or
- the operation or management of a close corporation, as defined in the Close Corporations Act.
(b) A person who carries on the business of–
- acting for a client as a nominee as defined in the Companies Act; or
- arranging for another person to act for a client such as 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, safe-keeping, control, or administering of trust property within the meaning of the Trust Property Control Act.
TCSP functions must form part of a commercial activity
“A person” includes both natural persons and legal persons.
“Business” means a commercial activity or institution, as opposed to a charitable undertaking or a government institution. Therefore, persons who provide TCSP functions in their personal capacity, as opposed to doing so on a commercial basis as a feature of their business for clients, are not required to register as a TCSP.
An individual who acts as a trustee in his professional capacity will have to register with the FIC if he provides TSCP functions as part of his business, where his business is not conducted through a commercial structure. In other words, where the person is a sole proprietor, the sole proprietor will have to register with the FIC as an individual because there is no differentiation between himself and his business.
A trustee in the context of Item 2 relates only to when the trust services are performed as part of a business undertaking and does not include when a trustee is acting in his or her personal capacity. As such, trustees acting in their personal capacity do not meet the definition of “business”.
An individual who provides TSCP functions, including being a trustee, on an occasional basis does not have to register with the FIC. For example, Jane is a trustee of a family trust. Jane does not have to register with the FIC.
An employee of a TCSP does not have to register
Section 1 of Fica defines a “client” as “a person who has entered into a business relationship or a single transaction with an accountable institution”.
A person who performs a TCSP activity in as an employee for his employer’s commercial structure would not be considered as providing a service to a client.
The obligation to register with the FIC and to comply with all the other requirements of Fica applies to the accountable institution and not individually to each of the professionals in the employment of the entity. For example, each accountant in the employ of an accountable institution is not considered as an individual accountable institution and does not have to register separately.
What are TCSP activities?
The terms “preparing for”, “carrying out”, “assisted”, “planning”, and “execution” in 2(a)(i) should be understood according to their dictionary meanings.
The terms “organisation of contributions”, “creation”, “operation”, and “management” in 2(a)(i) (aa), (bb), and (cc) should be understood as follows:
“Organisation of contributions” could include assisting clients to raise capital or funding for the client’s business, either through advising on the sourcing of funding or liaising with donors and investors.
“Creation” can include assisting a client with the registration or administrative processes to register a legal person or corporate vehicle with the relevant government organisations. This can include advising on the legal requirements associated with the legal structure or creation of an entity, drafting any formation or formation-related documentation, and any form of facilitating the registration process.
“Operation” of the legal person or corporate vehicle entails assisting with the ongoing operations of the client. This includes any function that relates to planning or executing any of the client’s operations.
“Management” includes performing any active role, or making decisions for the client’s business, where such activity or decision-making steers the direction of the client’s operations or business.
The following are not TCSP activities:
- Activities that relate solely to the recording or capturing of company data or information, including book-keeping functions.
- The administrative submission of information or data for legislative purposes, such as filing tax returns.
- Activities that do not amount to decision-making within the client’s business activities.
- Activities that do not steer, impact, or influence the client’s business operations.
- The fulfilling of a statutory function, specifically liquidation or business rescue. However, if the client undergoing such a statutory application is an accountable institution, the liquidator or business rescue practitioner must ensure the client applies the full provisions of Fica in relation to its business activities.
Who is and is not a ‘nominee’?
A “nominee” is a person approved to act as a holder of securities or an ownership interest in the entity on behalf of other persons.
Reference to a “nominee” in 2(b) is limited to the definition in the Companies Act: “a person that acts as the registered holder of securities or an interest in securities on behalf of other persons”.
Where the TCSP acts as a nominee for an entity, that entity will be deemed to be their client.
Where the TCSP arranges for a nominee to act on their client’s behalf, both the client and the person acting as the nominee are the TCSP’s client.
A “nominee” as used in Item 2 excludes where an entity provides custodial services as required by law on behalf of a financial services provider, as required in the Financial Sector Regulation Act.
Which trusts are included and excluded?
A trust itself (as a legal entity) is not required to register as an accountable institution because a trust registered under the Trust Property Control Act is not listed as an accountable institution in Schedule 1.
A trust may, however, be required to register as an accountable institution if meets one of the definitions in Schedule 1. For example, a business trust that sells vehicles with a value of more than R100 000 is a “high-value goods dealer” per Item 20 and should be registered with the FIC as such.
“Trusts” in 2(c) and (d) include trusts created between parties (inter vivos) that are established in South Africa or that are established outside South Africa.
The following trusts are excluded from the TCSP definition:
- Testamentary trusts;
- Trusts created by a court order;
- Trusts created for person under curatorship; and
- Trusts created by the trustees of a retirement fund in respect of benefits payable to the beneficiaries of that retirement fund.
An accountable institution may have to register twice
A person could perform either only one or a combination of the four TCSP business activities detailed in Item 2. Where a person meets the definition of multiple business operations, they must register as a “company service provider” or a “trust service provider” or both on the FIC’s registration and reporting platform.
If a person is registered with the FIC as an accountable institution under a different Schedule 1 item and performs the functions of a TCSP, that person must register additionally as an Item 2 accountable institution. This is known as dual registration.
For example, a law firm is an accountable institution in terms of Item 1 and must register as a legal practitioner. If the law firm also provides trust services, as defined in Item 2, as part of its normal business operations, the firm must register as a trust services provider.
Click here to download PCC 6A.
Read: TCSP guidance welcome, but grey areas remain, says FISA
Help is at hand
Accountable institutions, including TCSPs, need to understand their compliance obligations in terms of Fica – and should seek expert help if they do not.
Moonstone Compliance offers compliance, consulting, and training options for accountable institutions of all types and sizes to help them implement anti-money laundering procedures and meet the requirements of Fica.
Moonstone Compliance will explain the complex regulations and offer practical recommendations tailored to your business.
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Does it mean that I have to declare my money transfer from crypto exchange to local rand bank acc if it exceeds R19,999?
International funds transfer reports are only applicable to items 6 (banks) and 19 (money remitters) in Schedule 1. If a crypto asset service provider is also an accountable institution per the definitions of items 6 or 19, the CASP must submit an IFTR.
We assist companies in setting up security structures (SPV) and as such are required to register as TCSP. My question is, do we as the service provider who serve as trustees of those spv, (Trusts and companies) also have to register the trusts and companies that hold the security agreements in place.