Updated SAICA Code of Professional Conduct

Schedule 1 sets out which persons would be classified as accountable institutions. Should you provide the listed services, you would be classified as an accountable institution. As soon as you are classified as such there are numerous compliance obligations that you need to comply with. These amendments are in line with bringing in the ‘gatekeepers’ into the FIC fold, as accountants are often viewed as providing access into the financial system by acting as intermediaries in terms of financial transactions. These services is also of such a nature that they are susceptible to abuse by entities seeking to facilitate the movement of illicit funds. The changes will assist in addressing some deficiencies identified by the FATF. Individuals and organisations will have to consider whether they fall within the definition of an accountable institution and act accordingly.

Some of the changes includes the following as accountable institutions:

• Legal practitioners
• Co-operative banks
• Credit providers
• Sellers of high value goods (valued in R100 000 or more)
• South African Mint Company (RF)(Pty)(Ltd)
• Persons carrying on the business dealing with various crypto assets
• Trust and company service providers (TCSPs)

TCSPs are specifically included and defined as follows:

• A person who carries on a business of preparing for, or carrying out, transactions for a client where 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, or
  • The creation, operation or management of a company, or of an external company or of a foreign company, or the operation or management of a close corporation would be viewed as an accountable institution
• A person who carries on a business of
  • Creating a trust arrangement for a client, or
  • 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.

The changes were promulgated and made effective from 19 December 2022.

Certain services, including trust and company services, that are scoped in would be provided by accountants, but questions are still being asked on the scope and which services that accountants provide will fall within the definition.

The FIC released a Draft Public Compliance Communication No 6A, Guidance on Trust and Company Service Providers, for the purpose to provide guidance in terms of Schedule 1 of the FIC Act for public comment. It provides the following definitions:

• Business is that of a commercial activity or institution, as opposed to a charitable undertaking or government institution. Therefore, 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.
• Creation includes the registration or administrative processes with relevant government organisations for the client to commence with trading using the type of institution.
• Operation of the company entails the assisting with the daily operations of the client, and
• Management would entail managing the company, for example being on the board of management and making management decisions regarding the company.

Where an accountant has a ‘business’, the question arises: where one person in the business performs these services, who must register with FIC as an accountable institution?

Management is defined as managing the company, for example being on the board of management and making management decisions regarding the company. Read in the context of the Companies Act 2008, where section 66 refers to the fact that the business and affairs of a company must be managed by or under the direction of its board, the question arises whether independent directors would be scoped in.

The term ‘management’ should potentially clarify that ailing or insolvent companies who are in the process of being rescued or wound down by administrators and liquidators should not register as TCSPs. Although a liquidator is for example potentially regarded as ‘management’, we submit that the intention of the law is not to focus on this type of activity. In terms of the Companies Act, a person appointed as a business rescue practitioner is appointed to manage a company whilst under business rescue. Section 128(1)(b) states that when in business rescue the company is under the temporary supervision of the practitioner and the business rescue practitioner is managing its affairs, business and property.

Questions are also raised on how would businesses that outsource staff such as CFOs be impacted, as well as the business that uses the outsourced CFO.

With regard to tax services provided by accountants, there are numerous questions on when a person providing tax services would be classified as an accountable institution and which tax services would be scoped in.

In this regard guidance is still required as to whether practitioners providing accounting, auditing and tax services (completion and submitting of tax returns) are excluded from the ambit of ‘operation or management’. The majority of practitioners primarily perform accounting and tax services in relation to financial statements, including the preparation of management accounts, compilation of annual financial statements. With regard to tax services, practitioners prepare and submit tax returns, PAYE and VAT schedules on behalf of employers which services might be viewed as operational. With regard to specialised tax services such as tax opinions, this could be seen as ‘creation, operation or management’.

If the services provided by accountants fall within the scope then various FIC regulatory requirements must be met, including the following:

• Registration with the FIC
• Submitting regulatory reports to the FIC, including cash threshold reports and suspicious and unusual transaction reports
• Implementing a risk-based approach to customer due diligence including customer identification and verification
• Develop, document, maintain and implement a risk management and compliance programme (RMCP)
• Obligation to keep certain records
• Evaluation of all clients information to identify designated persons or entities that are listed on the targeted financial sanctions(TFS) list in terms of S26A of the FIC act or the TFS list as published in terms of the Protection of Constitutional Democracy Against Terrorist and Related Activities Act 2004
• Determine whether clients are a foreign prominent public official or a domestic prominent influential person
• Implement a compliance function and appoint a person responsible for compliance
• Train employees on how to comply with the FIC Act

The changes were promulgated and made effective from 19 December 2022. No formal transitional provisions have been communicated, but the FIC has stated in a media release that in the first 18 months from the date of commencement of the amendments, the FIC and supervisory bodies will focus on entrenching the FIC Act risk and compliance provisions and implementation among the new sectors in Schedule 1 to the FIC Act. Supervisory bodies would be conducting inspections and, where warranted, issue remedial administrative sanctions, based on a risk-based approach, to correct identified areas of non-compliance. In respect of the new sectors, including trust and company services providers, the FIC and supervisory bodies do not envisage issuing financial penalties for non-compliance with the FIC Act during the transitional 18-month period.

Accountants must take note of the changes and evaluate their service offerings and decide whether they would be classified as an accountable institution whilst more clarify and guidance is being expected to be released by the FIC.

AUTHOR
Juanita Steenekamp CA(SA), SAICA Project Director: Governance and Legislation