Are you ready for a FIC inspection?

Are you ready for a FIC inspection?

MAIN IMAGE: This article is based on a presentation that Anastasia Haji-Pavlou, director with conveyancing firm STBB, gave to estate agents and industry leaders at the AGM of Rebosa, held at The River Club, Cape Town, on 4 June 2019.

Anastasia Haji-Pavlou

The changes to the Financial Intelligence Centre (FIC) Amendment Act were implemented in October last year. The real estate industry graciously got an extension till 1 April this year to ensure they have the right documentation and procedures in place to be compliant with the Act’s new requirements.

The question is: does everybody in the residential real estate industry have everything in order yet as it should have been by the 1st of April?

After taking a look at the stats from the 2017/18 annual report (the latest one that is available) of the Estate Agency Affairs Board (EAAB), it is firstly clear that chances are good there might be many agents and agencies who are not ready should the FIC inspectors knock on their doors today.

For instance, in 2017/18 there were 108 FIC inspections done at estate agencies of which 44 were found to be in contravention of the legal requirements (30 of the contraventions were from KwaZulu Natal. Ed.). Fidelity fund claims have increased by millions over the last four years – from just over R10 million in 2014 to more than R25 million in 2018. This is most surprising considering that business in the property sector overall has allegedly been slacking down yet the claims against the industry are rising. How and why is that happening?

In 2018 a total of 8 521 complaints were lodged against estate agents. There were 206 disciplinary hearings held and there were 100 convictions.

South Africa is a member of the Financial Action Task Force (FATF), an intergovernmental organisation founded on the initiative of the G7 to develop policies to combat money laundering. Although the FIC Act has been around since 2003, the problem in South Africa is that the implementation of the Act’s requirements was not in line with international standards and that is why the act has now been updated.

Fighting corruption and financial fraud doesn’t start at the top, it starts at ground level. The new law makes it easier for us in the property industry to understand what we must do to do our part.

Risk-based system and a rule-based system

The FIC Act required that every estate agency had to know who their clients are and where their clients are, irrespective of whether the client was a person, trust or CC. If the FIC inspectors were to walk into your office today and you don’t have that information on record since 2003, then you will be found to be in contravention of the Act.

To this end every agency had to appoint their own FICA compliance officer and compile their own manual of internal rules that their agents had to follow to find out who their client is and where. In terms of the new changes to the ACT this manual of internal rules is replaced with a dedicated risk management and compliance programme (RMCP). (Rebosa developed an RMCP template which is available for download on their website.)

This is non-negotiable. Every agent must read it and sign that they have read and understood it. In terms of the law it is not just the agency, but every single agent that is seen as an accountable institution. This is why continuous training is so important. There are many agents still out there who don’t know how to FICA.

What hasn’t changed is that we still need to find out who our clients are and where they are.

The law says that you FICA a client when you enter into a business transaction with him and in terms of the law this would be when a mandate is signed. This is non-negotiable, and we have to make our clients understand this even though this may be difficult.

Naturally, drafting and complying with an RMCP is still rule-based, the risk-based element is added when it comes to the buyer or tenant. The law says the buyer or tenant becomes a client as soon as they make a deposit. In the first instance the same rules apply as to a seller – we need to find out who they are and where they are.

Additionally, though we need to determine the source of the money. There are three questions that has to be answered: 1) source of the funds (how was it deposited?), 2) source of the income (where did the money come from?) and 3) source of wealth (where did the money come from if not earned as income?).

The law does not expect the agent to verify this information, but there has to be a written record that these questions were asked.

What could present a problem is that the buyer’s deposit may not be invested until their FICA process has been completed. To avoid a situation where the buyer is in breach of contract because his deposit isn’t made within the prescribed timeframe, it is imperative that the agent informs the buyer well in advance that certain documents such as his ID etc will be required before his deposit may be accepted.

Thirdly, agents now have to do a risk-assessment of their clients. You have to indicate whether you consider them to be low-risk, medium-risk or high-risk. The law recognises that this is a subjective decision which means you will not be in trouble if you misjudged a client. However, you will be in trouble if you don’t complete a risk-assessment for each client.

Lastly, the law says if you have a suspicion about a transaction, then you must report this to FIC. Reporting to the FIC is confidential, and in my experience, reporting a client to FIC has never stopped a deal from going through.

Don’t be caught unawares and become part of the next FIC non-compliance statistics. Make sure the systems and forms your agency or your agents compiled are compliant with the FIC Amendment Act. For any enquiries you are welcome to contact STBB.

About the author: Anastasia Haji-Pavlou is a director, practicing attorney, conveyancer and notary with STBB. She is a respected trainer and public speaker in Johannesburg and is responsible for the training of agents in several agencies in the greater Gauteng area. 

Read more about FICA and the estate agency industry:

The FIC and estate agents

Risk-based approach for estate agents

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