The South African financial services sector finds itself under increased scrutiny and stricter regulations following South Africa’s greylisting by the Financial Action Task Force (FATF) in February 2023. In order to comply with the FATF’s rules, the South African government has brought into law new regulations that are designed to ensure greater protection against money laundering and the global funding of terrorist organisations, through enhanced reporting standards. Trusts have been included in these laws and non-compliance could lead to five years in prison or up-to-R10 million in fines for any trustee who fails to submit the required information.
NEW REGULATIONS
As of 1 April 2023, all South African Trusts are required to record and report all information around ‘beneficial owners’ as defined in the Amendment to the Trust Property Control Act of 1988, which was gazetted in 2022.
The term ‘beneficial owners’, under the new law, includes the founder of the trust, all trustees of the trust and all beneficiaries mentioned by name in the trust instrument (which is the trust deed, the court order or the will of the deceased person if the trust is a testamentary trust). If one of the ‘beneficial owners’ is a legal entity, such as Citadel Fiduciary, that legal entity is required to name the people who are controlling and administering the legal entity, as they are considered to be ‘beneficial owners’. Once gathered, this information needs to be uploaded onto the Beneficial Owners Registry, which is an online facility at the Master of the High Court.
THE IMPACT ON THE FIDUCIARY SERVICES INDUSTRY
The new regulations were only published after business hours on Friday 31 March 2023 and came into effect just a few hours later at midnight on 1 April 2023. This has left the fiduciary industry in a quandary as trustees currently find themselves in breach of the law, as they have not submitted their beneficial ownership registers. The Master’s online portal only became available on 5 April and there are some concerns regarding the protection of the information that is submitted in this manner.
Populating the Beneficial Ownership Register is going to be challenging and controversial, due to a number of issues. Managing Director of Citadel Fiduciary, Hilary Dudley, says: “The Fiduciary Institute of Southern Africa (FISA) lobbied the Parliamentary Standing Committee on Finance regarding this issue in late 2022 and in early 2023 submitted comments on the draft and final regulations questioning the introduction of the foreign concept of ‘beneficial ownership’ to South African trust law. Quite correctly, FISA says the trustees of a trust are not the ‘beneficial owners’ of a trust’s assets.”
In addition, the new law does not take into account a number of other practical complexities. Not all beneficiaries may be aware that they could potentially receive a benefit from a trust, and the founder may not want them to be aware of this. Finding the current contact details of founders (also known as settlors or donors) may be near impossible in situations where a person is no longer linked to the family, such as an employee of the law firm or accounting firm which helped to establish the trust, or if someone who has subsequently emigrated agreed to act as the founder of the trust. Another issue around ‘beneficial ownerships’ is that if trustees are legal entities like a large bank, with multiple ownership tiers, pinpointing who the ‘beneficial owner’ is within the corporate structure will be incredibly difficult. These are issues that will need to be ironed out over the next months, even years.
THE NEXT STEPS
Citadel Fiduciary is currently working on ensuring all of its trust clients are compliant with these new regulations. Citadel also urges clients who are not Fiduciary clients to take note of this new law, as it may affect them or their loved ones who are trustees of trusts not administered by Citadel Fiduciary. Dudley urges people to make sure they contact their trust’s professional administrators to ensure that they are aware of the new laws, gather the information and submit it to the Master of the High Court on behalf of the trustees.
Citadel Fiduciary will be monitoring the situation carefully and will update Citadel clients on any developments or amendments to the law that may affect the administration of trusts in the future.