Understanding and Preparing for EAAB and FIC Compliance

Understanding and Preparing for EAAB and FIC

Compliance Inspections

Presented By

Slide No.: 2 Date: 7 September 2015

Agenda

• The Estate Agency Affairs Board and its Mandate - Slide 3

• Reference: The Acts (EAAA & FICA) and the Code of Conduct - Slide 5

• Compliance Inspections: Background and Perspective - Slide 24

• Focus Areas of Inspection - Slide 26

• Preparing for a Compliance Inspection - Slide 32

• Q & A - Slide 36

The EAAB and its Mandate

• Established in 1976 as the regulatory body for the Estate Agency Industry in accordance with the Estate Agency Affairs Act (112 of 1976).

• Schedule 3A Public Entity in terms of the Public Finance Management Act (Act 1 of 1999) (PFMA).

• Reports to the Department of Human Settlements.

• Overall mandate of regulation and control within the industry. Its core method of regulation is achieved through the issuance of fidelity fund certificates to all persons carrying out the activities of an estate agent.

• Core function of the EAAB is the to manage and control the Estate Agents Fidelity Fund in the interest of the public and estate agents registered with the EAAB.

• Additionally, it has been designated a supervisory body in terms of the Financial Intelligence Centre Act (FICA).

The EAAB mandate is built on the following five regulatory pillars:

Registration

Inspection

Education

Disciplinary

Claims

The core function of the EAAB is to enforce industry compliance through effective regulation.

The EAAB is therefore responsible for ensuring that all qualifying estate agents are issued with a valid Fidelity Fund Certificate (FFC) on time in order for them to trade legally.

Important Background and Reference

In order to appreciate the need for compliance inspections as well to understand the foundations of the subject matter being inspected, reference must be made to the following:

The Estate Agency Affairs Act (112 of 1976)

The Financial Intelligence Centre Act (38 of 2001)

The Estate Agency Affairs Board Code of Conduct

Section 1: Definition of an Estate Agent Any person who for the acquisition of gain on his own account or in partnership, in any manner holds himself out as a person who, directly or indirectly advertises that he, on the instructions of or on behalf of any other person: • Buys • Sells • Hires (or Lets) • Financially manages Immovable Property or Any Business Undertaking This includes the directors or members of any company or close corporation that meets the definition of an estate agent.

Section 26: Fidelity Fund Certificates No person shall perform any act as an estate agent unless a valid fidelity fund certificate has been issued to him or her and to every person employed by him or her as an estate agent. (This includes directors of companies and members of close corporations)

Section 27: Reasons for Disqualification of Estate Agents (Principal Agents) • Has at any time by reason of improper conduct

been dismissed from a position of trust. • Has at any time been convicted of an offence

involving an element of dishonesty. • Is an un-rehabilitated insolvent. • Is of unsound mind. • Does not comply with the prescribed standard

of training. • Does not have the prescribed practical

experience. • Has been found guilty of misconduct by the

Every estate agent shall cause the accounting records contemplated in the Act to be audited by an auditor within four months after the final date of the financial year of the estate agent.

Section 29: Duty to Keep Accounting Records •Business Transactions •Business Financial Position •Trust Funds Held on Behalf of Depositors Section 32: Trust Accounts •Every estate agent shall open one or more separate

trust account

Section 32A: Power to Inspect Any inspector furnished with inspection authority in writing by the board may conduct an investigation to determine whether the provisions of this Act are being or have been complied with and may for that purpose, without giving prior notice, at all reasonable times -

a) enter any place in respect of which he has reason to believe that - i) any person there is performing an act as an estate agent ii) it is connected with an act performed by an estate agent (iii) there are books, records or documents to which the provisions of this Act are applicable

b) order any estate agent or the manager, employee or agent of any estate agent- i) to produce to him the fidelity fund certificate of that

estate agent ii) to produce to him any book, record or other document in

the possession or under the control of that estate agent, manager, employee or agent

iii) to furnish him, at such place and in such manner as he may reasonably specify, with such information in respect of that fidelity fund certificate, book, record or other document as he may desire

or extracts therefrom.

c) examine or make extracts from or copies of any such fidelity fund certificate, book, record or other document

d) seize and retain any such fidelity fund certificate, book, record or other document to which any prosecution or charge of conduct deserving of sanction under this Act may relate: Provided that the person from whose possession or custody any fidelity fund certificate, book, record or other document was taken, shall at his request shall be allowed to make, at his own expense and under the supervision of the inspector concerned, copies thereof or extracts therefrom.

Purpose: • To establish a Financial Intelligence Centre and a Money

Laundering Advisory Council in order to combat money laundering activities and the financing of terrorist and related activities; to impose certain duties on institutions and other persons who might be used for money laundering purposes and the financing of terrorist and related activities; to amend the Prevention of Organised Crime Act, 1998, and the Promotion of Access to Information Act, 2000; and to provide for matters connected therewith.

Objective: • The principal objective of the

Centre is to assist in the identification of the proceeds of unlawful activities and the combating of money laundering activities and the financing of terrorist and related activities.

Schedule 1: Accountable Institutions (19 in all) These Include: • Attorneys. • Executors of trust property. • Estate agents as defined in the Estate Agents Act, 1976 (Act

112 of 1976). • A management company registered in terms of the Unit Trusts

Control Act, 1981 (Act 54 of 1981). • Banks and related financial institutions. • Long-term insurance business' including brokers and agents of

the insurer.

Section 21: Duty to Identify Clients An accountable institution may not establish a business relationship or conclude a single transaction with a client unless the accountable institution • has taken steps to establish and verify the identity of the client • if the client is acting on behalf of another person, to establish

and verify (i) the identity of that other person; and (ii) the client's authority to establish the business relationship

or to conclude the single transaction on behalf of that other person

Section 22-26: Duty to Keep Records (5 Years) Whenever an accountable institution establishes a business relationship or concludes a transaction with a client, must keep record of: • The identity of the client • The nature of that business relationship or transaction • In the case of a transaction, the amount involved and the

parties to that transaction. • All accounts that are involved in the transactions concluded by

that accountable institution in the course of that business relationship.

Records may be kept in electronic form

Section 26: The Centre’s Access to Records

An authorised representative of the Centre has access during ordinary working hours to any records kept by or on behalf of an accountable institution in terms of the Act and may examine, make extracts from or copies of, any such records.

Section 27-41: Duty to Report

• Cash transactions above the prescribed amount (R25 000 and over). • Electronic funds transfers to and from the Republic in excess of the

proscribed amount (R25 000 and over). • Property associated with terrorist and related activities • Suspicious or unusual transactions

Section 42-43: Measures to Promote Compliance

• Registration of Accountable Institutions • Appointment of Compliance Officer • Formulation & Implementation of Internal Rules • Ongoing Training & Monitoring

The Estate Agency Affairs Board Code of Conduct

• Duty to protect the public interest • Mandates and duty to disclose • Misrepresentations and harmful

marketing techniques • Duties relating to offers and

contracts • Prohibition against undue

influence • Remuneration • Trust money and Interest • Confidentiality

• 12 Months + Logbook

• NQF4 (SAQA59097)

• Professional Designation Examination (PDE4)

Interns

Full Status Agents

Principal Agents

• NQF4 (SAQA59097) or Recognised Previous Learning

• Professional Practitioner in Real Estate (PPRE)

• NQF5 (SAQA20188) or Recognised Previous Learning

• Master Practitioner in Real Estate (MPRE)

The standard of training of

the Estate Agents

Regulations, 2008, as

contained in the

Government Notice R633

of 4 June 2008

Education and Continued Professional Development (CPD)

The Six CPD Activities

Education & Training

Professional Development

Personal Development

Mentorship & Coaching

Corporate Social

Investment (CSI)

Reading & Publishing

60 CPD POINTS OVER A 3-YEAR ROLLING CYCLE

NON-VERIFIABLE VERIFIABLE

Education Regulations: CPD compliance: The six CPD activities

45 Verifiable + 15 Non-Verifiable CPD Points over 3 years

15 Verifiable + 5 Non-Verifiable CPD Points over 1 year

Compliance Inspections: Background and Perspective

The EAAB is obliged by the provisions of the Act to maintain and promote the standard of conduct of estate agents and to regulate the activities of estate agents having due regard to the public interest. The EAAB is also responsible for the supervision and enforcement of compliance by estate agents with the provisions of the Financial Intelligence Centre Act (“the FIC Act”) or any order, determination, or directive made in terms of the FIC Act.

Who? Internal Inspectorate

External SPs

Types of Inspections

Routine Compliance Inspection

Tipoff or Complaint Based Inspection

Implications of Non Compliance (in terms of the Estate Agency Affairs Act) • Reprimand • Fine up to R25 000 (per charge) • Withdrawal of Fidelity Fund Certificate • Criminal Prosecution FICA Penalties (in terms of the Financial Intelligence Act) (Chapter 4) • Up to 15 Years Imprisonment or

R10million fine

Compliance Inspections: Background and Perspective

Main Focus of Inspections • Fidelity Fund Certificates (FFCs) • Validity • Displayed Prominently

• Trading Details • Trading Address • Contact Details

• Trust Accounts • Existence • Designation • Bank Charges • Correct Treatment of Trust Funds

Focus Areas of Inspections

All information

is kept Confidential

Main Focus of Inspections (cont) • Interest on Trust Funds • Retention and Payouts

• Financial Management & Accounting

Records (Business & Trust) • Business Accounting Records • Trust Funds Accounting Records • Monthly Reconciliations

• Annual Financial Statements • Independently Audited • EAAB Audit Report

All information

Main Focus of Inspections (cont) • Contracts and Mandates • Full Disclosure (Trading Names) • Sole Mandates • Authorised Signatures

• Educational Requirements Compliance • Employment Contract and Logbooks

(Interns) • Applicable Certifications • CPD Registration

All information

Main Focus of Inspections (cont) • FICA Compliance • Compliance Officer • Internal Rules and Training •Duty to Identify •Document Storage •Duty to Report • Suspicious Transactions

All information

General Findings from Inspections

• Outdated trading details

• Trust accounts not properly designated

• Business transactions in trust accounts

• Trust funds held in business accounts

• Fraudulent use of trust funds

• Financial statements not audited by an

independent auditor

General Findings from Inspections (cont.)

• Audit reports submitted did not reflect the

correct position of the business

• Operating illegally (without valid FFCs)

• Contravention of the Code of Conduct

• Unpreparedness for educational requirements

• No registration with the Financial Intelligence

Centre

• Non-compliance with FICA requirements

Preparing for a Compliance Inspection

Initial Communication

• Introduction • Identification •Appointment Schedule

As Little Disruption As Possible

Objective: Demonstrate Compliance

What to Expect

Inspection Duration & Timeframes

•Dependent of agency size •Dependent on readiness of

the agency

Required Information

• Fidelity Fund Certificates • Copies of Applicable ID Documents • Company Registration Documents (CIPC Docs) • Business Bank Statements (12 months) • All Trust Account Bank Statements - Section 32(1) and 32(2) (12

months) • Bank letters confirming that trust accounts have been opened in

terms of section 32 of the Act • Payroll (6 months) • Accounting Records for Trust Funds (12 months) • Business Accounting Records (12 months) • Trust Creditor Register • Access to Contracts (sampling) • Expired lease agreements with interest calculations and proof of

payment tenants (where applicable)

Key Staff Availability

•Principal Agent Depending on the agency

•Admin Manager •Accountant • FICA Compliance Officer •HR Manager

Required Information (cont.)

• Latest Annual Financial Statements (Audited) • Latest EAAB Audit Report • Latest IT3b Certificate • Employment Contracts and Logbooks (Interns) • Professional Certifications • Proof of Registration with the Financial Intelligence

Centre • Evidence of the Appointment of a Compliance Officer • Evidence of STR’s (Suspicious Transaction Reports) and CTR’s (Cash Threshold Reports) filed with FIC • FICA Internal Rules • Completed Principal Questionnaire

Key Staff Availability

•Principal Agent Depending on the agency

•Admin Manager •Accountant • FICA Compliance Officer •HR Manager

• Established in 1994

• National presence – offices in ALL provinces

• +400 permanent staff

• Level 2 B-BBEE Contributor

• IRBA, SAICA and IIA accredited

• Nexia International

www.nexia-sabt.co.za

Bashier Adam Bashier@nexia-sabt.co.za

Patrick Shaw Patrick@nexia-sabt.co.za

Living a culture of excellence, individuality and success!!

Questions

Understanding and Preparing for EAAB and FIC Compliance

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