Changes to legislation trustees should be aware of - 18 February 2023

Due to the risk that South Africa may be greylisted in February 2023, Treasury legislated measures on 22 December 2022 to demonstrate that our government has introduced measures to improve shortcomings identified by the Financial Action Task Force (FATF) mutual evaluation report that threaten the international financial system. Amendments to the following legislation has been made: Financial Intelligence Centre Act, the Non-profit Organisations Act, Trust Property Control Act, the Companies Act and the Financial Sector Regulations Act. Trustees should be aware of the changes to the Trust Property Control Act, as non-compliance may lead to a fine not exceeding R 10 million or imprisonment not exceding 5 years or both. The following changes were introduced:

• New Section 1 definitions of ‘accountable institution’ and ‘beneficial owner’ [Effective date 1 April 2023]
• New Section 6(1A) (Section 6 deals with Authorisation of a trustee and security) – This section specifies matters that would disqualify a person from acting as a trustee. This was brought in line with the existing Section 20 (Removal Criteria) and more measures were added [Effective from 1 April 2023, except 1(H) – Master to keep public record]
• Amended Section 8 – Foreign trustee to act only if authorised by Master in writing [Effective date 1 April 2023]
• * New Section 10 (2) (Section 10 deals with Trust account) – This requires a trustee to disclose their position as trustee to any accountable institution with which the trustee engages in that capacity, and to make it known to that accountable institution [Effective date 1 April 2023]
• * New Section 11(1) (Section 11 deals with registration and identification of trust property) – Trustees are to provide details of accountable institutions which trustees use as agents to perform trustee functions and who provide any services to trustees. More information and clarification is required to understand what is meant by this requirement [Effective date 1 April 2023]
• * New Section 11A (Section 11 deals with registration and identification of trust property) - information must be kept by trustees in relation to beneficial ownership. Even though founders, trustees, beneficiaries and any persons who can control the votes of, or appoint, trustees or beneficiaries are all (incorrectly) defined as beneficial owners, trustees have to:
  • lodge and keep up-to-date records of the beneficial ownership of the trust [Effective date 1 April 2023]
  • lodge a register of the prescribed information on the beneficial owners (as defined) with the Master [no effective date yet]
  • the Master must keep a register in the prescribed form containing the prescribed information about the beneficial ownership of trusts [no effective date yet]
  • trustees and the Master must make the information contained in the register available to any person as prescribed after consultation with the Minister of Finance and the Financial Intelligence Centre [no effective date yet]
• Amended Section 19 (Section 19 deals with failure by trustee to account or perform duties) Treasury just clarified this section. The Master or any person having an interest in the trust property may apply to Court to direct the trustee to comply with the Master’s request or to perform duty imposed upon the trustee by the Trust Property Control Act, trust instrument or any other law. Take note Master can only remove a trustee ito Section 20 if they do not comply with TPCA
• New Section 19(2) – If the trustee fails to comply with highlighted Sections (*) above, they will commit an offence and on conviction will be liable to a fine not exceeding R 10 million or imprisonment not exceeding 5 years or both
• Amended Section 20 (Section 20 deals with removal of trustee) – it was added that the Master may remove a trustee if they become disqualified to act as a trustee in terms of the new Section 6(1A); it was also expanded that the trustee may be removed if they do not comply with the requirements of the Trust Property Control Act (over and above the requirement to comply with any duty imposed upon them in terms of the Trust Property Control Act).

Conclusion:

It is imperative that trustees understand that they will have the duty to meet these new requirements and that if they fail to comply, they may be fined or imprisoned. Family trustees can no longer blindly assume their accountants and trust service providers will keep them out of trouble. Trustees will have to ensure that proper digital system are implemented to take care of their obligations.