This comes after the South African regulator provisionally withdrew the operating licence of Salt Asset Management in April 2023.

SAM was a licensed financial services provider (FSP) under the Financial Advisory and Intermediary Services (FAIS) Act and an accountable institution under the Financial Intelligence Centre (FIC) Act.

Following allegations of SAM’s potential involvement in money laundering activities relating to the Gold Leaf Tobacco Corporation, the FSCA conducted an inspection on SAM between 29 November and 1 December 2022 in terms of Section 45B of the FIC Act.

The inspection revealed “significant compliance deficiencies and a poor level of understanding by SAM of their money laundering and terrorist financing risks”, according to the South African watchdog.

SAM was found to be in breach of several requirements of the FIC Act by, among others, failing to:

• Develop, document, maintain and implement a risk management and compliance programme (RMCP) for anti-money laundering and counter terrorist financing;
• Keep customer due diligence and transaction records;
• Provide the Financial Intelligence Centre and FSCA with prescribed particulars of third parties that keep client records;
• Ensure that the institution does not establish a business relationship with anonymous clients and clients acting under false or fictitious names;
• Establish and verify the identity of clients and other persons;
• Understand and obtain information on business relationships;
• Conduct additional due diligence relating to legal persons;
• Conduct ongoing and enhanced due diligence;
• Terminate existing business relationships where it was unable to identify and verify the identity of clients, understand and obtain information about the business relationships and conduct ongoing due diligence; and
• Screen clients against relevant targeted financial sanctions lists.

Furthermore, the FSCA identified “other contraventions relating to the FAIS Act through its ongoing supervision of SAM”.

An inspection report detailing the above was provided to SAM, inviting them to respond to the findings and the FSCA’s provisional withdrawal of their licence. SAM “failed to respond to the inspection report and notice of provisional withdrawal, resulting in the FSCA’s decision to finally withdraw their FSP licence”, the watchdog added.

The effect of the licence withdrawal is that SAM may not offer any financial services to any financial customers and on behalf of any financial product provider.

The first 11 modules of the platform will be launched in September 2023, with the other eleven modules being launched in 2024.

The TTK is a free e-learning programme which has been specifically developed to provide board members of retirement funds (trustees) with a better understanding of their roles and to assist them in performing their fiduciary duties more effectively and efficiently.

The FSCA would like to notify trustees that completing the new TTK will be compulsory.

Section 7A(3) of the Pension Funds Act requires board members of retirement funds to attain prescribed levels of skills and training within six months after being appointed or elected and to retain such prescribed levels throughout their term of appointment.

Conduct Standard 4 of 2020 (CS4) prescribes the minimum skills and training requirements for board members of retirement funds. It also prescribes the TTK as the official minimum training requirement for all trustees of retirement funds in South Africa.

In accordance with CS4, a board member must attain the certification of the TTK within six months from the date of appointment or election to the board.

The FSCA said it “encourages all trustees to proactively complete the new toolkit once it has been launched”.

Much of these changes seek to improve the country’s ability to combat money laundering and terrorist financing and align regulations and legislation with international standards.

One of the resulting and substantial changes was the amendment to The Trust Property Control Act 1988 because of the introduction of the General Laws (Anti money-Laundering and Combating Terrorism Financing) Amendment Act 2022.

The purpose of these amendments is to promote more transparency with regards to trustees reporting of beneficial ownership as well as precise details that need to be shown when dealing with Accountable Institutions who provide functions of the trustees or when dealing with transactions relating to trust property.

The Amendment Act had an impact on the following pieces of legislation:

• Non-Profit Organizations Act 1997
• Financial Intelligence Centre Act 2001
• Companies Act 2008
• Financial Sector Regulation Act 2017
• Trust Property Control Act 1988

For this article, the focus will be on the amendments made to the Trust Property Control Act 1988.

The FATF’s report, that led to the grey listing of South Africa, identified the need to improve the country’s frameworks and implementation of such frameworks to better combat terrorist financing and money laundering.

Put differently, they felt South Africa had vulnerability in its systems that was and could be exploited. As such on the 31 of March under Notice No. R 3240, the minister of Justice and Correctional Services made regulations that were published in the Government Gazette No 48351 as a package of measures to start to address these deficiencies.

Trusts were identified as an important target with several amendments to the laws pertaining to trusts. The important takeaways for advisers can be summarised as below.

The Amendments to the Trust Property Control Act were:

• Obligation to Establish and Maintain Beneficial Ownership Registers;
• Obligation to lodge beneficial ownership registers with the Master of the High Court;
• Obligation to give access to beneficial ownership information to law enforcement agencies; and
• Obligation to make certain disclosures to accountable institutions and to record details of accountable institutions.

If we look at this in a bit more detail the act has essentially broaden the definition and defined accountable institutions and beneficial owners. Beneficial owners have been specifically defined beyond the scope of what we are accustomed to in South African common law and has a much further reach.

The act now defines certain requirements that trustees need to adhere to that would have otherwise only been contained in the trust instrument as well as criteria whereby the Master of the High Court will deem a person disqualified to being appointed or continuing capacity as a Trustee. Similar corresponding changes were made to the Companies Act 2008 whereby a director will be disqualified as a result of e.g., insolvency, misconduct, fraud, perjury just to mention a few.

The two big changes are the extent to which trustees need to report and maintain records of Beneficial owners (and their far-reaching extent) as well as the specifics around the details to be reported to Accountable Institutions and the importance of trustees reporting their capacity when dealing with trust property.

These institutions must distinguish between acting in their personal capacity and that of a trustee. It is somewhat baffling that this is even a point that needs to be stressed but it does perhaps show how far the country is behind that of other territories where such practices are the norm.

Arguably, the most intriguing aspect of the legislative changes was the scope of “who is a beneficial owner,” and in relation to a trust, and is summarised as:

• Any natural person who both directly and indirectly owns the trust property;
• A natural person who is established in the trust instrument/deed, that has effective control over the administration of the trust;
• Each founder of the trust;
• Each trustee of the trust;
• Each beneficiary that has been named in the trust instrument/deed;
• As a warning to the above, if the above is a legal person, a partnership or a natural person acting on behalf of the partnership or another trust then the natural person who ultimately owns or exercises control over that legal person, partnership, or trust.

The act has also stipulated penalties for noncompliance with regards to these regulations and reporting’s whereby natural persons can face a hefty fine for not meeting their obligations as trustee and be liable to a fine not exceeding R10m (£420,000, $514,000, €493,000) imprisonment of up to five years, or both.

To close off on the affects that these changes will have and whom it will affect, it is of my own view that trusts that are managed by corporates will be able to meet these new obligations due to their systems, expertise and knowledge they have internally to ensure they remain in good standing. However, South Africans that are party to trusts ought to expect an increase in fees because of this new compliance.

The main concern must sit with the amount of family trusts that have family members who have been appointed as Trustees and may not have the capacity, knowledge, or time to be able to meet these obligations. Such parties should obtain advice to establish the way forward and worryingly is that the ‘man in the street’ who is a trustee seem oblivious of these wide-reaching changes, obligations and ramifications of these changes which can extend to imprisonment.

Its seems that these changes will help South Africa address the concerns of FATF, but it is changing the face of the trust industry and will increase costs and make the administration of family run trusts far more onerous and even discourage the use of such trusts and the legislation places them out of the reach of the average person due to the additional administration and personal lability.

This article was written for International Adviser by Ryan Levy, international business consultant at Overseas Trust and Pension.

Under the previous system, any individual could use their foreign investment allowance to transfer up to a total of ZAR10m (£420,000, $520,000, €487,000) a year abroad through an authorised dealer.

The tax compliance obligations were previously “minimal”, according to Step. The obligations could include obtaining a tax compliance status number according to whether the individual was investing abroad or emigrating.

The newly amended tax compliance status procedure now requires individuals to complete an approval international transfer (AIT) application to export capital funds abroad above their annual discretionary allowance of ZAR1m per year.

Applications have to be accompanied by a significant increase in disclosures and supporting documentation, says law firm Eversheds Sutherland.

The law firm added: “All AIT applications must submit all material that demonstrates the source of the capital to be invested (whether local or foreign) and a statement of assets and liabilities for the previous three years.”

The single discretionary allowance of ZAR1m per calendar year for each individual is still in force and the new procedure is not required when expatriating funds less than that threshold.

The measure is being put forward by the South African government as part of its efforts to be removed from ‘grey listing’ by the Financial Action Task Force (FATF).

FATF put South Africa on its grey list of jurisdictions under increased monitoring in February 2023.

Even corruption, unemployment and crime seem to have taken a back seat and wait in anticipation to re-join the fray. And to add insult to injury we now have a new topic to discuss around whether we supplied Russia with weapons and whether the US will apply sanctions against South Africa.

This all culminates in a climate of uncertainty, anxiety and depression with a lot of South Africans not quite sure what to do. It is in times like these that a financial adviser can really step up and help clients to remain calm and focus on actions that are in their power. Human nature is to do nothing in times of crises – the reality is that certain actions can, and should, be taken.

At a bare minimum, advisers should be actively engaging with their clients. Communication is key and a simple conversation can go a long way in reassuring clients that they have someone on their side. Updating a client’s financial plan is recommended.

This often leads to reworking a monthly expense budget and cutting back on certain items, but at least there is a plan and clients can see that it is still possible to remain on track with their retirement planning. Any action, even if small, has a big psychological effect and can create a more positive attitude which leads to an increase in energy and more output from daily jobs and life in general.

For the higher net worth clients, the questions asked are often around the timing of externalising Rand into foreign currency. Historically this was done to hedge against Rand devaluation and to access a broader investment set, with asset protection against creditors and governments taking a third spot. That has however changed over the last 12 months with political risk leapfrogging the former two.

When this happens some irrational and panicked decisions are often made, leading to investment mistakes. A good adviser should always ensure a client is making decisions in a calm and well thought out manner.

This could for instance lead to a plan whereby a client takes immediate action by externalising an agreed smaller amount to cover certain foreign denominated expenses such as kids studying abroad, future travel plans, adding to existing offshore investments or starting an offshore investment journey.

These investments can then be made on a regular basis to take account of Dollar cost averaging as the Rand is a very volatile currency and does go through periods of strength as well as weakness.

For clients already in the market, JSE-listed Rand hedge stocks should do well in this environment. If clients already have offshore investments, they will certainly be drawing comfort from the weakening Rand. On a positive note, investors can now earn a good yield from hard currency, fixed income investments – no longer are global equities the only choice.

There are also some good international unlisted investments and property investments but investors need to take caution from a liquidity and a diligence perspective – two areas that a good financial adviser should be able to assist with.

Advisers should also be guiding clients as to best hold offshore assets from an asset protection, tax efficiency and succession planning perspective. There are a number of options available, and an independent adviser has the ability to put all of them on the table.

We advise investors to maintain a calm stance during these uncertain times, diversify, and maintain exposure to long-term themes. Investors need to look beyond near-term news and gain exposure to industries, geographies, asset classes and currencies benefitting from longer-term growth trends. A good financial planner can add significant value in these uncertain times.

This article was written for International Adviser by Craig Featherby, group chief executive of Carrick Wealth.