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Fica rules and property sales

9 May 2013

A Fin24 user is questioning the Estate Agency Affairs Board’s power to regulate property sales outside Fica legislation: He writes:

Estate Agency Affairs Board regulations say that estate agents are obliged to obtain copies of Fica documentation from property sellers before embarking on a mandate to sell.

Yet the Financial Intelligence Centre Act 38 of 2001 contains no such provision; in fact, it says that "An accountable institution may not establish a business relationship or conclude a single transaction with a client" without the Fica documentation. [My emphasis].

And in the act there is a very clear definition of "business relationship" which clearly does not apply to the sale of a property - which is a single transaction.

Since when did the Estate Agency Affairs Board acquire the power to regulate the affairs of natural persons who are not estate agents? It seems to me that an attempt to do so would be unconstitutional.

Mari van Wyk, Korbitec executive manager: industry relationships, responds:

The purpose of Fica is to protect institutions as well as individuals, and eliminate the possibility of money laundering.

The potential for this activity exists in the property industry and as a result, estate agencies are required to obtain documentation as set out in this act.

In November 2011, a Compliance Communication regarding estate agents was issued by the FIC, which includes the following regulations:

"3.1 Section 21 of the FIC Act, as a general rule, prohibits accountable institutions from establishing a business relationship or concluding a single transaction with a client before the prescribed steps relating to client identification and verification has been completed.

"3.2 Exemption 2 of the exemptions to the FIC Act made in terms of Section 74 of the FIC Act softens the prohibition by Section 21 of FIC Act, by allowing accountable institutions to accept a mandate from a client to establish a business relationship or to conclude a single transaction, or take any similar preparatory steps with a view to transacting with the client, before completing the verification of the identity of that prospective client."

Karien Hunter from AMC Hunter Inc explains that generally speaking, the sale of a property and the obligation arising from this to pay an estate agent commission would fall within the definition of a "single transaction".

Therefore, estate agents as "accountable institutions" would have to make sure that they have the client's Fica documentation in place.

Buyers, sellers, lessees and lessors are regarded as "clients" by the FIC and estate agents must make sure that they have the client's Fica documents in place by the time the transaction is concluded.

Hunter also highlighted that the guidance provided by the FIC is the only form of guidance formally recognised in terms of Fica and its regulations.

As such, it is vital that individuals research these requirements fully and understand the implications to ensure a lawful and successful property transfer process.

For more information on the document requirements, see Fica guidelines - application thereof.

This article originally appeared on Fin24.

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