The Importance of FICA in SA Commercial Real Estate

 

The administration associated with lease and sale agreements in commercial real estate carries significant risk and responsibilities. In South Africa, the real estate industry is governed by an industry body named the Estate Agency Affairs Board of South Africa (or EAAB) who strictly enforces the Financial Intelligence Centre Act 38 of 2001 (or FICA). All licensed real estate professionals have to adhere to this act, which often results in questions from buyers and tenants.

We attempt to demystify some frequently asked questions about FICA in the leasing or sale of commercial real estate in this article, as well as the protection it offers to all parties involved.

Why must I provide a commercial real estate broker copies of my personal or identity documentation?

The primary purpose of FICA is to protect companies and individuals by eliminating the possibility of money laundering from a transaction. The property industry creates various possibilities for such illegal activity, and therefore estate agencies are required to obtain documentation as set out in the 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.”

Therefore, your broker will typically request a copy of identification and other verification documents before a mandate can legally be accepted by Baker Street Properties. Since commercial real estate often involves entities such as companies or trusts, each director or trustee’s identity will need to be verified. Compliance is essential in running a reputable brokerage firm, which means that the team at Baker Street Properties is obligated by law to report any discrepancies in the documentation or suspicious transactions according to certain parameters as set out in the act.

Where is my personal information stored?

A brokerage firm is required to store all personal information of clients and subscribers in a secure location that complies with the Protection of Personal Information Act of Nov 2013 (or POPI Act). The EAAB regularly undertakes visits to real estate agencies across the country, and can at any point in time request access to the saved location of client or transaction particulars.

Baker Street Properties makes use of industry best practices in managing client relationships and transactions. Clients are offered peace of mind with the knowledge that the firm invests in a combination of secure cloud-based and CRM technologies to not only ensure for basic compliance, but also better service and ease of transaction.

What are the risks?

Non-compliance on the part of the brokerage firm can result in serious consequences, which include disciplinary processes, significant fines and an inspection from the EAAB. The brokerage firm can ultimately lose its operating license, if found negligent. Prospective tenants and buyers can harm their reputation in the industry, as well as face potential legal prosecution should any discrepancies or irregularities be identified.

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