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INSPECTIONS

 

  1. Mandate of the PPRA

The Authority was established by the promulgation of the Property Practitioners Act, 2019 (the PP Act). The PPRA is a schedule 3A public entity in terms of the Public Finance Management Act, 1 of 1999 (“PFMA”). The PPRA regulates the property practitioners through ensuring that all persons carrying out the activities of a property practitioners as a service to the public are registered with the PPRA.

The PPRA, as the supervisory Body of the property practitioners’ sector and in terms of financial Intelligence Centre Act 38 of 2001 as amended (“FIC Act”) is obliged to take all steps required to prevent, alternatively, identify and report on, money laundering and terrorist financial activities by the property practitioners.

The principal objective of the PPRA is:

  1. provide for the regulation of property practitioners;
  2. provide for the establishment of the Authority;
  3. provide for the powers, functions, and governance of the Authority;
  4. provide for the protection and promotion of the interests of consumer;                   
  5. provide for a dispute resolution mechanism in the property market;
  6. provide for the education, training and development of property practitioners and   candidate Property Practitioners;
  7. provide for a framework for the licensing of property practitioners;
  8. provide for a just and equitable legal framework for the marketing, managing, financing, letting, renting, sale and purchase of property; promote meaningful participation of historically disadvantaged   individuals and small, micro, and medium enterprises in the property market;
  9.  provide for the transformation of the property market and the establishment of the Property Sector Transformation Fund.

 

  1. Mandate of the Inspections department

The PPRA recognises that the inspectorate function as one of the key pillars to ensuring compliance with the property practitioners act and financial intelligence centre act, one of its core functions being to determine the level of compliance by all property practitioners. To this end, the Mandate of the inspections department is to determine the level of compliance with FICA and PPA by property practitioners within the industry.

The inspectors are required to conduct inspections in accordance with the set legislative requirements; and to ensure full supervision and compliance by property practitioners of PPA and FIC Act, as amended; the inspections department is required to ensure the   implementation of the risk-based approach in accordance with Financial Intelligence Centre Act, as amended by property practitioners

3. PPA Inspection

Section 25(1) provides that an inspector may, at any reasonable time and without prior notice, conduct an inspection to determine whether the provision of this Act is being or have been complied with, and for that purpose, may without a search warrant-

  1. enter and inspect any business premises, except private residence, of a property practitioner.
  2.  require the property practitioner, manager, employee, or an agent of the practitioner to –  
  1. produce to him or her the fidelity fund certificate of that property practitioner.
  2. produce to him or her any book, record or other document related to the inspection and in the possession or under the control of that property practitioner, manager, employee, or agent, or
  3. furnish him or her with such information in respect of the fidelity fund certificate, book, record, or other document at such plate and in such manner as the inspector may determine
  1. examine or make extracts from, or copies of, any such fidelity fund certificate, book record or other document.

Section 25(2) provides that where a property practitioner conducts his or her business at his or her private residence, the inspector must notify the property practitioner in advance and in writing before conducting the inspection in terms of subsection (1) and set out the details of the inspection.

Section 25(3) provides that an inspector may, on authority of a search warrant –

  1. enter and search any premises and any person on those premises if there are reasonable ground for believing that there is an article or record therein that has a bearing on the inspection;
  2. examine any such article or record that is in those premises;
  3. request any person on the premises to unlock or otherwise provide unhindered access to any safe, storage facility or other receptacle on the premises, or to point out any other person on the premises who can do so;
  4. request information about any article, document or record that has a bearing on the inspection;
  5. take extract from or make copies of, any book, computer, document, or record that is not or in the premises and that has a bearing on the inspection;
  6. use any computer system on the premises that has a bearing on the inspection, or require assistance of any person on the premises to use that computer system to-

            (i) search any data contained in or available on that computer system; or

            (ii) reproduce any record from that data 

  1. seize any output from that computer for examination and copying;
  2. attach and if necessary, remove from the premises for examination and safe keeping anything that has a bearing on the inspection; and
  3. seize and retain any such fidelity fund certificate, book, record, or other document that may afford evidence of sanctionable conduct under this Act; provided that the person from whom the fidelity fund certificate, book, record other document   was taken shall, at his or her request and at his or her expense, be allowed to make copies thereof or extract therefrom, under the supervision of the inspector concerned.

Section 24(1) of the Property Practitioners Act (PPA) provides that the CEO must appoint any suitably qualified person as an inspector; and must issue each inspector with a certificate in the prescribed form stating that the person has been appointed as an inspector in terms of this Act and with the inspector ‘s identification card

Section 24(2) of the PPA provides that when the inspector perform his or her functions in terms of this section, the inspector must- be in possession of a certificate of appointment or inspector’s identification card issued to that inspector in terms of section24(1), immediately show that certificate or inspector identification card to any person who – is affected by the inspector’s actions in terms of this Act or requests to see the certificate or inspectors’ identification card.

Section 24(2) (c) provides “when the inspector performs his or her functions in terms of this section, the inspector must- have the power of a peace officer as defined in section1 of the Criminal Procedure Act 51 of 1977 and may exercise the powers conferred on a peace officer by law “

  1. SCOPE OF PPA INSPECTIONS

The PPA, the regulations and the code of conduct comprise of various compliance obligations, and these are tested during an inspection by an inspector and includes, inter alia:

  1. Contracts of sales signed;
  2. Mandatory disclosure forms;
  3. Business accounting records;
  4. Fidelity Fund Certificates;
  5. Keeping of records;
  6. Correspondence between the Property Practitioner and PPRA; and
  7. Educational requirements.

4. FIC INSPECTIONS

Section 45A (1) provides that the Director or the head of a supervisory body, as the case may be, may appoint any person in the service of the centre or supervisory body or any other suitable person as an inspector. Section45B(1)(b) provides that an inspector appointed in terms of section 45A may enter the premises, excluding a private residence, of an accountable institution or reporting institution which is registered in terms of section 43B or otherwise licensed or authorised by a supervisory body and inspect the affairs of the accountable institution or reporting institution for the purpose of determining compliance.

Section 45B(1A) provides that an inspector appointed in terms of section 45A may, for the purpose of determining compliance and on the authority of a warrant issued under subsection (1B), enter, and inspect-

  1. A private residence or
  2. Any premises other than premises contemplated in subsection (1)(b) or paragraph (a) (in this section referred to as “unlicensed business premises),

If the Centre or a supervisory body reasonably believes that the residence or premises are used for a business to which the provisions of this Act apply.

4.1. SCOPE OF FIC INSPECTIONS

The FIC Act comprise of various compliance obligations, and these are tested during an inspection by an inspector and includes, inter alia:

  1. The accountable institutions risk-based approach (including business risk assessments, new products and process risk assessment, and client risk assessment methodology);
  2. Client identification and verification;
  3. Scrutinising of client information against the targeted financial sanctions lists;
  4. Scrutinising of client information to identify domestic prominent influential persons and prominent influence persons;
  5. Record keeping;
  6. Reporting;
  7. Compiling of a Risk Management and Compliance Programme (RMCP);
  8. Appointment of a person responsible for compliance;
  9. Training of employees;
  10. Registration with FIC.

4.2.  RISK MANAGEMENT AND RISK-BASED APPROACH

Risk Based Approach is the identifying the highest compliance risks to your organisation, making them a priority for the organisation's compliance controls, policies and procedures. Property practitioners, as accountable institutions are required to apply a risk-based approach when establishing a business relationship and/or conducting a single transaction with a client. This requirement aligns with the Financial Action Task Force (FATF), which sets international standards on combating money laundering and terrorist financing.

4.2.1. What is risk in terms of FIC Act

Risk - refers to the impact or likelihood of ML/TF taking place in an institution. Inherent risk or the level of risk that exist before mitigation, not residual risk or the level of risk that remain after mitigation. Therefore, from a money laundering and terrorist financing view, ML/TF risks will include the following elements:

  1. Threat – persons or objects with the potential to cause harm.
  2. Vulnerability – things that can be exploited by the threat or facilitate its activities.
  3. Consequences – refers to impact of a threat or exploitation of a vulnerability.

4.2.2. What is risk-based approach

Risk Based Approach (RBA) - in this context, requires a property practitioner to identify, analyse, assess, mitigate, and monitor inherent ML/TF risk associated in doing business with customers to prevent ML/TF activities. To successfully implement a risk-based approach, a property practitioner is required to.

  1. Conduct business risk assessments, new product and processes risk assessments and client risk assessments, this is influenced by the nature of your business, size, structure, range of products and services offered by your business, and the various clients.
  2. Make provision for risk indicators – for example indicator relating to products - to what extent does your product provide anonymity to clients, can the product be funded by cash or does the product allow the flow of cash, what is the cost of the product.
  3. Implement risk identification measures – property practitioner should then assess, understand, its money laundering risk posed by its product as an example, it is important to note that the risk must be assessed at regular intervals based on the changes that occur in the institution internally and externally.
  4. Implement risk rating mechanism – implies assigning distinct categories to various levels of risk according to a risk scale and classifying the money laundering and terrorist financing risk. Under those circumstances the property practitioner would be expected to rate their customers, products, services, delivery channels, geographic areas involved and other risk factors, where applicable.
  5. Implement Risk Matrix mechanism –may be made up of different components to evaluate a particular client, product, transaction, or service in its entirety.
  6. Implement risk management and risk mitigation measures.

Section 42 of the FIC Act requires property practitioners to develop, document, maintain and implement a Risk Management and Compliance Programme (RMCP). An RMCP should comprises of policies, processes and procedures, systems, and controls to be implemented by and within the property practitioner’s business. Therefore, an RMCP is underpinned by a risk-based approach as espoused in section 42 of the FIC Act and it must take the following into consideration:  

  1. The board of directors, senior management or other person, or group of persons exercising the highest-level authority in the property practitioner’s business must approve the RMCP.
  2. It must be reviewed at regular intervals.
  3. Can be tailor-made to the needs of the institution.
  4. Unique to circumstances of the institution.
  5. Institutions differ in size, diversity, sophistication.
  6. Provide for more flexibility to exercise in determining the extend of information applicable.
  7. Permit greater control on how to satisfy FIC requirements.
  8. It is an individual firm responsibility not collective

(05 August 2022)

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