Trust Accounts - Protection, Safekeeping and Certainty

Trust accounts by definition are bank accounts specially designated to hold funds that belong to others. Real estate agents and attorneys are required to maintain separate trust accounts for client money and for escrowed funds. Both industries are protected by fidelity funds accrued by regulatory bodies, principally from registration and membership fees, as well as from interest earned on trust accounts, that offer valuable financial support to these professions. When property transactions are conducted privately where attorneys’ trust accounts are likely to come into play or through a registered estate agent who operates a trust account, both parties acting in the interest of the client –attorney or agent - should be in possession of a valid Fidelity Fund Certificate. Issued either by the Law Society of South Africa(LSSA) or the Estate Agency Affairs Board (EEAB), these should be renewed annually. Both attorneys and estate agents are bound by a strict professional code of conduct as prescribed by their regulatory bodies, and in both cases include the transparent management of clients’ trust accounts which are subjected to regular audits by registered accountants. When property transactions are conducted in a private capacity without the assistance of registered estate agents, attorneys usually conduct the conveyancing process on behalf of clients, when funds are held in trust accounts until completion of the transfer process by the Deeds Office. The LSSA states that the objective of attorney’s fidelity funds are to protect the public against loss as a result of the theft of trust funds by practitioners. As a statutory body established and regulated by the provisions of the Attorneys Act, 1979 it serves to encourage the public to confidently use of the services provided by legal practitioners. The EEAB’s fidelity fund currently stands at R582 million, and the EEAB says the recent cases of misconduct related to trust accounts in the property industry can be conservatively estimated to amount to R70 million. During the past financial year 113 claims amounting to R7.85 million were lodged, and claims in the sum of R1.9 million plus interest were approved for payment. In his address to Cape industry on Friday, EEAB Chairman Thami Bolani confirmed his ‘cleaning up the industry for the benefit of the protection of consumers’ following the recent Wendy Mechanik, Constantia Sectional Management, Keith Wakefield Properties and other trust fund debacles. Bolani said his department will have implemented a turnaround strategy by December 2011. He said the compliance department will now be split into two divisions, the licencing department responsible for the issuing of Fidelity Fund Certificates, customer relations and call centre, and the enforcement division responsible for inspections and investigations. Bolani said the EEAB’s in-house capacity to perform inspections will increase to have 30 highly qualified new inspectors to conduct more than 1000 inspections per year. The EEAB amnesty period for unregistered agents to acquire fidelity fund certificates will be extended by three to six months if necessary, and from September this year the EEAB will also offer registering agents electronic application and payment services. And with immediate effect Bolani is personally receiving all whistle blowing calls on a secure and dedicated hotline. He said: “Auditing firm Deloitte & Touche has been appointed to conduct a forensic investigation to help address the EEAB’s shortcomings, and the EEAB remains open to public engagement and consultation to enable positive change in the industry.”