Applying for a Fidelity Fund Certificate

August 29th, 2016
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By the financial forensic unit of the Attorneys Fidelity Fund

Section 41 of the Attorneys Act 53 of 1979 requires a practitioner to be in possession of a Fidelity Fund Certificate (FFC) in order to practice on his or her own account or in partnership. The section further states that should a practitioner practice or act in contravention of the requirement, the practitioner shall not be entitled to any fee, reward or disbursement in respect of anything done by him or her while so practising or acting. FFCs are issued by the Attorneys Fidelity Fund (AFF) through its appointed agencies, namely, the four statutory law societies. The validity period for each issued FFC is a year, from January to December of that year, for example, from 1 January 2016 to 31 December 2016. Practitioners are able to apply for their FFCs for the following year from 1 October of the year preceding the year for which the FFC is required.

In order to qualify for an FFC, the following requirements must be satisfied:

  • The firm’s opening (in the case of new firms) or year-end trust audit report must be approved by the law society to which the firm belongs. It should be noted, however, that some new firms may not yet have reached their due date for submission of their opening trust audit reports at the time of applying for the FFC, such firms are exempted from this requirement. Other firms may be exempted by their law societies for various reasons from submitting trust audit reports.
  • The practitioner applying for the FFC must have satisfied the practice management training (PMT) requirements. This training became compulsory for all practitioners who started practising on their own account or in partnership after 14 August 2009. However, the law society may exempt some practitioners who start practising after that date.

Until 2015, a practitioner would complete an FFC application form, submit it to the law society, and the law society would issue the FFC should the applicant be compliant with all requirements. With effect from the 2016 year, the AFF provided an automated system to the law societies to administer the issuance of these FFCs. This system went live at the beginning of November 2015, and all applications for the 2016 period were processed through the online application. Data utilised by the system to facilitate the issuance of the FFCs is integrated from the law societies’ member system, and this is data already residing with and known to the law societies. The aim of the AFF in providing this online system is to utilise the financial and other information provided on the system for its risk management initiatives.

We noticed, while attempting to utilise the information for our risk management initiatives that the information is not necessarily correctly captured. In anticipation of the next round of a peak season for issuance of the FFCs, we therefore felt it necessary to assist new and existing practitioners with how to complete the required financial information correctly. The section below deals with how to correctly capture the financial information required in terms of s 16 of the FFC application form, gazetted on 30 September 2015, on the online system (GN R898 GG39239/30-9-2015).

Section 78(1)

This section requires the balance/s of all the trust account/s of the firm, individually reported, as at the end of the following preceding periods –

  • 1 October – 31 December;
  • 1 January – 31 March;
  • 1 April – 30 June; and
  • 1 July – 30 September.

In order for the practitioner to report these balances per trust account, the practitioner needs to go to ‘manage bank accounts’, assign the accounts to s 78(1) where it says ‘assign to section’. Should any of the trust accounts opened in the name of the firm not appear on the list of trust accounts, the practitioner can add the missing trust account and also assign it to the section.

Once the trust account is assigned to the section that account number will reflect under the tab for s 78(1), and the practitioner is able to capture the balances. Practitioners should be ready with the following information in order to complete the balances:

  • The bank balances as at 31 December, 31 March, 30 June and 30 September as reflected in the trust bank statement.
  • The service fee formula as provided by the bank.
  • The interest rate that was applicable on the credit balances as at the reported periods.

Section 78(2)(a)

This section requires the balance/s of all the s 78(2)(a) trust investment accounts of the firm, individually reported, as at the end of the following preceding periods –

  • 1 October – 31 December;
  • 1 January – 31 March;
  • 1 April – 30 June; and
  • 1 July – 30 September.

The s 78(2)(a) investments refer to all investments done by the firm, in the name of the firm, taken from excess funds in the trust account and do not belong to a specific trust creditor. The interest earned on these investments is due to the AFF.

In order for the practitioner to report these balances per s 78(2)(a) trust investment account, the practitioner needs to go to ‘manage bank accounts’, assign the accounts to s 78(2)(a) where it says ‘assign to section’. Should any of the trust investment accounts opened in the name of the firm not appear on the list of trust accounts, the practitioner can add the missing trust investment account and also assign it to the section.

Once the trust investment account is assigned to the section, that account number will reflect under the tab for s 78(2)(a), and the practitioner is able to capture the balances. Practitioners should be ready with the following information in order to complete the balances:

  • The bank balances as at 31 December, 31 March, 30 June and 30 September as reflected in the trust investment bank statement.
  • The service fee formula as provided by the bank.
  • The interest rate that was applicable on the credit balances as at the reported periods.

Section 78(2A)

This section requires the combined balances of all the s 78(2A) trust investment accounts opened by the firm on behalf of specifically identifiable trust creditors, as at the end of the following preceding periods –

  • 1 October – 31 December;
  • 1 January – 31 March;
  • 1 April – 30 June; and
  • 1 July – 30 September.

The s 78(2A) trust investment accounts refer to all investment accounts opened by the firm in the name of an identifiable trust creditor, with an underlying transaction, and making reference to the section. The interest earned on these investments is due to the trust creditor and the practitioner may levy reasonable administration fees for administering the investment.

Practitioners should be ready with the following information in order to complete the required balances:

  • The combined trust investment balances as at 31 December, 31 March, 30 June and 30 September as reflected in the trust investment bank statements.
  • The breakdown of the reported balances as follows –

– commercial matters;

– conveyancing matters;

– Road Accident Fund matters;

– litigation matters;

– estate matters (only those that went through the s 78(1) trust accounts);

– investments (pure investments with no underlying transactions, opened by the firm on behalf of specifically identified client, but incorrectly invested under s 78(2A)); and

– any other matters.

Practitioners should ensure that they correctly assign the amounts to the breakdown section and that the allocation tallies to a 100% of the reported balance per reported period. Without the amounts tallying, the system will not allow the practitioner to proceed with the application.

Investments

This section requires the combined balances of all the pure investment accounts opened by the firm on behalf of specifically identifiable clients, as at the end of the following preceding periods –

  • 1 October – 31 December;
  • 1 January – 31 March;
  • 1 April – 30 June; and
  • 1 July – 30 September.

The pure investment accounts refer to all investment accounts opened by the firm in the name of an identifiable client. The client may or may not be a trust creditor. Where the client is a trust creditor, it could be that the invested funds have no relation to the matter that the practitioner is providing legal services on. The interest earned on these investments is due to the client and the practitioner may levy reasonable administration fees for administering the investment.

Practitioners should be ready with the following information in order to complete the required balances:

  • The combined investment balances as at 31 December, 31 March, 30 June and 30 September as reflected in the investment bank statements.

Please ensure that the investment balances already captured under s 78(2A) and reflected in the breakdown are not recaptured under this section as that distorts the reported financial information.

Estates

This section requires the combined balances of all the estate matters administered by the practitioner or where the practitioner is the appointed executor, and separate estate accounts have been opened with funds on these matters not flowing through the main trust account/s, as at the end of the following preceding periods:

  • 1 October – 31 December;
  • 1 January – 31 March;
  • 1 April – 30 June; and
  • 1 July – 30 September.

Practitioners should be ready with the following information in order to complete the required balances:

  • The combined estate accounts balances as at 31 December, 31 March, 30 June and 30 September as reflected in the estate accounts bank statements.

Please ensure that the estate balances already captured under s 78(2A) and reflected in the breakdown are not recaptured under this section as that distorts the reported financial information.

Property

This section requires the combined balances of all other property, other that liquid cash, entrusted with the practitioner. This refers to property like houses, cars, investment coins, etcetera, which require that they are fairly assessed to determine their value as at the end of the following preceding periods –

  • 1 October – 31 December;
  • 1 January – 31 March;
  • 1 April – 30 June; and
  • 1 July – 30 September.

Practitioners should be ready with the following information in order to complete the required balances:

  • The combined property balances as at 31 December, 31 March, 30 June and 30 September as fairly assessed.

Please ensure that the balances reported under this section for property such as houses are not the balances reported under conveyancing matters reported under s 78(2A).

Conclusion

In conclusion, practitioners are urged to apply for their 2017 FFCs on time to avoid the rush and frustration should they find themselves not eligible to receive their certificates for whatever reason. This will allow them time to attend to whatever requires attention. Practitioners are further urged to refrain from practising without a valid FFC as they are in breach of the requirements of legislation when they do so.

The financial forensic unit of the Attorneys Fidelity Fund in Centurion.

 

Note:

Clarity is hereby provided that the Attorneys Fidelity Fund does not issue the Fidelity Fund Certificates but the provincial law societies do, in terms of s 42(3)(a) .  The Attorneys Fidelity Fund provided an automated system to the provincial law societies in order to carry out their mandate more efficiently

 

 

This article was first published in De Rebus in 2016 (Sept) DR 15.

 

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