Who needs to keep trust accounts if your rental payment provider can run them on your behalf – with the Regulator’s blessing?
That’s the question SA property practitioners should be asking themselves, but sadly, most have not yet looked into passing on the administrative burden of managing trust accounts – and the substantial cost of audits – to an authorised Payment Processing Agent.
What’s the law on trust account exemption?
Since the Property Practitioners Act came into effect in 2022, eligible agents can outsource their key trust account responsibilities to a Payment Processing Agent, saving themselves countless hours every audit season. In addition, successful applicants enjoy a massive competitive advantage over agencies still bearing the cost, hassle and worries over paperwork and compliance.
As some forward-thinking PayProp clients have found, the company is uniquely placed to help qualifying property practitioners obtain exemption from managing their own trust accounts. But PayProp reports that uptake has been relatively modest, perhaps because rental agents have been running trust accounts for such a long time as a key component of a residential rental business.
Now that the law provides a way to delegate this responsibility to a trusted payments provider, a significant shift is needed in the sector’s mindset. Thankfully, a recent statement from the Regulator will do much to put the uncertainty to rest for many agents.
As agents across the country grapple with audit season paperwork and take on the burden of prohibitive audit costs, the Property Practitioners Regulatory Authority (PPRA) has endorsed PayProp’s message on the benefits of applying for exemption.
The how and why of trust account exemption
Thomas Makupo, Audit Compliance Manager at the PPRA, says exemption offers considerable benefits for agents:
“Under the repealed Estate Agency Affairs Act, it was mandatory for all estate agencies to not only keep a trust account, but also to have it annually audited. This mandatory requirement imposed an unnecessary administrative, compliance and financial burden on those estate agencies that did not handle trust monies.
“As a result, a new provision was included in the Property Practitioners Act that allows business property practitioners to obtain an exemption from keeping their own trust account, if they do not handle trust monies, or if they outsource the trust account administration to a payment processing agent.
“Business property practitioners with trust account exemptions do not need to have an auditor appointed to annually submit an audit report on the trust account to the PPRA. This eliminates one of the main compliance and administrative pain points that business property practitioners face.”
The sticking point for most agencies – no Payment Processing Agent
The problem for a significant number of agencies is that they don’t have the right payment partner. While many residential rental agencies use third-party providers to handle rental payments, most of these are not recognised as Payment Processing Agents under the Property Practitioners Act. As such, they cannot offer their clients the benefits of trust account exemption.
Protecting client money is the top responsibility of rental agencies, and Makupo says the PPRA sets rigorous standards for Payment Processing Agents to carry out trust account administration on behalf of clients.
“Firstly, the payment processing agent must be registered with the PPRA and be in possession of a Fidelity Fund Certificate under the Payment Processing Agent category.
“Secondly, the payment processing agent must be authorised by or registered with the Payments Association of South Africa (PASA) as a System Operator and/or Third-Party Payment Provider.
Thirdly, the payment processing agent must operate one or more trust accounts with a bank, opened in its name in terms of section 54(1) and/or section 54(2) of the Property Practitioners Act. The payment processing agent must also operate a trust accounting environment that includes all pertinent information regarding movements of trust monies. In addition, the payment processing agent must ensure that its trust accounting environment not only includes all the safeguards to protect the records from unauthorised access, alteration, destruction, or manipulation, but also that the records are kept in a format readily retrievable by the PPRA or the mandating client business practitioner.”
To date, the only third-party payment processing solution in South Africa that has cleared this bar is PayProp, as evidenced by its unqualified trust account audit as Payment Processing Agent. This audit demonstrates PayProp and its auditors' compliance with the stringent requirements set forth by the PPRA's audit guidelines.
The PayProp trust account environment tracks, records and reconciles all movements of monies in real time, using live transactional data. Once recorded, this data cannot be changed or deleted, and is readily shareable with the PPRA.
Agents interested in applying for exemption can begin the process by requesting their payment service provider to issue an Annexure 6 form (as per the PPRA's Audit Guidelines) and to provide an Agreed Upon Procedures letter issued by such provider’s auditors. For PayProp clients, this process is as simple as reaching out to the support team.
Because in this day and age, who wants the hassle, cost and risk of dealing with key compliance and administrative headaches when the experts have it covered?
To find out more about the trust account exemption process for PayProp clients, read our article here.
