Representative debarred status verification – Debarred Search

An accountable institution includes a person who carries on the business of a financial services provider requiring authorisation in terms of the Financial Advisory and Intermediary Services Act, 2002 (Act 37 of 2002), to provide advice and intermediary services in respect of the investment of any financial product (but excluding a short term insurance contract or policy referred to in the Short-term Insurance Act, 1998 (Act 53 of 1998) and a health service benefit provided by a medical scheme as defined in section 1(1) of the Medical Schemes Act, 1998 (Act 131 of 1998).

An accountable institution must develop, document, maintain and implement a Risk Management and Compliance Programme for anti-money laundering and counter-terrorist financing risk management and compliance.

The accountable institution is required to provide its employees with ongoing training to enable them to comply with the FIC Act and the RMCP and to discharge the specific responsibilities assigned to them. Please note that accountable institutions with no employees are also subject to ongoing training.

The:

• FICA Section 42A Compliance Officer (company, close corporation, trust); or
• the person on the highest level of the entity (natural person)

has the responsibilitity to ensure that the entity complies with the applicable FICA requirements.

The guiding principles are that the FSP and its Representatives must, when rendering intermediary services, act honestly, fairly, with due care, skill and diligence. There must, at all times, be a due regard to the interest of the clients and the integrity of the FSP as well as that of the financial service industry as a whole.

The General Code of Conduct requires the FSP and its Representatives to avoid, and where avoidance is not possible, to mitigate any conflict of interest between the FSP and a client or a Representative and a client.

Conflict of interest means any situation in which the FSP or its Representatives, has an actual or potential interest that may in rendering a financial service to a client:

• influence the objective performance of his, her or its obligations to that client; or

• prevent the FSP or its Representatives from rendering an unbiased and fair financial service to that client, or from acting in the interest of that client, including but not limited to:

o an ownership interest;

o a financial interest;

o any relationship with third party.

An ownership interest includes: any equity or proprietary interest for which a fair value was paid on acquisition other than such an interest held by a nominee; any dividend, profit share or similar benefit derived from such interest.

Financial interest includes any cash, cash equivalent, voucher, gift, service, advantage, benefit, discount, domestic or foreign travel, hospitality, accommodation, sponsorship, valuable consideration, other incentive or valuable consideration (exceeding R1000 per annum) other than – a) an ownership interest b) training, that is not exclusively available to a selected group of providers or representatives (products and legal matters relating to those products; general financial and industry information; specialised technological systems of a third party necessary for the rendering of a financial service, but excluding travel and accommodation associated with that training).

The FSP’S employees cannot accept any financial interest other that those considered normal in their line of business.

Only representatives who are qualified, fit and proper in terms of FAIS and registered may provide advice to clients/potential clients.

Administrative staff / call centre staff that deals directly with clients are not allowed to give advice.

FINANCIAL SOUNDNESS

37 of 2002 FINANCIAL ADVISORY AND INTERMEDIARY SERVICES ACT_Regs BN 194-2017_2018.04.01 – to date

The amended Fit and Proper requirements wrt financial soundness under the FAIS Act (Board Notice 194 of 2017) no longer apply only to FSPs, but also apply to juristic representatives of FSPs. (The Fit and Proper requirements relating to financial soundness do not apply to key individuals or representatives who are natural persons).

Category I FSP and a juristic representative of a Category I FSP that does not hold, control or have access to client assets or that does not collect, hold or receive premiums or other monies in respect of a financial product:

· assets must at all times exceed liabilities;

· must at all times maintain financial resources that are adequate to carry out activities and supervisory arrangements and to ensure that liabilities are met as they fall due.

A Category I FSP that holds, controls or has access to client assets or that collects, holds or receives premiums or other monies in respect of a financial product, a Category IV FSP and their juristic representatives:

· assets must at all times exceed liabilities;

· must at all times maintain financial resources that are adequate to carry out their activities and supervisory arrangements and to ensure that their liabilities are met as they fall due;

· must at all times comply with additional asset requirements, working capital requirements and liquidity requirements referred to in Table B of BN 194 of 2017;

· must comply with additional reporting requirements to the Registrar (submission of Form A) on a half-yearly or annual basis, as prescribed in BN 194 of 2017;

· must comply with important early warning requirements.

Definitions

The amended Fit and Proper requirements wrt financial soundness under the FAIS Act (Board Notice 194 of 2017) no longer apply only to FSPs, but also apply to juristic representatives of FSPs. (The Fit and Proper requirements relating to financial soundness do not apply to key individuals or representatives who are natural persons).

Category I FSP and a juristic representative of a Category I FSP that does not hold, control or have access to client assets or that does not collect, hold or receive premiums or other monies in respect of a financial product:

· assets must at all times exceed liabilities;

· must at all times maintain financial resources that are adequate to carry out activities and supervisory arrangements and to ensure that liabilities are met as they fall due.

A Category I FSP that holds, controls or has access to client assets or that collects, holds or receives premiums or other monies in respect of a financial product, a Category IV FSP and their juristic representatives:

· assets must at all times exceed liabilities;

· must at all times maintain financial resources that are adequate to carry out their activities and supervisory arrangements and to ensure that their liabilities are met as they fall due;

· must at all times comply with additional asset requirements, working capital requirements and liquidity requirements referred to in Table B of BN 194 of 2017;

· must comply with additional reporting requirements to the Registrar (submission of Form A) on a half-yearly or annual basis, as prescribed in BN 194 of 2017;

· must comply with important early warning requirements.

Definitions

BN 194 of 2017 introduced the rules for establishing whether a person is (1) honest (2) has integrity, and (3) is also of good standing.

Compliance with fit and proper requirements relating to honesty, integrity and good standing by a person that is not a natural person must be demonstrated through its corporate behaviour or conduct and through the personal behaviour or conduct of the persons who control or govern that first mentioned person or who is a member of a body or group of persons which control or govern that person, including directors, members, trustees, partners or key individuals of that person.

There are some identified incidents that indicate if someone is dishonest or lacks integrity or good standing. The seriousness of a person’s conduct, its relevance and the passage of time since the incident are all factored into this assessment.

FSPs and Key Individuals must disclose to the Commissioner of the Financial Sector Conduct Authority (previously the Registrar of Financial Services Providers) and Representatives must disclose to their FSPs, promptly and on own initiative, fully and accurately, all information, which may be relevant in determining whether that person complies or continues to comply with the requirements relating to honesty, integrity and good standing.

An FSP must have the operational ability, including adequate and appropriate human, technical and technological resources, to effectively function as a particular category of FSP and to render the financial services in relation to the financial product for which it is authorised.

An FSP must adopt, document and implement an effective governance framework. This governance framework provides for the practical management and oversight of the financial services that the FSP provides and it must also ensure the fair treatment of clients by integrating the TCF principles into the policies. The governance framework of the FSP must include effective and adequate systems of corporate governance, risk management (including conduct risk management) and internal controls. The governance framework of the FSP must be proportionate to the nature, scale, risks and complexity of the business of the FSP.

The FSP must have internal controls for assuring achievement of an organization’s objectives in operational effectiveness and efficiency, reliable financial reporting, and compliance with laws, regulations and policies.

An FSP must exercise due skill, care and diligence when entering into (including the selection process), managing or terminating any arrangement for the to any person other than a representative of the FSP of –
(a) a function that the Act or another law requires to be performed or requires to be performed in a particular way or by a particular person;
(b) a function that is integral to the nature of the financial services for which the FSP is authorised; or
(c) any material important operational function of the FSP.

The key individual of an FSP must have the operational ability to effectively manage or oversee the activities of and financial services provided by the FSP.

A key individual, where he or she is –
(a) approved or appointed as a key individual of more than one FSP or juristic representative; or
(b) approved or appointed as a key individual of an FSP or juristic representative and appointed as a representative of an FSP other than the first mentioned FSP,

must be able to demonstrate that he or she has the required operational ability to effectively and adequately manage or oversee the financial services related activities of all the FSPs or juristic representatives for which the key individual was approved or appointed.

A representative of an FSP must have the operational ability to effectively function as a representative of the FSP or perform the activities for which that person was appointed.

A juristic representative must at all times have at least one key individual responsible for managing or overseeing the financial services rendered by the representative.

Section 19 of the Act, Section 10 of the Code set out specific responsibilities of the FSP. A separate banking account must be opened and maintained for receiving funds or collecting premiums. The FSP is responsible for designing, implementing and maintaining internal financial controls relevant to the administration of such funds that will facilitate the prevention and detection of fraud and error, and establish policies and procedures to achieve compliance with the requirements of the Act. The records relating to separate accounts are subject to an audit in terms of s19(3) of the Act.

FSPs (that have an IGF guarantee and comply with S45 of the STIA) collecting short-term premiums are exempted from the requirement to have a separate bank account for premiums. This exemption does not apply to any other premiums or client funds collected and accounted for by the FSP.

The FSP who receives or holds money and assets, including financial products, for or on behalf of clients is required in terms of Section19 (1)(a) to “maintain full and proper accounting records on a continual basis, brought up to date monthly” and in accordance with Section 10 of the Code, “must account for such products or funds properly and promptly’ as at year end and throughout the financial year then ended.

Description: RE 1: Regulatory Examination: FSPs And Key Individuals in all Categories

Description: RE 5: Regulatory Examination: Representatives in all Categories of FSPs

Preparation Material for RE1

​Important Instructions:

Please follow the instructions below carefully to access the relevant preparation material:

The link included below will direct you to the Legislation page. This page contains a list of all the Acts that are administered by the FSCA.
Once you are on this Legislation page, please select the FAIS Act by clicking on the link The Financial Advisory and Intermediary Services Act (FAIS Act) (Act 37 of 2002).
You will then see the FAIS Act, and below the FAIS Act link there will be a complete list of all the subordinate legislation to the FAIS Act that are displayed according to year of publication.
Use the table below to help you identify which documents you must download that must be used as preparation material for the RE1 and/or RE5.

To access the Legislation page, please click here…

Use the list below to identify the legislation that must be used as preparation material for the RE1:

Financial Intelligence Centre Act, 2001 (Act 38 of 2001) (Listed on the Legislation page)
The Financial Advisory and Intermediary Services Act (FAIS Act) (Act 37 of 2002) (Listed on the Legislation page)
The following legislation is listed as subordinate legislation to the Financial Advisory and Intermediary Services Act (FAIS Act) (Act 37 of 2002)

First click on The Financial Advisory and Intermediary Services Act (FAIS Act) (Act 37 of 2002) on the legislation page, and then select the documents listed below:

2003
Code of Conduct for Administrative and Discretionary FSPs, 2003 (BN 79/2003) Note: Only the definition of Administrative and Discretionary is relevant
General Code of Conduct for Authorised Financial Services Providers and Representatives, 2003 (BN80/2003)
Rules on Proceedings of the Office of the Ombud for Financial Services Providers, 2003 (BN 81/2003)
Determination of Requirements for Reappointment of Debarred Representatives, 2003 (BN82/2003)
Determination of Procedure for Approval of Key Individuals, 2003 (Board Notice 122 of 2003)
Financial Advisory and Intermediary Services Regulations, 2003 (GN879/2003)
2009
Notice of Requirements for Professional Indemnity and Fidelity Insurance Cover for Providers, 2009 (BN 123/2009)
2010
Notice of Qualifications, Experience and Criteria for Approval of Compliance Officers, 2010 (BN127/2010)
2011
Exemption of FSPs and FSPs Limited by Products From Audit Requirements, 2011 (BN193/2011)
2017
Determination of Fit and Proper Requirements for Financial Services Providers, 2017 (BN194/2017)
2018
Determination of Fees Payable to the Registrar of Financial Services Providers, 2017 (GN89/2018)
Form of Licence – BN89/2018

Additional material for RE1:

The following Notices must also be used as preparation material for the RE1.

Please click on the links below to access the documents:

2017
FAIS Notice 119 of 2017 – Exemption of Compliance Officers from section 4(4) of the Notice on Compliance Officers, 2017
2018
FSCA FAIS Notice 1 of 2018 – New Licence Application Form
FSCA FAIS Notice 17 of 2018 – Form and Manner of Section 14 Notifications
FSCA FAIS Notice 86 of 2018 – Exemption of Services Under Supervision, No 2 of 2018

​

Preparation Material for RE5

Important Instructions:

Please follow the instructions below carefully to access the relevant preparation material:

The link included below will direct you to the Legislation page. This page contains a list of all the Acts that are administered by the FSCA.
Once you are on this Legislation page, please select the FAIS Act by clicking on the link The Financial Advisory and Intermediary Services Act (FAIS Act) (Act 37 of 2002).
You will then see the FAIS Act, and below the FAIS Act link there will be a complete list of all the subordinate legislation to the FAIS Act that are displayed according to year of publication.
Use the table below to help you identify which documents you must download that must be used as preparation material for the RE1 and/or RE5.

To access the Legislation page, please click here…

Use the list below to identify the legislation that must be used as preparation material for the RE5:

Financial Intelligence Centre Act, 2001 (Act 38 of 2001) (Listed on the Legislation page)
Long-term Insurance Act, 1998 (Act 52 of 1998) (Listed on the Legislation page) Note: Only the definition of Long Term Policy is relevant
The Financial Advisory and Intermediary Services Act (FAIS Act) (Act 37 of 2002) ) (Listed on the Legislation page)
The following legislation is listed as subordinate legislation to the Financial Advisory and Intermediary Services Act (FAIS Act) (Act 37 of 2002)

First click on The Financial Advisory and Intermediary Services Act (FAIS Act) (Act 37 of 2002) on the legislation page, and then select the documents listed below:

2003
General Code of Conduct for Authorised Financial Services Providers and Representatives, 2003 (BN80/2003)
Rules on Proceedings of the Office of the Ombud for Financial Services Providers, 2003 (BN 81/2003)
Determination of Requirements for Reappointment of Debarred Representatives, 2003 (BN82/2003)
Financial Advisory and Intermediary Services Regulations, 2003 (GN879/2003)
2009
Notice of Requirements for Professional Indemnity and Fidelity Insurance Cover for Providers, 2009 (BN 123/2009)
2017
Determination of Fit and Proper Requirements for Financial Services Providers, 2017 (BN194/2017)
2018
Form of Licence – BN89/2018

Additional material for RE5:

The following FAIS Notices must also be used as preparation material for the RE5. Please click on the links below to access the documents:

Guidance Note: Intermediary Services and Representatives
2018
FSCA FAIS Notice 17 of 2018 – Form and Manner of Section 14 Notifications
FSCA FAIS Notice 86 of 2018 – Exemption of Services Under Supervision, No 2 of 2018

The FSB published a Guidance Note – Guidance on the Reappointment of Debarred Representatives – on 18 December 2017 in order to clarify:

The role of the FSB when an FSP reappoints a debarred representative;
The responsibilities of the reappointing FSP; and
The information which the reappointing FSP must submit to the FSB after it has reappointed the debarred representative.
It is important to note that if an FSP finds that a representative no longer meets the fit and proper requirements or has materially breached a requirement of the FAIS Act, it is the responsibility of the FSP (not the FSB), after following due process, to debar that individual. A debarred representative is prohibited from rendering any financial services as a representative of any FSP unless reappointed as a representative.

Similarly, the reappointment of a debarred representative is the prerogative of an FSP (not the FSB), as long as the requirements set out in BN82 of 2003 have been met. The Registrar cannot interfere in the reappointment of a debarred representative and only becomes aware of the reappointment when the reappointing FSP informs the Registrar of the changes to its representative register. The responsibility of the FSB is to ensure that the correct process has been followed by the reappointing FSP.

This means that an FSP that wants to reappoint a debarred representative must have a thorough understanding of what is required and take all necessary steps to ensure that it does not fall foul of BN82 of 2003. If an FSP does not follow the correct process, the Registrar may take action against the FSP for failing in its duty to comply with these requirements, which could include licence suspension or withdrawal.

What are the requirements?

A debarred representative may be reappointed as a representative of an FSP if:

(a) At least 12 (twelve) months since the debarment date has elapsed, unless the debarment was a result of the representative not having qualified with any of the fit and proper requirements. Therefore, a debarred representative can be reappointed within 12 months of the debarment date as long as the reappointing FSP has satisfied itself that the representative is fully qualified. This includes qualifying with the personal character qualities of honesty and integrity. Where the debarment was effected due to dishonesty or a lack of integrity, the reappointing FSP will have to be satisfied that the representative has been rehabilitated and reformed. The responsibility to establish whether a debarred representative now qualifies rests with the FSP and should not be taken lightly.

(b) All unconcluded business of the debarred representative (concluded prior to debarment) has been properly concluded;

(c) All complaints or legal proceedings submitted by clients to the Representative, the debarring FSP, the Ombud or a court of law or other administrative or legal proceedings in terms of any law, arising out of any acts or omissions in which the debarred representative was involved prior to the debarment date, have been properly concluded, and any decision or order as a result thereof, has been complied with.

(d) All fit and proper requirements are met.

What information must be submitted to the FSB?

An FSP that has reappointed a debarred representative must notify the FSB of this so that the individual’s name can be removed from the list of debarred persons. This notification must include:

Affidavit from the reappointed representative confirming that all business has been concluded, that all decisions or orders have been complied with and that he/she meets all the fit and proper requirements. If the debarment was due to a lack of honesty and integrity, then the Affidavit must also set out reasons for reform or rehabilitation.
Any other information which the reappointing FSP considered prior to the reappointing.
Confirmation from a Key individual of the reappointing FSP that he/she is satisfied that the representative had complied will all the reappointment requirements.
FSP5 Form for Representatives requesting the FSB to update its central register of Representatives. This process can normally be done electronically via the FSB’s FAIS ePortal system. However, at present the electronic system will block any individual who is on the list of debarred persons and a manual process must be followed. The FSB has advised that it is in the process of updating its electronic system to allow for the electronic uploading of information of a reappointed representative and will communicate this to the industry once finalised.
FSPs that are looking to reappoint debarred representatives to their licence must be aware of the updated Determination of Fit and Proper Requirements (Board Notice 194 of 2017) which was published in December 2017. Many of the ‘new’ fit and proper requirements come into effect on 1 April 2018 with a few provisions effective at later dates. Once each of these various provisions are effective, the measure which FSPs will need to apply to satisfy themselves that a debarred representative meets all the requirements will also need to change in order to align with the new Determination.

CPD – Make sure your activities are accredited
Last week the FSCA published FSCA Communication 2 of 2019 to provide further guidance to FSPs, key individuals and representatives regarding compliance with the continuous professional development requirements. The communication also included questions that have been received from the financial services industry, particularly in respect of CPD.
In this article, we focus on the questions and answers relating to CPD activities and SAQA recognition.
Why must CPD activities be accredited by SAQA recognised professional bodies?
The purpose of a professional body is to set professional standards. Professional bodies are therefore best placed to evaluate the activities against the professional standards and to allocate a CPD hour value to it.
Which SAQA recognised professional bodies can be approached to accredit CPD activities?
The list of recognised professional bodies can be accessed via the following link:
http://www.saqa.org.za/show.php?id=5749
Is it correct to say that any CPD activity that was accredited by a SAQA recognised professional body can be accepted and recognised for CPD purposes?
No. Even if a CPD activity was accredited by a SAQA recognised the professional body, it does not necessarily mean that the CPD activity is relevant/appropriate to the role, function and activities of the FSP, key individual and/or representative. The FSP remains responsible for ensuring that the CPD activities comply with the requirements set out in sections 32(1) and 32(2) of the Fit and Proper Requirements.
What happens if I completed a CPD activity but the CPD provider issued me with a certificate for CPD “points” and not CPD “hours”?
If a SAQA recognised professional body has accredited the CPD activity, the activity will have a CPD hour value. Where a CPD activity was completed before a SAQA recognised professional body accredited the activity and allocated an hour value to it, then the activity must first be submitted to one of the SAQA professional bodies where a CPD hour value will be allocated to it.

CPD game plan not an optional extra – FSCA clarifies requirements
The last week of May 2019 will be remembered for three things by South Africans. Firstly the rush and urgency by FSPs, key individuals and representatives to ensure that they were compliant with the CPD requirements, secondly the bad start to the Cricket World Cup by the Proteas and thirdly, the FSCA’s two month exemption from CPD requirements.
Unfortunately, the latter did not apply to the Proteas. The light at the end of the tunnel appears to be a train heading their way.
True to form, many players in the industry only awoke to the reality of CPD requirements as the deadline drew near, leading to frantic efforts to comply at the last minute. This is in total contrast to the rationale for CPD, which we expand upon hereunder.
On 5 June 2019 the FSCA published FSCA Communication 2 of 2019 to provide further guidance to FSPs, key individuals and representatives regarding compliance with the continuous professional development requirements. The document also provided the rationale for the extension which received some criticism from sectors in the industry.
In response to the question “Why was the CPD deadline of 31 May 2019 extended?”, the FSCA notes that feedback received from the financial services industry indicated that there was confusion regarding the manner of accumulation of CPD hours as well as sources of CPD training that complied with the requirements.
“This is the first year of implementation and past experience has shown us that there is often a high level of non-compliance in the first period. Due to the fact that the consequences for non-compliance are either removal from the register and thus an inability to earn an income, or debarment which could result in job losses, the FSCA took the decision to mitigate this risk by affording an additional 2 months to comply with the CPD requirements.”
“It should be noted that this dispensation will not be repeated in future. FSP, key individuals and representatives must ensure that in the next CPD cycle the proper policies, procedures and processes are in place to comply with the deadline of 31 May 2020.”
Unpacking FSCA communication 2 of 2019
Besides again providing a background and introduction to the basics of CPD, it also shares the purpose and how CPD should be addressed.
CPD must be planned, implemented, maintained and monitored by the FSP on an on-goingbasis to ensure that it –
● maintains existing knowledge and skills appropriate to the activities and responsibilities of affected persons;
● updates knowledge and skills on a continuous basis; and
● acquires new knowledge and skills to assist with their current activities and responsibilities/functions contemplated in the future.
This can only be achieved if CPD is implemented in a structured manner where the FSP has clear training and development plans in place for each CPD cycle. The principle is that the training and development that takes place in respect of CPD must be targeted, and must address any competence gaps that were identified, and/or develop additional knowledge and skills expertise where this was identified as a future need.
CPD should not just be a tick box exercise; it should be relevant to the function and role of the FSP, key individual and representative. CPD activities should further:
● contribute to your knowledge, skill, expertise, professional and ethical standards;
● address any identified gaps in technical knowledge, generic knowledge, the context within which the financial services are rendered and knowledge of the applicable laws; and
● take into consideration changes to internal/external conditions relevant to the financial service and financial products of the particular FSP, key individual and representative.
Answers to questions
The communication also includes questions that were received from the financial services industry. The questions are divided into two sections. The first deals with questions surrounding the application of the CPD requirements. The second section deals with questions relating to non-compliance with the CPD requirements. We discuss this in the two articles below.
It is very clear that CPD requires a forward-looking approach. Whilst we still await clarity on the manner in which the Authority will require reporting, there is absolutely no uncertainty as to the requirement for detailed record keeping of all training interventions, including CPD.
The captain of the Proteas noted before the match against India that our national side is at its most dangerous when it has its back to the wall. The sad reality of that you are also not able to see the writing on the wall. To prevent this from happening to you, get your planning and monitoring actions in place as soon as possible.
Let’s hold thumbs that some of the minions at CWC pull off a few surprises and allow us to alter our game plan to at least get into the play-offs.
Click here to download FSCA Communication 2 of 2019.

Besides being a regulatory requirement, Continuous Professional Development (CPD) ensures that you continue to be competent in your profession. Training and learning increases confidence, overall capability, complements career aspirations and the ability to adapt positively to changes in industry requirements.

The annual deadline date for FSPs, Key Individuals (KIs) and Representatives (Reps) to comply with the applicable CPD requirements is 31 May. Even though the FSCA recently announced an extension of two months, to the end of July 2019, they have emphasized that this is a once-off extension and does not affect the normal 12-month CPD cycle that will run from the beginning of June to the end of May each year.

In this article we look at planning ahead for the next CPD cycle to avoid a last-minute scramble to collect CPD hours.

The minimum CPD hours required per CPD cycle are[1]:

6 hours of CPD activities for a single subclass of business within a single class of business;
12 hours of CPD activities for more than one subclass of business within a single class of business; and
18 hours of CPD activities for more than one class of business.
In terms of the regulations, all CPD activities must:

be verifiable and accredited by a professional body. Therefore, it is important to make sure that you do “real CPD”.
must have a stamp of approval from the professional body.
must be allocated an approved hourly value.
You must also be able to prove that you ‘did’ the activity.

CPD Training Plan
In terms of the regulations, FSPs must maintain policies, procedures and training plans relating to CPD. They must identify gaps and needs in terms of skill, knowledge and expertise of the FSP, KIs and Reps. These gaps should then be addressed through relevant CPD accredited training. In order to achieve this, a training plan must be implemented, taking into account:

The functions and the role of the FSP, KIs and Reps;
The type of training needed to contribute to the skill, knowledge, expertise and professional ethical standards of the FSP, KIs and reps;
Technical knowledge and identifiable risks;
Generic knowledge and understanding of the environment in which the financial services are rendered, managed and overseen, such as market trends; and
Knowledge and understanding of applicable laws, such as legislative and regulatory updates.
The CPD Action Plan
An action plan should be implemented at the start of the CPD cycle (1 June 2019). Having a CPD Plan in place will ensure that FSPs, KIs and Reps can easily and timeously achieve the relevant number of CPD hours for the current CPD cycle (1 June – 31 May) and that the CPD activities are relevant.

Time Period

Rather than targeting the minimum CPD hours required by regulation, our advice is to first plan the development and training needs and then determine the number of hours it will take to complete this training. The hours that you want, or need should be divided by the remaining number of months in a CPD cycle.

For example, if you want 18 CPD hours, then 18 divided by 12 months would give you 1.5 hours per month.

Take into consideration any plans to be away from the office, for example if you have planned leave, the festive period, or even set aside time for unforeseen circumstances such as an emergency admission to hospital. In these instances, you can divide your CPD hours by the number of months available after putting time aside. This will obviously mean that you need to complete your required number of CPD hours in less than 12 months.

Planning your time and dividing the year and required CPD hours into smaller chunks will ensure that there is no pressure or distress and will avoid the last minute race. Once you have planned a target for yourself on how many CPD hours you need to achieve per month, the next step is to plan how you will achieve your target.

Achieving your target

CPD hours can be obtained either through attendance or non-attendance activities. A mixture of both attendance and non-attendance CPD activities is suggested.

Attendance relates to a CPD accredited event such as a seminar or training which takes place at a venue that you will need to travel to. While non-attendance could take the form of reading CPD accredited material such as newsletters or completing online courses – these can be done without you needing to travel and can be done at any time (including after office hours). These factors such as travelling, taking time out of the office, managing your personal schedule, etc. will determine the type of activity (attendance or non-attendance) you should complete for that particular month to achieve the monthly target of CPD hours that you set for yourself.

For example if your diary is fully booked for a particular month with consultations, annual reviews, etc. then in that particular month it would be wise to choose a non-attendance type CPD activity. This will assist you to still meet your monthly target within the comfort of your own space, be it at the office or at home. Likewise for those months that you do have a few hours to spare, plan ahead and set time in your diary to attend CPD accredited seminars and training. Seminars and training offer good interaction between the facilitator and attendees, it also provides a platform for interaction amongst other members in the industry.

The CPD process should be an enjoyable and an informative experience, helping you to keep up to date with legislative changes and industry requirements, as well as enabling you to better meet the needs of your clients. Attaining your CPD hours should not be rushed through as a means to an end – it should be continuous and not an instant once-off activity. Therefore, the content or topics for CPD should ideally cover the different aspects or areas that you offer to clients – e.g. if you offer investment planning, retirement planning, and short-term insurance, we would suggest that your planned CPD activities should also cover these areas.

The action plan can be structured in ways to track progress as to how many CPD hours were obtained and time frames for obtaining the remaining hours.

Another thing to bear in mind is that, apart from the CPD requirements, there is an overall responsibility on an FSP to ensure that all its Reps are competent to render the financial services for which they are authorised. This means that FSPs should not look at CPD hours as a target to meet and tick off, but should rather see this as part of overall training and development so that they can meet their responsibilities and their duty of care to clients.

The consequences of not meeting the required CPD hours at the end of the CPD cycle (i.e. 31 May)
The FSP must withdraw a Rep’s appointment and remove them from the Rep Register if they do not meet the requirements on or before the deadline date of 31 May. A KI must inform the FSCA that he/she will not meet the requirements and resign prior to the deadline date.

Only once the KI or Rep meets the requirements, can the FSP re-appoint a Rep or re-apply to the FSCA to have a KI approved again.

By setting a target and planning ahead you can ensure the smooth acquisition of CPD hours over the 12 month cycle and avoid the scramble to meet the annual deadline date of 31 May.

Masthead offers various CPD accredited seminars, online courses, newsletters and articles to keep you abreast with the latest industry knowledge and assist with attaining your CPD hours. For more information on our CPD offers, visit the Masthead Learning Centre, contact your Masthead compliance officer or get in touch with us at compliance@masthead.co.za.

[1] Chapter 4 of Board Notice 194 of 2017 (Determination of Fit and Proper Requirements for Financial Services Providers, 2017)

A Key Individuals (KI) is responsible for managing and overseeing the activities relating to the rendering of any financial service. KIs have an enormous responsibility to ensure that they carry out their duties with the necessary due care, skill and diligence.
Service Offering:
* Only some of the services offered are displayed here. I will ascertain after consultation what the correct services and appropriate actions are per relevant FSP after a due diligence and consultation session.
• New FAIS application, FIC Registration • Fiduciary Responsibilities – TCF Framework
• Sourcing of external compliance officer • All FSP Statutory Obligations
• Additions and maintenance of current FSP licence • FSP Financial management – financial soundness requirements
• Assist with obtaining correct PI Cover • Calculation of Levies to the FSB and the FAIS Ombud.
• Oversight of FSP Compliance report/s • Business Processes and Operational Ability (Risk Management) KI & Business Continuity retainer
• Management and Oversight of:
– Business processes and operational ability.
– Instil a culture of treating customers fairly in all aspects of the business.
• Rendering of financial services of the FSP and persons authorised to act on its behalf;
• Statutory obligations of the FSP;
• Personalised FSP specific drafting and implementation of FAIS, DISCLAIMERS, DISCLOSURES & OTHER LEGAL REQUIREMENTS .
Conflict of Interest Policy Complaints Resolution Procedure
PAIA Manual (Promotion of Access to Information Act) Privacy Policy Manual
FSP FAIS Disclosure Research & Email Disclaimer
General Disclaimer Risk Disclosure Statement
Key Individuals have an enormous responsibility to ensure that they carry out their duties of managing and overseeing the activities of an FSP with the necessary due care, skill and diligence. The activity of “managing” means to have executive control or authority and “overseeing” is the function of supervising a person/s and their work in an official capacity.
The introduction of the Financial and Intermediary Services Act, 2002 (“FAIS”) brought about the requirement of a Key Individual for every entity licensed in terms of FAIS.
There are three occasions when Key Individuals need to be appointed:
1. When an entity applies for a licence in terms of FAIS
2. When a KI is replaced
3. When the FSP expands its operations to include additional financial products
My KI and consultancy services are tax deductible as ‘Cost of Sales’ on your profit & loss statement.
Should you require the services of a professional FSB registered outsourced Key Individual for new FAIS applications, FSP subcategory additions to and/or maintaining existing FSP licence, an experienced KI to work alongside existing KI’s or need a FAIS compliant supervisor looking after your representatives or require the services of KI a do not hesitate to contact me. info@keyindividual.co.za
Key Individual Responsibilities
Fiduciary Responsibilities
A Key Individual also has fiduciary responsibilities which means that they must make sure that the customers of an FSP are able to have confidence in and place their trust in the advice and services provided to them by the FSP. The fiduciary duty of a Key Individual goes far beyond just ticking the compliance boxes. Fiduciary duty involves transparency and a level of accountability over and above the normal compliance and commercially accepted standards. This is further emphasised in the TCF framework where the first outcome seeks to ensure that customers are confident that they are dealing with an FSP that treats customers fairly. This responsibility falls squarely on the shoulders of the Key Individuals to continuously manage and oversee all the processes and people inside the business so that customers are assured of fair outcomes.
Key Individuals are accountable for activities of business and representatives
Although Key Individuals are appointed by the FSP, in order to act in the capacity of a Key Individual approval must first be obtained from the FSB. A Key Individual must meet the fit and proper requirements of honesty and integrity, management and financial product experience, a recognized qualification, regulatory exams and in due course, continuous professional development. Individuals, however, should carefully consider what is expected of them before accepting the appointment as a Key Individual as they will be held accountable for the activities and actions of both the business and the Representatives who have been authorised to act on behalf of the FSP. All financial services business must be conducted in the name of the FSP in terms of Section 13(1)(c) of the FAIS Act and it is the Key Individuals who are the natural persons responsible for the oversight of all such business activities.
Some of the key responsibilities of Key Individuals are:
· Act with due care, skill and diligence in the execution of all duties;
· Act within the standards and rules set by legislation;
· Fulfil contractual obligations as agreed to;
· Management and Oversight of:
– Statutory obligations of the FSP;
– Rendering of financial services of the FSP and persons authorised to act on its behalf;
– Business processes and operational ability.
· Instil a culture of treating customers fairly in all aspects of the business.
Statutory Obligations
FSPs have statutory obligations which they must meet in order to maintain their licence and it is the direct responsibility of the Key Individuals to ensure that these obligations are met. To list a few:
· Financial management includes ensuring that the FSP meets the financial soundness requirements. These requirements may differ depending on the activities or category of licence of the FSP. All FSPs must keep an up to date set of monthly accounts to enable the Key Individuals to ensure continued compliance with the financial soundness requirements. FSPs are required to submit their Annual Financial Statements to the FSB within four months of their financial year end and again it is the Key Individual who is responsible to make sure that this is done within the prescribed period to avoid the possibility of penalties and/or licence suspension or if necessary to make timeous application for an extension.
· PI Cover must be maintained in accordance with legislation.
· The Key Individual must ensure that the Compliance Report/s is submitted to the FSB timeously even if this is done by the appointed Compliance Officer;
· Every year an FSP is responsible to pay Levies to the FSB and the FAIS Ombud. Failure to pay by the deadline of 31 October may result in the FSP’s licence being suspended. The Key Individual must implement a process to ensure that this is attended to.
Oversight of the Rendering of Financial Services
Key Individuals are responsible for the rendering of financial services by those who have been authorised to act as Representatives for the FSP. Some of these duties have been set out below:
· Ensure compliance by all authorised persons with the General Code of Conduct and any other applicable Codes of Conduct, which duty should not be taken lightly.
· Ongoing compliance with the fit and proper requirements. A process should be implemented to check in on a regular basis with Representatives to make sure that they are on track or have already met the requirements. Key Individuals need to know the status of those acting for the FSP including their honesty and integrity. Although this can sometimes be difficult to monitor, a robust pre-authorisation process should be put in place to make sure that you have done enough to know the person that you are authorising to act as a Representative and ongoing checks and declarations will help to demonstrate that this duty is being carried out diligently.
· Oversight of training, knowledge and skill of the Representatives rests with the Key Individuals. It is important that measures have been put in place so that Key Individuals are able to identify any gaps in product or other knowledge that Representatives may have. Where the Key Individual is also the Representative, this includes assessing yourself to make sure that you “know what you don’t know”.
· Monitoring the activities of Supervisors who are responsible for Representatives appointed under supervision is an important role which Key Individuals must fulfil. There is greater risk where advice is being given by Representatives under supervision. In our experience we have found that the documented evidence of the activities of monitoring Representatives is often insufficient. If a Key Individual is called upon to show operational ability, then adequate record keeping will be necessary to substantiate the processes which have been followed.
· Oversight of advice given, intermediary services rendered and fair treatment of customers is an ongoing requirement which could include a review of the advice process followed and recorded, joint visits with customers, review of feedback from customers, assessment of the new business register to understand the type of business being written, the level of replacements and the size of transactions. It is imperative that Key Individuals satisfy themselves that the advice which is being given under the licence of the FSP is appropriate and suitable in the circumstances of the customer.

Key Individual Operational Ability
The Fit and Proper Requirements 2017 published recently, also provides stipulations on operational ability.
A FSP must have at least one key individual per class of business in respect of which the FSP is authorized. This could be a single person responsible for managing or overseeing the rendering of financial services in respect of all or multiple classes of business of the FSP provided that it –
1. is approved for all such classes of business; and
2. has the operational ability to oversee or manage the rendering of financial services in respect of all such classes of business.
A key individual, where he or she is-
1. approved or appointed as a key individual of more than one FSP or juristic representative; or
2. approved or appointed as a key individual of an FSP or juristic representative and appointed as a representative of an FSP other than the first mentioned FSP,
must be able to demonstrate to the Registrar, in a form and manner which may be determined by the Registrar, that he or she has the required operational ability to effectively and adequately manage or oversee the financial services related activities of all the FSPs or juristic representatives for which the key individual was approved or appointed.
In addition, a FSP must, on a regular basis, assess the operational ability of its key individuals to adequately and effectively perform their functions taking into account individual circumstances, the nature, scale, range and complexity of the FSP’s financial services related activities and whether the key individuals are approved as key individuals or appointed as representatives of other FSPs.
The intent of this clause is possibly to address the issue of rent-a-KI where someone fills the position but does not have the ability or capacity to fulfil the legal obligations required of a key individual. If this applies to you, note the double whammy above: You cannot wait for the FSB or your compliance officer to tell you. “…a FSP must, on a regular basis, assess the operational ability of its key individuals to adequately and effectively perform their functions…”

Key Individual Qualification Requirement
From enquiries we receive it appears that there is much confusion about qualification requirements for the appointment of key individuals.
Much of this stems from the so-called transitional period before 2010 when allowances were made for the experience of people who were in the industry at the time.
There is a special section on the FSB website that addresses issues around qualifications. It sets out the pre- and post-2010 requirements very clearly. The critical determinant, as is often the case, is the applicant’s date of first appointment (DOFA).
Someone who wishes to apply for appointment as key individual after 1 January 2010 has to have a recognised qualification on application.
The following link provides access to the relevant page on the FSB website which also contains details of the recognised qualifications.
https://www.fsb.co.za/Departments/fais/Pages/Qualifications.aspx
Please be patient when accessing the lists of qualifications, as it takes a while to get to where you want to be.
From enquiries we receive it is evident that personal circumstances often create problems for applicants to determine what applies to them. If not sure, please contact Louise Willemse, the Manager of the licensing department at Moonstone. You can phone her on 021 883 8000 or send an email to lwillemse@moonstoneinfo.com.

Key individuals’ monitoring responsibility
Posted on 2 April 2019
Most Key Individuals and sole proprietors (Key Individuals) are unaware of the huge responsibility resting on their shoulders, especially in terms of their duty of management and oversight. These responsibilities are increasing with the new principle-based approach to regulation.
While the FSP is responsible for establishing and maintaining procedures to be followed to comply with the FAIS Act, Key Individuals are required to manage and oversee the FSP’s activities with due care, skill and diligence. The activity of ‘managing’ means to have executive control or authority, while ‘overseeing’ is the function of supervising a person/s and their work in an official capacity.
In a case heard by the Appeal Board in November 2016, WD Jonker vs The Registrar of Financial Services, the Appeal Board stated: “A Key Individual … plays a critical oversight role which must be performed with utmost bona fide.”
Even as one of a Key Individual’s main responsibilities, monitoring seems to be one of the most commonly neglected duties.
As Key Individuals are responsible for the rendering of financial services by those who are authorised to act as representatives for the FSP, they required to monitor the activities of supervisors, representatives and representatives under supervision.
This starts with the appointment of representatives. Be aware of the date of first appointment, qualifications, regulatory exams and, more recently, class of business, product specific training and CPD requirements, which need to be monitored and confirmed before appointing new representatives. Never assume a representative previously employed by another FSP complies with the relevant requirements without confirming it for yourself.
Furthermore, Masthead has found that the documented evidence of monitoring representatives is often insufficient to pass regulatory scrutiny. If a Key Individual is called upon to show operational ability, adequate record keeping will be necessary to substantiate the processes which have been followed.
In addition to the monitoring records that Key Individuals must keep for representatives under supervision, these representatives need to show a record of the following in client files:
• Contact stage disclosures.
• Client authority / broker’s note on file.
• The process followed in terms of the FICA risk management compliance programme (RMCP) with special reference to a client’s due diligence.
• Policy schedule.
• Process of seeking information from client / completed fact finding document.
• Completed risk profile.
• Financial needs analysis conducted.
• Comparative quotes / schedule of quotes.
• Client warned where limited advice is given.
• Record of advice / completed client advice record.
• Client fully advised of consequences of replacements.
• Information, documents and advice records properly stored and retrievable.
Other areas that require oversight include advice given, intermediary services rendered and fair treatment of clients. The latter ongoing requirement could include a review of the advice process followed and recorded, joint visits with clients, a review of client feedback, and assessment of the new business register to understand the type of business being written, level of replacements and size of transactions. Key Individuals must be satisfied that the advice being given under the FSP’s licence is appropriate and suitable to meet clients’ circumstances.
Oversight of representatives’ training, knowledge and skill is also often neglected. It is important to have measures in place so Key Individuals can identify any gaps in product or other knowledge that representatives may have. Where the Key Individual is also the representative, this includes assessing oneself to make sure you ‘know what you don’t know’.
If an FSP has more than one Key Individual to monitor activities, monitoring needs to take place between these Key Individuals, as the accountability function of Key Individuals cannot be delegated.
If you are looking to take on the responsibility of a Key Individual, ensure your FSP has a clear process that deals with monitoring. You should completely understand what is meant by management and oversight, and have immaculate knowledge of the obligations and duties which will require commitment and time.
You should also have the operational ability to comply with the requirements. This may differ depending on the type of FSP. Often, large FSPs with many branch offices and representatives only have one Key Individual. Practical solutions in this instance may include appointing additional Key Individuals or using technology and efficient processes to ensure monitoring is done.
For further guidance, consider consulting your compliance officer or practice management consultant.

Most Key Individuals and sole proprietors (Key Individuals) are unaware of the huge responsibility resting on their shoulders, especially in terms of their duty of management and oversight. These responsibilities are increasing with the new principle-based approach to regulation.

While the FSP is responsible for establishing and maintaining procedures to be followed to comply with the FAIS Act, Key Individuals are required to manage and oversee the FSP’s activities with due care, skill and diligence. The activity of ‘managing’ means to have executive control or authority, while ‘overseeing’ is the function of supervising a person/s and their work in an official capacity.

In a case heard by the Appeal Board in November 2016, WD Jonker vs The Registrar of Financial Services, the Appeal Board stated: “A Key Individual … plays a critical oversight role which must be performed with utmost bona fide.”

Even as one of a Key Individual’s main responsibilities, monitoring seems to be one of the most commonly neglected duties.

As Key Individuals are responsible for the rendering of financial services by those who are authorised to act as representatives for the FSP, they required to monitor the activities of supervisors, representatives and representatives under supervision.

This starts with the appointment of representatives. Be aware of the date of first appointment, qualifications, regulatory exams and, more recently, class of business, product specific training and CPD requirements, which need to be monitored and confirmed before appointing new representatives. Never assume a representative previously employed by another FSP complies with the relevant requirements without confirming it for yourself.

Furthermore, Masthead has found that the documented evidence of monitoring representatives is often insufficient to pass regulatory scrutiny. If a Key Individual is called upon to show operational ability, adequate record keeping will be necessary to substantiate the processes which have been followed.

In addition to the monitoring records that Key Individuals must keep for representatives under supervision, these representatives need to show a record of the following in client files:

Contact stage disclosures.
Client authority / broker’s note on file.
The process followed in terms of the FICA risk management compliance programme (RMCP) with special reference to a client’s due diligence.
Policy schedule.
Process of seeking information from client / completed fact finding document.
Completed risk profile.
Financial needs analysis conducted.
Comparative quotes / schedule of quotes.
Client warned where limited advice is given.
Record of advice / completed client advice record.
Client fully advised of consequences of replacements.
Information, documents and advice records properly stored and retrievable.
Other areas that require oversight include advice given, intermediary services rendered and fair treatment of clients. The latter ongoing requirement could include a review of the advice process followed and recorded, joint visits with clients, a review of client feedback, and assessment of the new business register to understand the type of business being written, level of replacements and size of transactions. Key Individuals must be satisfied that the advice being given under the FSP’s licence is appropriate and suitable to meet clients’ circumstances.

Oversight of representatives’ training, knowledge and skill is also often neglected. It is important to have measures in place so Key Individuals can identify any gaps in product or other knowledge that representatives may have. Where the Key Individual is also the representative, this includes assessing oneself to make sure you ‘know what you don’t know’.

If an FSP has more than one Key Individual to monitor activities, monitoring needs to take place between these Key Individuals, as the accountability function of Key Individuals cannot be delegated.

If you are looking to take on the responsibility of a Key Individual, ensure your FSP has a clear process that deals with monitoring. You should completely understand what is meant by management and oversight, and have immaculate knowledge of the obligations and duties which will require commitment and time.

You should also have the operational ability to comply with the requirements. This may differ depending on the type of FSP. Often, large FSPs with many branch offices and representatives only have one Key Individual. Practical solutions in this instance may include appointing additional Key Individuals or using technology and efficient processes to ensure monitoring is done.

The Financial Intelligence Centre Act (FICA), as amended, requires all Accountable Institutions (AIs) to have a Risk Management and Compliance Programme (RMCP) in place. The requirement to implement a RMCP came into effect on 2 October 2017, and since then the RMCP has been a buzzword in the financial industry with many articles and workshops on the topic. Due to the nature of the RMCP, AIs have been given until 2 April 2019 to fully adopt and implement a RMCP within their businesses. Given that this deadline is fast approaching, we recap some of the main areas that you ought to be familiar with by now in case the FIC comes knocking at your door.

1. What is a RMCP?
The RMCP is a documented plan that must set out how the AI will deal with money laundering and terrorist financing risk management and compliance. It replaces the previous requirement to have a set of Internal Rules. The RMCP must contain policy documents, and must detail all the processes, systems and controls used for things like customer due diligence (identification and verification of clients), recordkeeping, reporting and how the risk-based approach will be applied.

2. Who does the requirement apply to?
The requirement to have a RMCP in place applies to all AIs as listed in Schedule 1 of FICA. Financial Service Providers (FSPs) (excluding those FSPs only approved for short-term insurance and/or health services benefits) are amongst those listed under Schedule 1.

3. Why must you have a RMCP in place?
It is a legislative requirement[1] that AIs must be able to understand their exposure to money-laundering and terrorist-financing risks. The purpose of the RMCP is to assist AIs in identifying and assessing these risks in order to protect and maintain the integrity of their businesses and the integrity of the financial system of South Africa, by developing systems and controls to monitor, mitigate and manage these risks. AIs must also provide copies of their RMCP, if requested to do so, to supervisory bodies such as the Financial Intelligence Centre (FIC) or Financial Sector Conduct Authority (FSCA). Non-compliance with the requirements contained in FICA can result in an administrative sanction which may include a financial penalty.

4. How does the RMCP work?
The RMCP must contain procedures on how AIs will: Identify, Assess, Monitor, Mitigate, and Manage the risks mentioned above. A risk-based approach must be used by AIs when interacting with clients. This approach gives flexibility to AIs to decide what they consider to be high or low risk and how to manage these. The RMCP must also set out how the AI will conduct customer due diligence, maintain records, deal with reporting obligations, and how it will ensure ongoing training for all staff.

Let’s look at how the AI can use a risk-based approach in a bit more detail:

4.1. Identify
AIs need to identify the unique money laundering and/or terrorist financing risks that their business or industry may face. Every business is different and must be treated as such. The process used to identify these risks must account for a range of factors which may indicate threats and vulnerabilities to a greater or lesser extent in specific scenarios. Clients, products and services, and other aspects of an AI don’t all pose the same risk. To identify all the factors that may affect the business, a holistic view must be taken of the information gathered at various levels and stages of conducting business. In identifying the risk the AI must be able to, for example, set out how it will determine if its dealing with an existing or prospective client, ensure that it does not do business with anonymous clients, how it will identify and verify different types of clients such as natural or legal persons, how it will determine if future transactions are consistent with its knowledge of a client and that particular client’s financial means, etc. These measures can be performed through various checklists.

4.2. Assess
After identifying the money-laundering and terrorist financing risks, the likelihood of these occurring and the impact of these risks on the business needs to be assessed. Various factors can assist in assessing the risks such as taking into account the size, structure and complexity of the business, the nature and range of products and services on offer, delivery channels (the way in which institutions and clients communicate with each other in the process of offering products and services), geographic areas, and client indicators such as the level of public influence or importance of a client as well as suspicious behaviour. AIs should be able to show how they classify risks, based on these different factors. This can be done by documenting a risk-rating methodology or risk scale. These factors can also assist in determining the amount and type of risk a business is willing to tolerate.

4.3. Monitor
AIs must have sufficient systems and controls in place to manage and monitor the risks that have been identified and assessed. For example, if the risks are higher, the range, degree, frequency or intensity of preventive measures and controls conducted must be stronger. AIs must document their processes for monitoring business relationships in their RMCPs and this monitoring must be done according to the risks involved. All clients and business relationships are different and the way that they are monitored should reflect this.

4.4. Mitigate
To mitigate risks means to use methods to control and minimise the money-laundering and terrorist-financing risks that were identified and assessed. Customer due diligence (including identification and verification) is one of the measures that can be used to mitigate risks involved in a business relationship or single transaction. Customer due diligence refers to what the AI knows about its client, what it understands about the business the client is conducting and the type of transactions it can reasonably expect in the course of the business relationship. This can be performed through checklists setting out as much detail about the client and their circumstances.

4.5. Manage
AIs must apply effective controls to manage the risks identified. In order to manage the risk, the AI must plan a risk response for previously identified and assessed risks. This has to be done by using a risk-based approach. The controls that will be used to manage risks must be documented in the AI’s RMCP.

If we look at the definition of PST in BN 194, then “product specific training” means training in respect of a particular financial product where training is assessed, and it includes amendments to that particular financial product. Breaking down the definition, this means that:

It is training about a specific product.
The training needs to be assessed, so it involves being able to show a form of understanding about the product, and that one understands the product in order to render a financial service on it.
If there are any changes to a financial product, training needs to be provided to the representative to ensure understanding of the changes.
What does this mean?
As a Financial Services Provider (FSP) you render financial services to clients, and after identifying a financial need, you recommend a suitable financial product to address that financial need – e.g. “I need to save for retirement, and the suitable financial product is a retirement annuity”.

In terms of the Long-term and Short-term Insurance Policyholder Protection Rules [1], insurers “…may only enter into an agreement with an intermediary where… the insurer has taken reasonable steps to satisfy itself that the independent intermediary and, where applicable, any persons rendering services as intermediary on the independent intermediary’s behalf, meet the FAIS product knowledge competency requirements in respect of the policies offered by the insurer;”. While it is good practice for all Financial Product Providers, when developing financial products, to ensure all representatives who give advice on their products, understand those products before they allow someone to advise on their products and pay them remuneration for rendering a financial service on the product, it is in some cases prescribed by law.

However, according to section 29(3) of the Board Notice, it is the FSP’s responsibility (not the product provider’s) to ensure that the Representatives are proficient and understand the financial product, before they render financial services in respect of that specific financial product. Therefore, the FSP is responsible to ensure that all the Representatives receive PST.

The rules around PST differ depending on the type of representatives and when they were appointed:

Representatives NOT under supervision on 1 April 2018 are deemed to have done the PST in respect of those particular financial products which they were appointed for at that date. However, when one of these products are amended the representatives need to receive training and be assessed on the changes.
Representatives that were under supervision on 1 April 2018 or who were appointed as representatives under supervision before 1 May 2018 (the start date for PST) had until 31 July 2018 (i.e. 3 months from the commencement of the PST provision) to complete the PST.
New Representatives appointed on or after 1 May 2018 need to complete the PST before they can render a financial service on the Product Provider specific product.
PST does not apply to Category II, IIA or III FSPs or its Representatives nor does it apply to Key Individuals of any Category of FSP.

The requirements for PST content are explained in Section 29(5), and we emphasise again that it will be the responsibility of FSPs to determine if the PST will give the Representative the required knowledge to give appropriate financial services on that specific product. The test or check for FSPs is that Representatives need to understand the financial product and the FSPs need to be able to prove that this is the case.

PST records must be kept in a competence register. The FSP needs to keep detailed records of the PST and update the register within 15 days after the training occurred within the FSP. The training record and proof of training must be kept for a period of 5 years after the representative ceased to render financial services.

The requirements on FSPs to comply with the legislation is onerous. If their Representatives are not competent it not only creates regulatory risk but can also give rise to financial risk. Therefore, to ensure that you adhere to the fit and proper requirements, we encourage you to ask your product suppliers for specific product training. If they are not willing to provide this, think twice about doing business with them.

PST is not an action that can be taken lightly, proper records need to be kept and the required training plan and consequences need to be discussed with the representatives.

[1] Chapter 5, Rule 12.2 of the Long-term and Short-term Policyholder Protection Rules

FSPs are reminded that their Representatives (where necessary) must complete Product Specific Training prior to rendering any financial services in respect of that particular financial product(s). Product Specific Training also includes amendments and therefore if there are any changes to a financial product, training needs to be provided to the Representative to ensure understanding of the changes.

With the introduction of the new FAIS fit and proper amendments in board notice 194 of 2017, the financial service industry has been shaken. More stringent requirements have been introduced leaving a lot of people confused or frustrated not knowing what is required. In this article, we aim to give clarity on what the requirement of product specific training entails.

In all industries, the most important aspect of an organization is that of staff training specifically relating to the services and products the organisation offers to its clients. It is extremely important that a representative of a business is able to communicate the products to a customer efficiently and answer any questions about the product and advise the client or customer about any benefits or limitations of the product or service. Most organisations will require that a representative of the business carry sufficient knowledge about the product or service before they are even allowed to market the product to the public.

With the latest board notice, the FSCA has made product specific training compulsory within the FAIS environment.

What is product specific training?

Product specific training refers to training in respect to a particular financial product, which includes any amendments to that particular financial product. The requirements stipulate clearly that this training includes a form of assessment regarding the knowledge of the product.

Who needs to complete product specific training?

Product specific training applies to all FSP’s and representatives except for category II, IIA and III FSPs and its representatives and key individuals provided they comply with section 12 of the notice.

Representatives rendering services under supervision on 1 April 2018 had 3 months from this date to complete product specific training. The requirement of product specific training became operational on 1 May 2018 and representatives appointed on or after this date must complete product specific training prior to rendering financial services in those product categories.

Who can offer provide product specific training?

Product specific training can only be offered by either the FSP or its key individual that is authorized to render services for that particular product and therefore has expertise in respect of that specific product or the product supplier. It is the responsibility of the FSP, key individuals and representatives to ensure that the training is completed.

Who is exempted from product specific training?

Representatives appointed before 1 April 2018 (excluding representatives rendering services under supervision) are:

Deemed to have completed product specific training for the financial products for which they were authorised or appointed.

The above exemption does not apply to amendments to financial products where those amendments occurred after April 2018.

Record keeping requirements

The FSP must ensure that a competence register is kept and updated (within 15 days) for each completed product specific training and the key individual is required to supervise the completion of the competence register, the compliance officer will also monitor completion and compliance with the requirements.

Fit and Proper Requirements
The proposed fit and proper requirements relating to financial soundness include amendments to the existing requirements and brand new requirements which FSPs may have to comply with. We identify and discuss the proposed changes and the impact that the “new” requirements may have on FSPs.
________________________________________
The proposed fit and proper requirements relating to financial soundness will apply to all persons ( i.e. natural persons, partnerships, trusts, corporate or unincorporated bodies) who apply for authorisation to become an FSP or who are already authorised FSPs. The current requirements are only applicable to FSPs while the proposed amendments will also apply to juristic representatives, where applicable. It is proposed that the financial soundness requirement not be applicable to Banks registered under the Banks Act and insurers who are registered under the Short-term or Long-term Insurance Acts as they already have to fulfil financial soundness requirements under those Acts.
Definitions
Those FSPs which are required to maintain a certain level of liquid assets must, currently, first calculate their annual expenditure in line with the definition.
While the definition of “annual expenditure” is maintained in the proposed provisions, there are some minor adjustments.
• Currently, FSP’s to whom this provision applies are able to deduct, amongst other things, 50% of commissions or fees paid to representatives for services rendered that did not form part of their remuneration.
• The new proposals, in this regard, allow for all remuneration that is linked to a percentage of the FSP’s revenue or a percentage of the revenue generated by an employee, representative or contractor of the FSP to be deducted from annual expenditure.
We don’t anticipate that this will have any major impact on FSPs who are already subject to the liquid asset requirement.
The definition of “liquid assets” for those FSPs to which this will apply, has been extended in the proposed requirements to not only include “cash and assets equivalent to cash” as currently defined, but also to allow FSPs to invest in slightly “riskier” collective investment schemes and shares. However, if the proposals go ahead as planned, there will be certain limitations in respect of these “riskier assets” imposed, such as only allowing an FSP to use 70% of the market value of collective investment schemes (other than money market unit trusts), to be used in the calculation of liquid assets. This should provide greater flexibility to those FSPs which are required to maintain liquid assets.
General requirements applicable to categories of FSPs
A new inclusion in the general requirements is that FSPs and juristic representatives must maintain financial resources which are sufficient for the type of business and particularly to ensure that there is no risk that its liabilities cannot be met. This is a very broad requirement and we would hope to see some clear guidelines provided. However, financial risk is something that all FSPs should consider as part of their normal risk management process to ensure that these risks are identified and addressed in such a way as to minimise the impact should they occur.
There is no change to the requirement that assets exceed liabilities, except that this will now also apply to juristic representatives.
The management systems and processes which all FSPs and juristic representatives, except for Category I FSPs which do not hold or receive client funds or premiums, will have to have are clearly prescribed in the proposed amendments and will need to enable management to adequately assess the nature and level of risks to which it is or may be exposed as well as the risk of not meeting its obligations.
Another proposal which could have an impact even on existing FSPs, is if an FSP or juristic representative is subject to “pending proceedings” which could result in being declared insolvent or provisionally insolvent or being placed under liquidation, they would not be able to continue as an FSP or juristic representative. In addition, any FSP or juristic representative which persistently fails to manage its financial obligations or to provide a satisfactory credit record will not be able to continue to operate as such.
Requirements applicable to specific Categories of FSPs
The proposed requirements are divided into two parts. Part I includes the application and general requirements of financial soundness and Part II includes the requirements applicable to specific categories of FSPs.
Liquid Asset Reporting
The specific requirements set out in Part II are applicable to a Category I FSP that holds client assets and collect premiums, a Category II, IIA, III and IV FSP and a juristic representative. The proposed additional assets, working capital or liquid asset requirements are very similar to what is currently in place, except that these will now also apply to the juristic representative.
Under the proposals, not only will these FSPs and juristic representatives have to comply with the applicable solvency requirement, they will also be required to submit “Form A: Liquidity Calculation” to the FSB on a bi-annual basis in the case of Category II, IIA, III FSPs and their juristic representatives, and annually in the case of a Category I FSP which holds client assets or collects premiums. The form will require the FSP or juristic representative to provide a breakdown of its liquid assets and its annual expenditure, taking into consideration those expenses which can be deducted, for the current and previous reporting periods. The proposed liquidity requirement for Category IV FSPs will be defined as “liquid assets equal to or greater than 4/52 weeks of annual expenditure” where it currently is 8/52 weeks of annual expenditure. In the case of Category II, IIA and III FSPs and juristic representatives the form will have to be submitted within 7 days after every half financial year-end and Category I FSPs that hold client assets and collect premiums will be required to submit the form on an annual basis together with their annual financial statements. While the actual requirements do not look to change that much, there is an additional reporting obligation which affected FSPs and juristic representatives will have to incorporate into their processes.
Early Warning Reporting
A completely new requirement which is included in the proposed amendments is the ‘early warning requirements’ whereby the applicable FSPs and juristic representatives will have to submit, in writing, an immediate notification to the Registrar when:
• assets exceed liabilities by no more than 10%;
• current assets exceed current liabilities by no more than 10%;
• the additional assets requirement applicable to Category IIA and III FSPs and their juristic representatives exceeds the minimum requirement by not more than 10%; or
• when becoming aware of an event or situation that may or will result in the effects mentioned above.
The notification will have to be certified by the CEO, controlling member, managing or general partner, or trustee of the FSP. Further, if any of these “early warning” requirements dooccur, then the FSP or juristic representative “may not directly or indirectly make any payments by means of a loan, advance, bonus, dividend, repayment of capital or other distribution of assets to any director, officer, partner, shareholder or associate, without the prior written approval of the Registrar.”
In order for an FSP or its juristic representatives, as may be applicable, to comply with “early warning” reporting, they will need to maintain up-to-date and comprehensive financial records to enable any of these situations to be immediately flagged to management. Affected FSPs, if the proposals become legislation, will have to review their processes to make sure that they can comply.
Masthead has sent its comments to the FSB on the proposed fit and proper requirements and we will keep you updated of any developments by the Regulator.

In terms of Board Notice 194 of 2017 (The fit and proper requirements for financial services providers) the following financial services providers (FSPs) and juristic representatives must immediately in writing, notify the FSCA when any of the circumstances contemplated in section 49 of the Board Notice are met:
(i) a Category I FSP that holds, controls or has access to client assets or that collects, holds or receives premiums or other monies in respect of a financial product;
(ii) a Category II, IIA, III and IV FSP; and
(iii) a juristic representative of an FSPs referred to in subparagraph (ii).
Early warning notifications in terms of section 49 should be submitted to the FSCA, when:
49(1)(a) the assets of the FSP or that of its juristic representative exceed the liabilities by less than 10%;
(b) the current assets of the FSP or that of its juristic representative exceeds the current liabilities by less than 10%;
(c) in respect of a Category IIA and III FSP and juristic representatives of that FSPs, the additional assets of the FSP or that of its juristic representative exceeds the minimum requirement by less than 10%;
(d) the FSP or its juristic representative does not meet any of the requirements in this Chapter; or
(e) the FSP becomes aware of an event or situation that may or will result in the effect contemplated in paragraphs (a), (b) and (c).
(2) The notification referred to in subsection (1) must be certified by the chief executive officer, controlling member, managing or general partner, or trustee, of the FSP as the case may be.
(3) The requirements set out in subsection (1) apply, with the necessary changes to a juristic representative referred to in section 45 (1) (a) (iii), provided that the notification referred to in that subsection must be made to the FSP of the juristic representative.
(4) If any of the factors in subsection (1) arises, the FSP may not directly or indirectly make any payment by way of a loan, advance, bonus, dividend, repayment of capital or a loan or any other payment or other distribution of assets to any director, officer, partner, shareholder, related party or associate without the prior written approval of the Registrar.
Please inform ICS immediately in the event of a breach of the early warning requirements. ICS will then submit the early warning notification on behalf of clients to the FSCA via the ePortal online system.
A copy of the financial soundness requirements can also be downloaded here.
The Fit and Proper requirements which were introduced during 2018 has brought about several changes in the financial soundness requirements for authorised financial services providers.

General requirements which are applicable to all FSP’s (and its juristic representatives) include the general solvency requirement that assets must at all times exceed the liabilities. An FSP (and its juristic representative) must at all times maintain adequate financial resources to ensure that they are able to carry on with their business and meet all liabilities as they fall due.
Some of the changes brought about by the Fit and proper determination in relation to Cat I FSPs ( and its juristic representatives) who does not collect, hold or receive premiums or other monies:
What has changed?
• The definitions of assets and liabilities no longer have any exclusions( please see below).

Previous solvency requirement for CAT I New solvency requirement for CAT I
The assets of the FSP (excluding goodwill other intangible assets and investments in related parties) must at all times exceed the FSP’s liabilities (excluding loans validly subordinated in favour of all other creditors). The assets as a –
a. Category I FSP and
b. A juristic representative of a Category I FSP
must at all times exceed the liabilities of that FSP or that juristic representative.

• Juristic representatives of a Category I are required to comply with solvency requirements from the 1st of March 2019.

Here is a short example of how this may affect your FSP?
• An FSP will no longer be able to subordinate a loan from a shareholder in order to meet the solvency requirements.

There are also changes brought about by the Fit and proper determination in relation to Cat I FSPs ( and its juristic representatives) that collect, hold or receive premiums or other monies as well as CAT II, IIA, III and IV FSPs:

What has changed?
• Changes in definitions of annual expenditure and liquid assets;
• The requirement of the Submission of a Liquidity calculation on an annual or bi-annual basis depending on the type of FSP; and
• Early warning requirements, which requires an FSP to submit a notification to the FSCA once certain factors in relation to its financial soundness arose ( for instance if the assets of the FSP exceed the liabilities with only 10%)
• Juristic representatives of an FSP is required to comply with solvency requirements from the 1st of March 2019

It is clear from the above mentioned that the financial soundness requirements have to be complied with on a continuous basis, so it is important that you familiarise yourself with the contents and the requirements in the Fit and proper determination (BN 194 of 2017)

Qualification requirements – Updated recognised list published
In an article in April we recapped the main qualification requirements based on Board Notice 194 of 2017.
Depending on the financial product/s which financial advisors are authorised for, new entrants to the industry may need to obtain an appropriate qualification for the applicable financial products within six years from their date of appointment for that financial product.
The question is: which qualifications are ‘acceptable’ qualifications and will meet fit and proper requirements?
Earlier this week, the Financial Sector Conduct Authority (FSCA) published the qualifications recognised in terms of section 24 of the 2017 Determination of Fit and Proper Requirements for FSPs and that are recognised in terms of section 52(2) of the Determination, for financial services providers, key individuals and representatives.
Click here to download the FSCA FAIS Notice 36 of 2019.

Getting debarment right the first time – Important considerations when debarring a person
On 1 April 2018, the debarment process under the FAIS Act was amended by the FSR Act 9 of 2017. In terms of section 14(3) of the FAIS Act, a FSP must, before debarring a person, take specific steps. Section 39 of the FAIS Act further stipulates that any person aggrieved by a decision of an FSP, including electing to debar a person in terms of section 14, may now also apply for the reconsideration of the decision to the Financial Services Tribunal.
As a result of the right to appeal against a debarment decision, there was a substantial increase in debarment cases referred to the Tribunal since April 2018. These cases highlighted that there was still very little clarity with regards to the process that needs to be followed as well as the FSCA’s obligations in this regard.
The FSCA has now published Guidance Notice 1 of 2019 to clarify the role of all parties in this process.
Debarment defined
The requirement and duty imposed by the FAIS Act on FSPs to debar representatives was enacted in 2002 as a measure of self-regulation of functions of advice and intermediary services. The legislature saw fit to clothe FSPs with the statutory power to debar representatives.
Debarments in terms of section 14(1) of the FAIS Act is therefore a regulatory tool aimed at ensuring that only persons who comply with the provisions of the FAIS Act and satisfy the fit and proper requirements are allowed to render financial services. A debarment decision by an FSP constitutes the exercise of a statutory power and amounts to administrative action.
Relevant factors of debarment process
1. Obligation on FSP
The Guidance Notice once again stresses the obligation on FSPs to follow due process when they debar a person and describes when and how they should exercise their powers.
Prior to the amendment of section 14 of the FAIS Act, the FAIS Act did not specifically deal with the timing of when a debarment may or should be effected, particularly where a person had ceased to be a representative of the debarring FSP. Clarity in this regard has now been provided in sections 14(1)(b) and 14(5) of the FAIS Act, which provide that an FSP retains the obligation to debar a person who no longer is a representative of that FSP, provided that the –
(a) reason for a debarment must have occurred and became known to the FSP while the person was still a representative of the FSP (see Guidance Note where this becomes known after the rep left); and
(b) debarment must commence no longer than six (6) months from the date that the person ceased to be a representative of the FSP.
• Requirements for debarmentSection 14(3) of the FAIS Act sets out the requirements with which an FSP must comply when debarring a person. These requirements must be contained in an FSP’s policies and procedures governing its debarment process. (See article in Your Practice Made Perfect)3. Conduct of representativesThe purpose of the defined process is to afford a representative an opportunity to make submissions in response to the grounds and reasons that inform an FSP’s intention to debar him/her. An election by a representative not to make use of this opportunity does not prevent the FSP from considering the matter and taking a decision concerning the debarment of that person.The FSCA has however noticed that a practice has developed whereby certain representatives, who anticipate their debarment, try to avoid the debarment by resigning employment or terminating his/her mandate. An FSP retains its power to debar a person who is no longer a representative of that FSP, provided that the first and second requirement, set out above, is met.
The Guidance Notice further clarifies that an oral hearing is not required; that FSPs should not use debarments as a result of other grievances and that FSPs should in all cases act reasonably and rationally.
It is also important to take note of the following (some of these will be unpacked in future articles):
• FSP’s duties after the debarment
• Debarred persons rights
• Powers of the Tribunal should it disagree with debarment decisions
• The Role of the FSCA upon receipt of a debarment notification
Click here to download Guidance Notice 1 of 2019.

The FSCA’s Guidance Notice 1 of 2019 clarifies the requirements for debarment as described in Section 14(3) of the FAIS Act with which an FSP must comply when debarring a person. It is important that these requirements should be contained in an FSP’s policies and procedures governing its debarment process.
The Guidance Notice shares the following steps that aim to record these requirements in a practical manner:
Step 1: Give adequate notice in writing to the person
The notice should state the following:
• the FSP’s intention to debar the person;
• the grounds and reasons for the debarment.
• any terms attached to the debarment, including, in relation to unconcluded business, any measures stipulated for the protection of the interests of clients (section 14(3)(a)(i));
The FSP should, through the notice, provide the person with a copy of its written policies and procedures governing the debarment process.
The FSP should further, through the notice, give the person a reasonable opportunity to make a submission in response.
What constitutes “adequate notice” and “reasonable opportunity” will depend on the circumstances of each case. For example, when there are reasonable grounds to believe that substantial prejudice to clients or the general public may occur, this may warrant that debarment proceedings are carried out on an urgent basis.
It has been noted that representatives approach the FSCA, after the debarment, to request the documentation and reasons for the debarment by the FSP from the Authority. In this regard, the FSCA urges the FSP to also provide a representative with the documentation that informed the decision to debar the representative in order to enable the latter to formulate a proper response. As seen in a number of Tribunal findings, failure to do so could lead to the debarment being set aside.
Step 2: Consider (together with all available facts and information) any response received from the person that the FSP intends to debar, and (where applicable) have regard to information regarding the conduct of the person that is furnished by the FSCA, the Ombud or any other interested person.
Step 3: Take a decision whether or not to debar the person and immediately notify the person in writing of –
• your (the FSP’s) decision;
• the persons’ rights in terms of section 228 of the FSR Act, i.e. the right to –
• request reasons for the decision; and
• have the decision reconsidered by the Tribunal.

According to Board Notice 194 of 2017, the Fit and Proper BN, FSPs and juristic representatives have to be financially sound in order to be able to deliver a quality service to clients. The financial soundness requirements have been extended to juristic representatives with effect from 1 March 2019.

Section 53 of the Fit and Proper Board Notice stipulates that Section 44(1) and (2); 45; 48 and 49 relates to juristic representatives and commences on 1 March 2019.

 
Sections 44 and 45 of Board Notice 194 of 2017

• S 44 provides that every juristic representative will, as of 1 March 2019, be required at all times to maintain financial resources that are adequate both as to amount and quality to enable it to carry out its activities and to ensure that liabilities are met as they fall due.
• S 44(3) which became effective on 1 April 2018 provides that no person may continue as a juristic representative if it has been placed under liquidation or provisional liquidation or is subject to any pending proceedings which may lead to liquidation or provisional liquidation. In addition, no person may continue as a juristic representative if it seriously and persistently failed or fails to manage any of its financial obligations satisfactorily. This places an obligation on the FSP to ensure the overall financial soundness of its juristic representatives.
• S 45 applies to juristic representatives of Category 1 FSPs. As of 1 March 2019, the assets of a juristic representative of a Category I FSP must at all times exceed the liabilities of that juristic representative.

The Board Notice distinguishes very clearly between those FSPs who “hold, control or has access to client assets” and/or “collect, hold or receive premiums or other monies” and those who do not. FSPs must make sure that they understand very clearly what applies to the FSP.

The financial soundness requirements of juristic representatives of Category II, IIA, III and IV FSP’s are set out in S 46 – S 49. Juristic reps in these categories must familiarise themselves with the detail of the requirements as set out in the Board Notice:

 
Section 48 of Board Notice 194 of 2017

S48 provides that a juristic representative must comply with the additional asset, working capital and liquidity requirements as set out in the following table:
Category of FSP and juristic representative General requirements and additional asset requirement Working capital requirement Liquidity requirements Submission of form A: Liquidity calculation to Commissioner
Category I FSP that holds client assets/receives premiums and their juristic reps Assets must exceed liabilities Current assets must exceed current liabilities Liquid assets must be larger or equal to 4/52 weeks of annual expenditure Annually together with financial statements
Category II FSP and its juristic reps Assets must exceed liabilities Current assets must exceed current liabilities Liquid assets must be larger or equal to 8/52 weeks of annual expenditure Six monthly within 45 days after half year end
Category IIA FSP and its juristic reps Assets must exceed liabilities by at least R3 million Current assets must exceed current liabilities Liquid assets must be larger or equal to 13/52 weeks of annual expenditure Six monthly within 45 days after half year end
Category III FSP and its juristic reps Assets must exceed liabilities by at least R3 million Current assets must exceed current liabilities Liquid assets must be larger or equal to 13/52 weeks of annual expenditure Six monthly within 45 days after half year end
Category IV FSP and its juristic reps Assets must exceed liabilities Current assets must exceed current liabilities Liquid assets must be larger or equal to 4/52 weeks of annual expenditure Annually together with financial statements

Section 49 of Board Notice 194 of 2017

S49 refers to early warning requirements, warning lights that may alert an FSP, or its juristic representative that it is running the risk of not meeting its financial soundness requirements. The following is indicated:
1. the assets of the FSP or that of its juristic representative exceed the liabilities by less than 10%;
2. the current assets of the FSP or that of its juristic representative exceeds the current liabilities by less than 10%;
3. in respect of a Category IIA and Ill FSP and juristic representatives of that FSPs, the additional assets of the FSP or that of its juristic representative exceeds the minimum requirement by less than 10%;
4. the FSP or its juristic representative does not meet any of the requirements in this Chapter; or
5. the FSP becomes aware of an event or situation that may or will result in the effect contemplated in paragraphs (1), (2) and (3).

If any of the above situations occur at a juristic rep he or she needs to notify the FSP, and not the Commissioner, accordingly.

The new Fit and Proper regulations provide a wide range of prescriptions which FSPs should consider when appointing new representatives. It also has a potential bearing on current appointees who may be unrehabilitated insolvents.

Section 40 states:

(1) An FSP must ensure that where it appoints a person as a representative –
(a) the person –
(i) is not declared insolvent or provisionally insolvent;
(ii) is not under liquidation, provisional liquidation or business rescue; and
(iii) is not subject to any pending proceedings which may lead to an outcome referred to in subparagraph (i) to (ii;
(b) the person, in the case of a juristic representative, has sufficient operational ability and financial resources to perform the activities for which it is appointed as a representative; and
(c) such appointment does not –
(i) materially increase any risk to the FSP or to the fair treatment of its clients;
(ii) materially impair the quality of the governance framework of the FSP, including the FSP’s ability to manage its risks and meet its legal and regulatory obligations;
(iii) compromise the fair treatment of or continuous and satisfactory service to clients;
(iv) prevent the FSP from acting in the best interests of its clients; or
(v) result in key decision-making responsibilities being removed from the FSP.
(2) An FSP must ensure that any remuneration or fee paid in respect of an activity or function for which a person is appointed as a representative –
(a) is reasonable and commensurate with the actual function or activity; and
(b) is not structured in a manner that may increase the risk of unfair treatment of clients.
(3) An FSP must develop appropriate contingency plans to ensure the continued function of the FSP’s business and continued service to its clients in the event that the appointment of the representative is terminated or becomes ineffective.
(4) An FSP may not permit a representative to outsource or sub-delegate any activity or part thereof relating to the rendering of financial services that that representative performs on behalf of the FSP.
Current Appointees

As the regulations become effective from 1 April 2018, it will impact on people currently appointed and to whom (1)(a) above may apply.

FINANCIAL PRODUCTS

FAIS: Fit and proper

Board Notice 194 of 2017 introduced several amended Fit and Proper requirements that Financial Services Providers (FSPs), Key Individuals and Representatives must meet. These requirements came into effect on 1 April 2018, with certain provisions being delayed until later dates.

Along with the FAIS Act, which aims to protect the consumer and professionalise the financial services industry, the new Fit and Proper requirements establish a higher level of professionalism and compliance in the industry. This new legislation has far-reaching effects for the entire industry, but it must be welcomed as it is aimed at bringing about professionalism.

The Fit and Proper requirements also aim to establish increased competence within the industry. Most elements of Fit and Proper hinges on the fact that competence will take centre stage. If there is an increased focus on competence and compliance, elements such as honesty and integrity, good standing, operational ability and financial soundness will all fall into place.

For a schedule of the Fit and Proper deadline dates, click here.

What are the new Fit and Proper Requirements?

The following is a high-level summary of the Fit and Proper requirements which need to be implemented and complied with before each deadline date:

Honesty, Integrity and Good Standing

FSPs need to set out adequate policies and internal processes to ensure that the Key Individuals and Representatives fulfil their duties in an honest manner and comply with the requirements. In addition, FSPs must be able to meet standards or principles of good standing like keeping up-to-date with regulatory obligations, having a valid licence, having no outstanding reports, not owing any fees and ensuring that all requirements are met.

Competence Policy and Processes

Competence is defined in Board Notice 194 as, “Having the skills, knowledge and expertise needed for the proper discharge of a person’s responsibilities in the performance of his or her functions.” The FSP and Key Individual must therefore make sure that Representatives receive adequate training in order to maintain compliance and be competent enough to offer clients the particular financial services or products for which they are authorised.

The Competence requirements include Regulatory Exams, Class of Business training, Qualifications, Product Specific Training and Experience. Continuous Professional Development (CPD) must be undertaken to ensure that the level of competence is maintained, updated and, where necessary, new knowledge and skills are developed. FSPs must also establish, maintain, update and submit a competence register to the FSCA if requested to do so.

We have our own competence register which makes it easy for you to:

• Record and keep track of all your training activities.
• Keep all records relating to COB, PST, CPD, RE and Qualifications in this register.
• Add training quickly and easily.
• Add supporting documents such as certificates and degrees.
• Export all records for reporting purposes in seconds.
• Manage your CPD hours easily – just export and filter on the dates.

Note: All information and documents relating to training will be retained in accordance with Board Notice 194 requirements.

Operational Ability (for Financial Services Providers, Representatives and Key Individuals)

Operational ability refers to the functional skill, capability and capacity of a person or organisation to perform certain duties, tasks and obligations.

Key Individuals and Representatives have certain operational ability requirements that they need to comply with so that they efficiently carry out their duties relevant to their role in the FSP. In addition, FSPs have a set of requirements that help them monitor their compliance and ensure that they deliver continuous and satisfactory service to clients. This includes adequate communication facilities, storage and filing systems for safekeeping of records and more.

Governance Framework

FSPs are required to implement an effective Governance Framework which must include the following: Conduct Risk Management; Business Plan; Risk Management Policies, Processes and Systems; Accounting Policies and Processes; Remuneration Policy for all staff; Business Continuity Policy; Financial Recovery Plan; Regular monitoring of systems, processes and internal controls. This Governance Framework must support practical management and oversight of the financial services that the FSP provides and must ensure the fair treatment of clients by integrating the TCF principles into the policies.

Automated Advice

Automated Advice is a new requirement under Operational Ability. FSPs that provide automated advice (e.g. robo-advice that uses algorithms and technology, without the direct involvement of a natural person) must monitor and review the automated advice generated by algorithms and ensure the quality and suitability of the automated advice for their clients.

Outsourcing Policy and Processes

This is a new requirement introduced for FSPs that outsource some of their functions to other parties. Where an FSP outsources certain functions (e.g. functions that the law requires it to perform or important operational functions) the FSP must ensure that the person to whom the function is being outsourced is capable and authorised (if needed) and the FSP must have measures to assess the standard of performance of the outsourced delivery.

They should have a written agreement in place which governs the outsource arrangement and addresses the rights, responsibilities, service-level requirements and access by the FSP and Conduct Authority to the business and the information.

Appointment of Representatives

Another requirement under Operational Ability is the Appointment of Representatives. An FSP must ensure that when appointing a Representative, that person must possess the operational ability to effectively function as a Representative of the FSP or perform the activities for which that person was appointed. The FSP must therefore develop and implement a process that includes the necessary Human Resources policies and processes which should include a Recruitment and Selection policy.

Financial Soundness

FSPs must maintain financial resources that are adequate to carry out their activities and ensure that they can meet their liabilities as these fall due. FSPs must therefore set out how it will ensure it has adequate financial resources and how it will manage and monitor compliance with the Financial Soundness requirements applicable to their type of FSP.

For full details on each of the amended Fit and Proper requirements, read Board Notice 194 of 2017

The impact of the Fit and Proper requirements on FSPs, Key Individuals and Representatives

It is important that FSPs have a thorough understanding of the definitions and requirements applicable to them, and the impact these have on their business, processes, training plans and reporting requirements contained in Board Notice 194 of 2017.

Legislation stipulates that FSPs align their business processes to the Fit and Proper Requirements. Failure to do so means that an FSP is not compliant and would not be allowed to practice or might face penalties for non-compliance.

FSPs therefore need to continuously review their business processes and plan accordingly to ensure that they are managing their compliance and meet all Fit and Proper requirements.

FAIS: Monitoring

Our compliance monitoring service includes:

• conducting regular onsite assessments and file sampling
• producing reports and recommending remedial actions where necessary
• regularly reviewing the customised risk management plan
• completing the FSCA compliance reports and submitting them to the FSCA
• attending and assisting during an FSCA onsite visit
• guiding and supporting with FAIS related customer complaints
• ensuring the business is kept up-to-date through regular compliance updates and newsletters

Further consultation and support which is available on request include:

• implementation and compliance of risk management processes (including FICA and POPI)
• assistance with preparation before an FSCA onsite visit
• customisation of templates for the business
• assistance with profile changes

FSPs with an internal compliance function can tap into our expertise and get an independent assessment of how effectively their internal compliance processes have addressed the compliance risks in their FSP. This service provides additional peace of mind.

FICA – S42A Appointment

In the financial services industry, the main categories of risks include regulatory, financial, strategic, operational, and process risks. The Financial Services Provider’s (FSP) must manage its exposure to these risks in order to continue as a provider, now and in the future.

The financial services industry has become increasingly regulated over the years, resulting in a multitude of legislative requirements that financial services providers (FSPs) are required to meet. As with any change in legislation, FSPs will have to adapt to and change some of the ways in which they do business to comply with new requirements.

Numerous proposed legislative amendments and reforms in the Financial Services sector are set to become effective this year and future years. The FSCA’s Retail Distribution Review (RDR) proposes significant regulatory reform. Every business in the financial advisory and intermediary services industry must ensure that they carry out business in terms of the provisions and limitations set out in the FAIS and FIC acts. FSPs do not always understand legislative changes and the implications it will have on their business.

We understand the risks you as a FSP face on a day-to-day basis. As a registered compliance officer that interacts with the Financial Sector Conduct Authority (FSCA) on all industry matters, we can assist independent financial advisors (IFAs) and larger FSPs to anticipate and meet these regulatory requirements.

We provide FAIS and FICA compliance monitoring services for Category I and Category IV FSPs.

Any authorized FSP with one or more representatives or with more than one Key Individual must appoint a Compliance Officer who is approved by the Registrar. Registered with the Financial Sector Conduct Authority (FSCA) as a compliance provider, we can be appointed as an external compliance officer.

The services we offer:

• FAIS
• toets
• Monitoring
• Fit and Proper
• Treating Customers Fairly (TCF)
• Licencing and Profile Changes
• FICA
• Monitoring
• S42A Appointment

FICA: Monitoring

The Financial Intelligence Centre Act (FICA) was established to identify and prevent the proceeds from unlawful activities passing through South African systems. The purpose of the Act is to monitor and mitigate activities related to money laundering, terrorist funding and tax evasion. Accountable institutions have a regulatory duty to have sufficient and proper systems in place to ensure FICA verification is completed. Such institutions must have internal rules, controls and processes in place to ensure that verification is properly documented.

Financial services providers (FSPs) must verify the essential information of their clients as prescribed by the Act. The verification process places considerable responsibility on FSPs to know their clients in terms of the Know-Your-Client (KYC) principles.

Having the proper FICA identification and verification processes in place is fundamental in mitigating activities related to money laundering, terrorist financing and tax evasion. We help FSPs to ensure that their business meets the Financial Intelligence Centre’s (FIC) requirements by continually assisting them in reviewing and updating their business processes and documents in accordance with the latest regulations.

Here are some of the ways we assist our clients in ensuring that they are FICA compliant:

• We provide FSPs with a FICA Training Manual which they can use to train their representatives and administrative staff on the requirements of FICA.
• We assist with putting procedures in place to ensure that their staff are able to identify suspicious transactions and property associated with terrorist activities and reporting it accordingly.
• We ensure that their FSP is registered as an accountable and/or reporting institution with the FIC on the new goAML system.
• We provide our clients with a comprehensive template of the FICA Risk Management and Control Program (RMCP). FSPs can easily personalise the template according to their business.

FAIS: Licencing and Profile Changes

The Financial Sector Conduct Authority (FSCA) and Financial Advisory and Intermediary Services Act (FAIS) requires that every Financial Services Provider (FSP) be registered with the FSCA before they may legally conduct business.

We are familiar with the FAIS licensing process and can assist you to make the application process smoother and quicker.

We assists clients through the entire process of applying for a FAIS licence. We will assess the licence submission criteria, assist with the application forms, help compile the supporting documents and submit them to the FSCA on our clients’ behalf. It is also common practice for the FSCA to ask for additional information after the application has been submitted and we will provide hands-on assistance in dealing with the queries.

Profiles changes to an existing FSP licence

A formal process needs to be followed when making profile changes to an existing FSP licence. Profile changes include:

• changes to the FSP name
• adding or removing of Key Individuals
• adding or removing Representatives.

We assists FSPs with completing the required documentation and handle any queries from the regulators.

FAIS: Treating Customers Fairly (TCF)

Fair treatment of customers underpins the General Code of Conduct for financial services providers (FSPs) and Representatives. While the principles embodied within the outcomes may already form part of the culture of an FSP’s business, the demonstration of the outcomes may not yet be in place and changes to some business processes may be required, and in some cases new processes may need to be implemented. We provide support by helping FSPs understand the requirements and to help businesses align their processes with both the Financial Advisory and Intermediary Services Act (FAIS) and Treating Customers Fairly (TCF) framework. Identifying TCF gaps and providing solutions that best suit the FSP also forms part of the compliance visits.

TCF is a regulatory framework set by the Financial Services Control Authority (FSCA). This framework governs the way an FSP business conducts daily dealings with its clients ensuring that all clients are treated fairly, during all stages of the product life-cycle and advice process.

The TCF framework is built on principles that help drive an FSPs business conduct towards a set of six outcomes aptly termed TCF outcomes. An FSP therefore needs to adapt their business practices to achieve these outcomes and to eventually become an inherent part of all areas within the business. At the same time, all FSPs need to demonstrate to regulators that they adhere to the TCF principles and treat their customers fairly. Documenting the implementation of new business processes or the change to existing practices therefore becomes a fundamental part of a businesses’ TCF journey.

Placing clients at the center of your business and aiming to achieve the six TCF outcomes in the fullest sense ensures a win-win situation for everybody. The TCF outcomes, which should already be entrenched within an FSP, are defined by the FSCA as follows (The TCF principles are encompassed in the TCF outcomes and in many ways are also embodied in the General Code of Conduct. Although these principles may already form part of your business strategy, they are linked to outcomes that focus specifically on the fair treatment of the customer):

The TCF principles are being incorporated by the FSCA into its regulatory and supervisory frameworks on an incremental basis. This approach will form a fundamental part of the new Financial Sector Conduct Authority (FSCA).

The FSCA provides guidance regarding its Treating Customers Fairly expectations. However, businesses are expected to identify ways in which they can integrate these principles in all areas of the business to ensure that the desired outcomes are achieved. Incorporating TCF in your business ensures that you comply with regulation and in turn results in fewer complaints from clients. Clients who are treated fairly are more likely to remain loyal clients and in turn reward your business.

For further reading on how to integrate TCF in your business, click the links below:

• Market Conduct Policy Framework
• Implementation of the Market Conduct Policy Framework
• Market Conduct Policy Framework: Create business sustainability by implementing TCF – Part 1
• Market Conduct Policy Framework: Create business sustainability by implementing TCF – Part 2

For regulatory discussion papers, notices and announcements about TCF, click here.

Self-assessment:

Treating Customers Fairly