We recently attended a workshop hosted by the FSCA on their new envisaged FAIS compliance reports called, Conduct of Business Reports (in typical regulatory nomenclature) also known as CBR reports.
Here is a summary of the key points from the Workshops conducted by the FSCA on the 7th and 8th of July 2022. Both workshops, (one aimed at smaller and one aimed at larger FSPs) contained the same contents albeit the questions posed by the participants were somewhat different.
Purpose of the CBR report: The FSCA published the report in its draft form to give the industry an idea of the questions they can expect and should prepare for. They also want the industry to comment on the applicability and format of the questions.
Some of the feedback the industry gave at the workshop was as follows:
Comment/question: The report does not seem to be in line with “cutting of red tape” for the industry as it is overly burdensome
Feedback from the FSCA: The Insurance industry is already reporting in a similar manner and although the financial services industry has not used the reports before, just as with the compliance reports, the CBR reports will take some getting used to. The FSCA also reiterated the fact that although the report will eventually be tweaked here and there, the contents and questions asked will not change
Comment/question: Smaller FSPs (especially 1 man run entities) do not see how it will be practically possible for them to be able to complete and submit the report, while conducting business and ensuring the timely submission of all other regulatory requirements
Feedback from the FSCA: The answer to this question was essentially the same as above. The FSCA also added that the questions for larger and smaller FSPs are exactly the same.
Comment/question: The industry is concerned about the actual length and complexity of the report. It was also suggested that the definitions section should be expanded further, especially because some of the terms and concepts used are not in legislation
Feedback from the FSCA: The FSCA will try and expand on the definitions and will also issue guidance notes.
Comment/question: How will feedback be provided (if any) after reporting
Feedback from the FSCA: The main idea is not for the FSCA to provide feedback but rather to regulate market conduct. The main entities that will be consulted, will be the outliers within a particular sector.
Imagine if you asked the same questions and took the same approach for all clients when rendering financial services. The FSCA would have a massive problem with that but it is exactly what they are doing with the current format of the CBR reports.
The FSCA acknowledged that the report is not perfect and may have a few errors, but the content is what the industry should focus on, as not all functionality has been built in yet.
It is concerning to us that the regulator does not seem to take complaints of increased red tape seriously and often dismisses it or ignores it. Of equal concern is the fact that the same questions are asked of large and small FSPs - this makes no sense. Imagine if you asked the same questions and took the same approach for all clients when rendering financial services. The FSCA would have a massive problem with that but it is exactly what they are doing with the current format of the CBR reports.
Luckily the industry seems to all have the same concerns and we'll keep a close eye on how the FSCA handles it.
Submission of the reports
When? The reports are not yet due, and the implementation will be done in a staggered approach over the next two or so years. The FSCA did indicate that there will be a Pilot Project in early 2023 and FSPs are encouraged to volunteer for the same. The obvious pro in volunteering, would mean you would get first-hand experience with the final report and feedback on the same. As stated in the Omni CBR Roadmap, this is a multi-year project, and the FSCA will consult on the implications of the reporting more than once and support the industry in implementing it in an incremental manner.
Therefore, the current phase is specifically for the practicality of questions. Next year the FSCA will be dealing with the functionality and practicality of the report. Implementation will start in 2024 in phases.
If you would like to volunteer for the Pilot Project, kindly send an email to firstname.lastname@example.org or email@example.com
by: Horizon Compliance team