Over the past few years, the FSCA has been very inconsistent when reviewing Key Individual applications. It seems as if the Authority is weary of approving Key Individual applications where the Key Individual is already approved on another license. One analyst will start questioning a person’s operational ability once the Key Individual is approved on more than 1 license, while another analyst will only raise operational ability concerns after 3 approvals. At face value, the case-by-case approach that seems to be the modus operandi at the moment is prejudicial as there is really no set criteria for the operational ability test.

Yes, the role of the Key Individual is one that is critical to ensure that the management and oversight role in respect of the financial services and activities is carried out and performed by the FSP. This entails ensuring that the financial services are rendered with utmost good faith, due care, skill and diligence. We also understand that the recent strictness in the application of the operational ability requirement stems from the FSCA seeking to curb rent-a-KI situations within the industry. However, the manner in which the Authority has opted to go about doing so, is more burdensome and somewhat inefficient.

What was also very enigmatic in a recent application, was when an analyst said:

“There is also a clear intent that the FAIS Act requires a key individual to be positioned internally within the FSP to oversee the activities of that FSP as well those of the appointed representatives of the FSP and as such can therefore not be too far removed from the day-to-day activities of the business of the FSP.”

There is nothing in the FAIS Act that suggests that a Key Individual needs to be positioned internally within the FSP and by this statement, the Authority is an overreach.

My suggestion is for the Authority to decide and place on record the exact maximum number of licenses a Key Individual can be on, instead of moving the goal post as and when it is suitable. Otherwise, the “unintended consequence” would be that there will be a vast shortage in the industry thereby limiting access even to new entrants. I say “unintended consequence” because at this rate, we are not really certain of the Authority’s intention. Also, what happened to progressively “cutting the red tape” and ensuring access as stated by the President of the Republic?

Summary 
Recent changes (June - July 2020) were made to the General Code of Conduct, Fit and Proper Requirements and Short Term Deposit Codes of Conduct to give effect to the RDR (retail distribution review), among other process that commenced long ago. Most of the changes that will affect an FSP are those contained in the General Code of Conduct. It is to be noted that most of the legislative changes that have an effect on FSP's come into effect only 6 months after publication.

Fit and Proper Changes
The bulk of the changes under Fit and Proper are administrative in nature such as aligning definitions across product legislation and FAIS legislation and correcting numbering so there is not too much that will affect you here. Notable changes to the regulations here are:​

• an FSP may not appoint an unrehabilitated insolvent
• if a representative is sequestrated after appointment the FSP can only keep the representative if risk mitigating measures are put in place
• operational ability requirements of the FSP is expanded where data and physical security of client information is concerned
• where FSP applicants are concerned, expenditure considered less certain items one would normally include such as bonuses, bad debts etc.
• Professional Bodies can only accredit CPD activities that are verifiable

Changes to the General Code of Conduct
Here are many changes that will impact the operation of an FSP in general. Close attention is to be paid here. Notable changes are:

• General
  • Direct marketing is now seen as rendering services via telephone, internet, digital platform or email
  • One is not allowed to use regulators logo or name
  • Not use FAIS approval to support business or products that is not regulated
  • New definition of a direct marketer
  • Immaterial financial interest now includes loyalty rewards
• Independence & Fees
  • Not allowed to say they are independent if certain condictions are prevalent
  • One is only allowed the fees that are agreed to with the client and commensurate to the services rendered
  • Methods on recommendation of products and conflict of interest and fair treatment of clients are further prescribed
• FNA 
  • New definition of FNA
  • One must take into consideration the level of knowledge of client
  • Allowance for focused or limited FNA is further expanded
  • Replacement advice further expanded
  • Cancellation of products is further expanded
  • Comparison of products not allowed if features are not compared and disclosed clearly
• Advertisements
  • Need to have process/policy for advertisements
  • Negative option marketing is not allowed
  • Clients must be allowed to opt out of unwanted direct marketing
  • Comparative Marketing is further regulated
  • Testimonials is further regulated
  • Loyalty Benefits is further regulated
  • Forecasts is further regulated
  • Puffery (advertising overstatements) is further regulated
• Complaints Management
  • Framework is expanded
  • Responsibilities is expanded
  • Complaints categorisation is expanded
  • Escalation and review, decisions and communication is expanded
  • Record keeping and anlalysis is expanded
• Ombud Interactions
  • Must have processes to communicate and state ombud details
  • Monitor cases and improve internal processes​

Changes to the Short Term Deposit Code of Conduct
​​These changes mainly apply to banks and are of an administrative nature where definitions are aligned to the new changes in the General Code of conduct. Not much to see here.

Please the full set of notices here if you are feeling particularly sadistic and want to read the legislation yourself.