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.
We summarise the changes here shortly and will further disseminate and assist our clients in the coming months to implement this.
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:
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:
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.
*This post is updated as and when information changes or regulations are added. Latest Update: 04/22/2020.
In this post we tell you all about how financial services companies can operate lawfully and safely during the lockdown. We are all aware of the lockdown currently implemented in South Africa due to the COVID-19, and even though we are in a lockdown, we should not confuse this period for a complete shutdown for financial services. Businesses that produce, distribute and deliver essential services are allowed to continue operations if necessary, whilst adhering to the correct health and hygiene procedures during this time.
There was a release of a third amendment which brings greater clarity to what is regarded as essential services in the financial sector. This amendment is the third amendment to the Regulations to the Disaster Management Act 2002, published by Government Notice No 318 of 18 March 2020, as amended by Government Notice No 398 of 25 March 2020 and Government Gazette Notice No 419 of 26 March 2020 (Regulations).
What is regarded as essential services in the financial market?
Essential Services in the financial market includes the following services necessary to maintain the functioning of a financial system as defined in section 1(1) of the Financial Sector Regulation Act, only when the operation of a place of business or entity is necessary to continue to perform those services:
What is our interpretation of FSP's rendering services during lockdown period?
We would argue the services that FSP's render fall under the essential services definition as mentioned above and can therefore continue operations if necessary to service current clients. This does not mean you should go out and canvass for new clients face to face. The essential services exemption is there to assist current clients in need that have no other option but to see you in person - i.e. vulnerable persons and those of little means. The FSP needs to have a CIPC certificate to continue operations and the staff need a permit issued by the FSP itself if they are traveling to and from clients.
Important information for FSP's during this lockdown period:
Where do I request a permit issued by the CIPC for my FSP?
The permit for an FSP to render essential services can be requested online, and is issued by the CIPC. Follow this link to request a permit or click on the "Request a CIPC permit" button below: bizportal.gov.za/essential_service.aspx
Where do I get a permit for the staff of my FSP if they are traveling to clients?
The permit to render essential services for staff of an FSP can be issued by the FSP. Use the form in this link, or click on the "Issue a Permit for my staff" button below: guideline_permit_essential_services.pdf
Are there any exemptions to provide relief to my FSP during the pandemic?
Annual Financial Statement submission dates are usually 4 months after the financial year end, it has now been extended by 4 months, therefore submissions are due 8 months after your FSP's financial year end.
An exemption for compliance with Financial Soundness Requirements was also issued and can be summarised as follows:
GENERAL SOLVENCY REQUIREMENT (Assets must exceed Liabilities)
Exemption: Liabilities may exceed Assets by no more than 20%
Applies to: All Cat 1’s / Cat 2 / Cat 4
WORKING CAPITAL REQUIREMENT (Current Assets must exceed Current Liabilities)
Exemption: Current Liabilities may exceed Current Assets by no more than 20%
Applies to: Cat 1 Holding Funds / Cat 2 / Cat 4
LIQUIDITY REQUIREMENT (Maintain Liquid Assets equal or greater than X/52 weeks of Annual Expenditure)
Exemption: The Liquid Assets may not be less than 50% of the specified Liquidity Requirement:
If you decide to rely on the exemption for Financial Soundness Requirements, there are certain conditions to be met. For more details, please refer to FAIS Notice 21/2020 on the FSCA website.
Note that there are also no Compliance Reports due for 2020.
Practical measures you must comply with
The FSCA and Prudential Authority also issued a joint Directive to state that those financial services businesses that are operating need to comply with the following:
"Financial institutions are hereby directed as follows:
A head of a financial institution must, where that head determines staff as essential as contemplated in Regulation 11B(2), endeavour to limit these members of staff to as small a number as possible and, as far as possible, enable remote working, including working from home to support essential services.
A financial institution must take appropriate precautionary measures to reduce the risk of exposure, transmission and spread of the COVID-19, including to limit the number of staff required to be at offices in order to provide the elevant required essential financial services to a minimum and must put appropriate measures in place to promote minimum physical contact between staff, by-
A financial institution must-
A financial institution must develop and implement an infectious disease preparedness and response plan that can help guide protective actions gainst COVID-19, which must include plans and policies aimed at compliance with this Directive.
A financial institution must identify a workplace coordinator who will be responsible for COVID-19 related issues and their impact at the workplace and for timeously responding to the Authorities upon request for information."
Just like with the Corona virus we are currently experiencing, prevention is better than cure in your financial services practice as a financial advisor. In this Blog Post we take a look at the new RDR (Retail Distribution Review) updates affecting the naming conventions of financial advisors that came out in December 2019.
It is important to note that the RDR proposals are at stage 3 out of a possible 6. Stage 3 means “informal stakeholder consultation and/or technical work at an advanced stage”. Thus, the specifics of around the classes and impacts around it are still suggestions and will likely look different in the implementation stage. My bet is it will take more than a year to implement. Given the Coronavirus issue it might delay it further. Time will tell.
Essentially there will be two classes:
PSA = Product Supplier Agent
This is a person tied to a specific product supplier only. They may only sell their products. They are not allowed to opine or advise on other products in the market and are more subjective.
RFA = Registered Financial Advisor
This designation is for independent financial advisors. They can advise on other products in the market and can take a more objective stance.
The above designations are for registration purposes only and client facing designations are still being deliberated on. The FSCA stated that one can only be one of the above designations and not both but space will be made for minimal exemptions.
For more information see the Discussion Paper from the FSCA here: https://www.fsca.co.za/Regulatory%20Frameworks/Pages/Treating-customers-fairly.aspx
Comments and feedback to be provided to the FSCA via email@example.com by 31 March 2020.
The Financial Sector Conduct Authority (FSCA) issued a Press Release which states that the FSCA will be making an effort to protect their staff, the financial sector and aid Government efforts by using precautionary measures to contain the COVID-19 pandemic.
What precautionary measures will the FSCA take to limit the sprad of COVID-19?
The FSCA cancelled all on-site inspections and will communicate new dates to the financial institutions affected.
What FSCA activities will remain unchanged?
For more information on this topic:
Perhaps the most important part of being a Financial Advisor is that you need to market or advertise your services. After all, how will people know you exist if you do not advertise in some way? Because it is such an important part of a business you as an FSP need to know what you should include in your marketing and what you should not.
It is important that you always make reference to your license in your adverts and business documentation. Altough not specifically required, a good practice is also to add it to your email signature. You also need to provide a disclosure of who you are and what you are allowed to do when you first see or speak to clients. If your advertising is done via phone then you need to record all the calls and keep them for future reference.
Above all else, do not promise something false or overstated.
The above-mentioned is just a short summary but please feel free to read a extract from the relevant FAIS Act rules on the subject matter below. Remember when you read this that direct marketers are FSP's that advertise via phone.
"There is a great deal of advertising that is much better than the product. When that happens, all that the good advertising will do is put you out of business faster." -Jerry Della Femina
What you should do according to the FAIS Act
FAIS Act Section 8(b):
"ensure that a reference to the fact that such a licence is held is contained in all business documentation, advertisements and other promotional material;"
FAIS Act General Code of Conduct Section 14 and 15:
(1) An advertisement by any provider must -
(a) not contain any statement, promise or forecast which is fraudulent, untrue or misleading;
(b) if it contains-
(i) performance data (including awards and rankings), include references to their source and date;
(ii) illustrations, forecasts or hypothetical data
(aa) contain support in the form of clearly stated basic assumptions (including but not limited to any relevant assumptions in respect of performance, returns, costs and charges) with a reasonable prospect of being met under current circumstances;
(bb) make it clear that they are not guaranteed and are provided for illustrative purposes only; and
(cc) also contain, where returns or benefits are dependent on the performance of underlying assets or other variable market factors, clear indications of such dependence;
(iii) a warning statement about risks involved in buying or selling a financial product, prominently render or display such statement; and
(iv) information about past performances, also contain a warning that past performances are not necessarily indicative of future performances; and
(c) if the investment value of a financial product mentioned in the advertisement is not guaranteed, contain a warning that no guarantees are provided.
(2) Where a provider advertises a financial service by telephone-
(a) an electronic, voicelogged record of all communications must be maintained. Where no financial service is rendered as a result of the advertisement, such record need not be maintained for a period exceeding 45 days;
(b) a copy of all such records must be provided on request by the client or the registrar within seven days of the request;
(c) all the information required by sections 4(1)(a) and (c) and 5(a) and (c) shall not be required: Provided that the client is provided with basic details (such as business name and telephone number or address) of the provider or relevant product supplier, and of their relevant compliance departments: Provided further that, if the promotion results in the rendering of a financial service, the full details required by those sections are provided to the client in writing within 30 days of the relevant interaction with the client.
(3) Where a provider advertises a financial service by means of a public radio service, the advertisement must include the business name of the provider.
(1) A direct marketer must, when rendering a financial service to or on behalf of a client, at the earliest reasonable opportunity furnish the client with the following particulars:
(a) the business or trade name of the direct marketer;
(b) confirmation whether the direct marketer is a licensed financial service provider and details of the financial services which the direct marketer is authorised to provide in terms of the relevant license and any conditions or restrictions applicable thereto;
(c) telephone contact details of direct marketer (unless the contact was initiated by the client);
(d) telephone contact details of the compliance department of the direct marketer;
(e) whether the direct marketer holds professional and indemnity insurance;
Provided that where the direct marketer is a representative, the information contemplated in sub-paragraphs (a) to (c) above must be provided in respect of the provider to which the representative is contracted.
(2) When providing a client with advice in respect of a product, a direct marketer must at the earliest reasonable opportunity:
(a) make enquiries to establish whether the financial product or products concerned will be appropriate, regard being had to the client’s risk profile and financial needs, and circumstances;
(b) furnish the client with the following particulars where appropriate:
(i) business or trade name of the product supplier;
(ii) legal status and relationship with product supplier;
(iii) the following details in respect of the product:
(aa) Name, class or type of financial product concerned;
(bb) Nature and extent of benefits to be provided;
(cc) Manner in which such benefits are derived or calculated, with specific reference to the underlying assets of any investment component and the manner in which the value of such investment component is determined;
(dd) Monetary obligations assumed by the client as well as manner of payment;
(ee) Whether cooling off rights are offered and, if so, procedures for the exercise of such rights;
(ff) Any material investment or other risks associated with the product;
(c) take reasonable steps to establish whether the financial product identified is wholly or partially a replacement for an existing financial product of the client and, if it is such a replacement, inform the client of actual and potential financial implications, costs and consequence set out in clause 8(1)(d) of this Code before any transaction is concluded.
(3) A direct marketer must prior to the conclusion of any transaction and where a contract is concluded provide the client with the following information, provided where such information is provided orally, it must be confirmed in writing within 30 days:
(a) Telephone contact details of the compliance department of the product supplier;
(b) To what extent the product is readily realisable or the funds concerned are accessible where appropriate;
(c) Details of manner in which benefits will be paid;
(d) Any restrictions on or penalties for early termination or withdrawal from the product, or other effects, if any, of such termination or withdrawal;
(e) Charges and fees to be levied against the product including the amount and frequency thereof and where the product has an investment component, the net investment amount ultimately invested for the benefit of the client;
(f) Commission, consideration, fees, charges or brokerages payable to the direct marketer by the client, or by the product supplier or by any other person;
(g) On request, the past investment performance of the product, where applicable, over periods and at intervals which are reasonable with regard to the type of product involved;
(h) Consequences of non-compliance with monetary obligations assumed by the client and any anticipated or contractual escalations, increases or additions;
(i) In the case of an insurance product in respect of which provision is made for increase of premiums, abbreviated disclosures of such contractual increases;
(j) Concise details of any special terms and conditions, exclusions, waiting periods, loadings, penalties, excesses, restrictions or circumstances in which benefits will not be provided;
(k) Any guaranteed minimum benefits or other guarantees where appropriate.
(l) That recordings of telephone discussions (where applicable) will be made available to the client on request
(4) A direct marketer must provide a client (where appropriate) with a record of advice as contemplated in section 9(1)(a) to (d) in writing.
(5) A direct marketer shall be obliged to record all telephone conversations with clients in the course of direct marketing and must have appropriate procedures and systems in place to store and retrieve such recordings. Records of advice furnished to a client telephonically need not be reduced to writing but a copy of the relevant voicelogged records must be provided, on request, to the client or Registrar within a reasonable time.
(6) Notwithstanding the above or contrary provision in the code, such of the information required to be provided to the client in terms of clauses 4, 5 and 7 of this Code as has not yet been recorded or provided to the client in writing before the conclusion of any transaction, must be provided to the client in writing within 30 days thereafter.
You might have been wondering what happens if you do not complete your CPD hours by the end of a cycle. To give you context, we'll look at basic and ongoing competency requirements.
As you already know, non-compliance with the normal fit and proper requirements (RE exams, qualifications, experience and class of business training) within their specified timeframes, causes that a representative must be removed from the register. This means the rep can no longer render financial services until he/she is fully compliant with the basic competency requirements.
Product Specific Training and more importantly, CPD, is part of ongoing competency. Thus, even if you comply with the basic competency requirements and you do not comply with ongoing competency, you are also not allowed to render financial services until you are compliant.
The essence is this: if a representative or KI does not complete his/her full CPD hours by the end of a cycle, he/she must be removed from the rep register no later than the 31st of May. If he/she is only removed on the 1st of June (or later) due to non-compliance, the FSP has an obligation to debar the representative or KI. The rep can only be re-registered or the debarment can only be uplifted once he/she has obtained all the necessary hours.
Product Specific Training, also part of ongoing competency, is required for new products and changes in existing products that you are selling. Some industries/products might require more frequent refresher training than others (i.e. the health industry might be yearly, where insurance and investments might be every second or third year). The frequency will further depend on the different product providers. If, for example, an untied agent has contracts with 4 different product providers, he/she must keep record of all training attended for each product provider.
The question arising is: How does the FSP keep record of each representative's training?
There is no specific format at this stage in which you are required to prove attendance for Product Specific Training. However, it does not excuse an FSP from keeping record of it. There are many different ways in which an FSP can keep these records that might come in formats like hard copy, email or electronic certificates. One has to be able to prove attendance and what the representative learned from the session. The context of the course is of the utmost importance. Do not count on product providers to keep these records on your behalf, it is your responsibility as an FSP and as the first line of defense. We have specific solutions for our clients so contact us if you have any questions.
Why is compliance with ongoing competency requirements important? It is especially important when complaints are raised against representatives by clients who are dissatisfied with the advice received. If a representative was not updated with the latest changes in his/her industry and, as a result, provided advice that can/have caused damage to a client's financial well being, the representative will have difficulty in proving the correctness of the advice.
Debarments are lenghty and costly processes. It can cause difficulty with an FSP's staff turnover which, in turn, can cause a gap in servicing clients. Complaints are time-consuming and can cause your FSP reputational damage. Be vigilant in your compliance so your business can flourish.
For a FAIS Rep to be supervised she needs to meet certain requirements and the FSP and KI comply with certain parameters. Here we shortly sum up the items that need to be covered. We also look into what needs to be covered in the Supervision Agreement as new regulations have been issued that impacts that content.
Summary of Supervision Requirements
More information on the content of the Supervision Contract
The agreement must:
For full information on these processes please see the relevant board notice here or contact us for more information.
According to FAIS regulation a KI or Rep in an FSP needs to comply with the CPD (continuous professional development) requirements. CPD cycles starts on 1 June to 31 May of every year. Every FSP must keep a register of who has done what and it must have a Policy that talks to its planning on training and CPD.
Class of business training does count towards CPD hours but not Product Specific Training and RE exams (all not to be confused with CPD). If you need more info on these items please refer to this blog post or contact us.
What must it cover?
CPD can only be provided by accredited CPD providers and can cover a broad range of subjects that you can choose from which must:
How much hours do I need?
An FSP, key individual and representative authorised, approved or appointed to render or manage or oversee the rendering of financial services in respect of
Thus, it is important to know what class of business is and how many hours you need to complete based on this.
Where can I do this?
There are many providers that offer this (some of them good and others...we'll...not so much). We are also busy getting our online CPD training accredited, however, in the meantime here are some options you can approach for CPD training:
Contact us if you need more information or advice on this topic.
The RDR (Retail Distribution Review) process started by our regulator, the FSCA, has resulted in the amendment of certain pieces of legislation. Good times. Coupled with that and the Twin Peaks changes there are still more changes to come. One of the positively thorny changes that directly affects the industry in a big way is the manner in which brokers/advisers are compensated. In this post we will briefly look at the current state of play with regards to asking a client for addition fees above and beyond agreed/regulated commissions. We will look at Short-Term Insurance, Long-Term Insurance, Other Financial Products and Leads/Referrals.
Short-Term Insurance (STI)
So it is probably no secret to most of the Short-Term Insurance Brokers among you that broker fees structures that Insurers can collect on your behalf have changed and was implemented via the new PPR (Policy Holder Protection Rules) under rule 12.4 and 12.4.1 issued by the FSCA Insurance Department.
By 15 December 2018 Insurers will have to comply with this rule and it will also unavoidably have an affect on the the short-term insurance broker as well to does fee addition costs to the client.
The requirement states:
"An insurer may not facilitate the deduction or charging of any fee payable by a policyholder to an intermediary or any other person, unless the insurer has satisfied itself that the amount and purpose of the fee have been explicitly agreed to by the policyholder in writing, and that it appears from such agreement that the fee –
Most Insurers have issued notices to linked brokers to obtain such approvals from clients before 15 December. In future it is also a good idea to have this kind of document signed when signing up a new client or incorporating it into your service agreement with your client or other document (such as the ROA, NDA etc). As long as the client agrees to it.
Long-Term Insurance (LTI)
Long-term Insurance brokers/intermediaries never had the dispensation that short-term insurance brokers had to even collect extra fees. Now the position looks exactly the same in the Long-Term Insurance Act and the wording of the PPR rule concerning additional fees is exactly the same as the rule in the Short-Term Insurance Act above, even to the number or the rule. So it can be argued that brokers can now collect extra fees if the clients do agreed to it.
So here, also, if you want to collect extra fees you need to obtain client consent in the same way and it must comply in the same way by the same date.
My opinion on others outside the space of LTI and STI that are FAIS approved and do ask extra professional fees to do as follows. Outside of LTI and STI fees are not currently regulated but the regulator is looking at it for the future.
Disclose it to the client and have them agree to it in writing if you are asking extra fees. Enumerate what it is for and makes sure the client understands what she is paying for. A good rule of thumb is not to make the client pay double for something. So when fees are required make sure you have not already been paid for those services. This will ensure you do not fall foul of TCF requirements (Treating Clients Fairly).
Referral Fees and Leads
This is not currently regulated but it is on the table for phase 2 of RDR which is still under review and research. A suggestion is to keep a close eye on this space. At minimum, make sure there is an agreement in place if you are getting paid for or receiving referrals and make sure this is disclosed to the client by the broker/adviser.
Until next time, may your business be fruitful and your compliance fit for purpose!
From the 1st of April 2018 (I'm sure you are quire tired of this date by now) the FSCA has changed the debarment process and rules a bit. In the past an FSP could debar the person themselves or could refer it to the FSB (now FSCA) to investigate and debar the person. The debarment was done under section 14A of the Act if the FSB did the conducted the investigation and debarment but that section is new removed by the Financial Sector Regulation Act 9 of 2017. This means that the responsibility rests with the FSP to debar any Key Individual or Representative that:
The FSCA might only double check the reasons for debarment after it is done by the FSP. It is interesting to note that an FSP can do this if the person was a representative of the FSP at the time that the reasons for debarment occurred. Thus, it would seem, one can debar a person even if the person has left the FSP. This might open a can of worms where scores are to be settled and revenge is exacted but this may further be clarified once a guidance document is published.
At the time of writing this there is no guidance document on the process but it will be published in the near future as the FSCA stated on their website. The new forms for submitting the debarment to the FSCA can be found here.
For the full procedure according to the FAIS ACT you can read the extract from the amended FAIS Act below:
(a) An authorised financial services provider must debar a person from rendering financial services who is or was, as the case may be-
(i) a representative of the financial services provider; or
(ii) a key individual of such representative,
if the financial services provider is satisfied on the basis of available facts and information that the person-
(iii) does not meet, or no longer complies with, the requirements referred to in section 13(2)(a); or
(iv) has contravened or failed to comply with any provision of this Act in a material manner;
(b) The reasons for a debarment in terms of paragraph (a) must have occurred and become known to the financial services provider while the person was a representative of the provider.
(a) Before effecting a debarment in terms of subsection (1), the provider must ensure that the debarment process is lawful, reasonable and procedurally fair.
(b) If a provider is unable to locate a person in order to deliver a document or information under subsection (3), after taking all reasonable steps to do so, including dissemination through electronic means where possible, delivering the document or information to the person’s last known e-mail or physical business or residential address will be sufficient.
(3) A financial services provider must-
(a) before debarring a person-
(i) give adequate notice in writing to the person stating its intention to debar the person, the grounds and reasons for the debarment, and any terms attached to the debarment, including, in relation to unconcluded business, any measures stipulated for the protection of the interests of clients;
(ii) provide the person with a copy of the financial services provider’s written policy and procedure governing the debarment process; and
(iii) give the person a reasonable opportunity to make a submission in response;
(b) consider any response provided in terms of paragraph (a)(iii), and then take a decision in terms of subsection (1); and
(c) immediately notify the person in writing of-
(i) the financial services provider’s decision;
(ii) the persons’ rights in terms of Chapter 15 of the Financial Sector Regulation Act; and
(iii) any formal requirements in respect of proceedings for the reconsideration of the decision by the Tribunal.
(4) Where the debarment has been effected as contemplated in subsection (1), the financial services provider must-
(a) immediately withdraw any authority which may still exist for the person to act on behalf of the financial services provider;
(b) where applicable, remove the name of the debarred person from the register referred to in section 13(3);
(c) immediately take steps to ensure that the debarment does not prejudice the interest of clients of the debarred person, and that any unconcluded business of the debarred person is properly attended to;
(d) in the form and manner determined by the Authority, notify the Authority within five days of the debarment; and
(e) provide the Authority with the grounds and reasons for the debarment in the format that the Authority may require within 15 days of the debarment.
(5) A debarment in terms of subsection (1) that is undertaken in respect of a person who no longer is a representative of the financial services provider must be commenced not longer than six months from the date that the person ceased to be a representative of the financial services provider.
(6) For the purposes of debarring a person as contemplated in subsection (1), the financial services provider must have regard to information regarding the conduct of the person that is furnished by the Authority, the Ombud or any other interested person.
(7) The Authority may, for the purposes of record keeping, require any information, including the information referred to in subsection (4)(d) and (e), to enable the Authority to maintain and continuously update a central register of all persons debarred in terms of subsection (1), and that register must be published on the web site of the Authority, or by means of any other appropriate public media.
(8) A debarment effected in terms of this section must be dealt with by the Authority as contemplated by this section.
(9) A person debarred in terms of subsection (1) may not render financial services or act as a representative or key individual of a representative of any financial services provider, unless the person has complied with the requirements referred to in section 13(1)(b)(ii) for the reappointment of a debarred person as a representative or key individual of a representative.
by: Horizon Compliance team