​What are the financial soundness requirements?
The FAIS Act explains the Financial Soundness requirements for FSPs in Chapter 6 of the Fit and Proper Board Notice 194 of 2017. The FSP must meet the financial soundness requirements at all times.
There are different requirements for different types of FSPs, however the three main categories for most of the FSPs are as follows:

1. General Solvency Requirement (Overall Outcome: Assets > Liabilities)
2. Working Capital Requirement (Overall Outcome: Current Assets > Current Liabilities)
3. Liquidity Requirement (Overall Outcome: Maintain Liquid Assets >= x/52 weeks of Annual Expenditure according to the FSP category)

 
What important changes took place regarding subordinated loans?
The most important change that we come face to face with almost monthly is the change where Category 1 FSPs may no longer subtract subordinated loans from the current liabilities in the working capital requirements. This requirement is applicable to Category 1 FSPs Holding Client Funds, and Category 1 FSPs Not Holding Client Funds.
 
How can an FSP ensure it meets the requirements?
The FAIS Act states that all FSPs should maintain monthly management accounts if these accounts are continuously monitored and compared with the financial soundness requirements the FSP should be able to maintain the financial soundness requirements.
 
What can an FSP do if they suspect that the requirements are not being met?
It is immensely important that the FSP follow one of these two steps as soon as the FSP suspects or foresees that the financial soundness requirements are not being, or will not be met, these are listed and explained as follows:

1. Early Warning Report
2. Rely on FSCA Exemption

 

• The Early Warning Report is a report that can be submitted to the FSCA by the FSP or its Compliance Officers. The FSP must submit or request their Compliance Officer to submit an Early Warning Report that is certified by the CEO, controlling member, managing or general partner or trustee of the FSP, if one of the following financial statuses are true for the FSP:

1. Assets exceed liabilities by less than 10%
2. Current assets exceed current liabilities by less than 10%
3. If any of the financial soundness requirements are not met or if the FSP becomes aware of any situation that may result in any of the above  

• FSCA Exemption Application is an application that can be sent to the FSCA before the financial year end to assist the FSP with meeting the financial requirements as set out in the exemption application, this exemption does not mean that an FSP does not have to meet any of the requirements as set out in the Financial Soundness Requirements, but this exemption allows for some leeway between the Financial Soundness Requirements and the exemption requirements to assist the FSP to meet the requirements even if it is then by only meeting the requirements as set out by the exemption. There is additional documentation that must be sent together with this application within 7 days of relying on this exemption, these are as follows:

1. Annexure 6 (Form A: Liquidity Calculation) of BN194 of 2017 to the FSCA (Liquidity Calculation certified by the CEO, controlling member, managing or general partner, or trustee of the FSP.
2. An Action Plan showing how the FSP plans to re-establish its financial position to meet the financial soundness requirements and this plan should include the steps that the FSP will take and in what timeframe these steps will take place to ensure the financial soundness requirements that is not currently met, are met as soon as possible.

​In addition to the above, the FSP must submit the following items every 6 months from the date that
​        the FSP relied on the exemption:

• Management accounts
• Regularly updated Liquidity Calculation (Form A)

The exemption conditions are as follows:

​How to calculate an FSPs Financial Soundness Requirements?
The Financial Soundness requirements can be explained and calculated as follows:

​*Liquid Assets are calculated as follows:

• Cash & cash equivalents +
•  (Plus) Participatory interest in a Money Market Portfolio
• (Plus) 70% of the market value of a participatory interest in a CIS, other than an investment in a money market portfolio or a CIS hedge fund
• (Plus) 70% of the market value of a security listed on a licensed exchange provided it does not constitute more than 50% of total liquid assets
• = Liquid Assets

​
*Annual Expenditure is calculated as follows:

• Annual Expenditure
• (less) staff bonuses
• (less) employees’ and directors’, partners’ or members’ share in profit
• (less) emoluments of directors, members, partners or sole proprietor
• (less)  other appropriation of profits to directors, members and partners"
• (less) remuneration that is linked to-
  • (aa)     a percentage of the FSP’s revenue; or
  • (bb)     a percentage of the revenue generated by an employee, representative or contractor of the FSP; and
  • that in the absence of such revenue the FSP has no obligation to pay the remuneration"
• (less) depreciation
• (less) bad debts
• (less) any loss resulting from the sale of assets

 
Contact us for any information on the Compliance Officer services we provide for information on the financial soundness requirements, our team at Horizon Compliance are always keen to help.

In this blog we deal with the case of Ernest Lehanie ta Ernest Venter Makelaars and FAIS Ombud and Another where the Appeals Tribunal found against the FAIS Ombud. Because this deals with a Property Syndication investment this is also important for other cases of a similar nature. 
 
This matter relates to the appeal of a decision made by the FAIS Ombud. Briefly, the FSP breached the FAIS Act and Code of Conduct by not making a full disclosure regarding the high-risk investment product and all associated risks to the investor (who was a pensioner) for the investor to make an informed decision. Also, physical evidence of an analysis of the client’s financial needs and risk profiling seems is absent. Moreover, the prospectus given to the client contained contradictions relating to investor funds.
 
The FAIS Ombud’s decision:
The FSP breached its duty to act with skill, care and diligence by failing to ensure that the client invested in product that was right for his financial needs. This breach made the FSP liable to the client (investor). The FSP’s liability was based on its failure to provide a full disclosure to the investor and for not being able to reasonably foresee the investor’s loss.
 
The Financial Services Tribunal concluded as follows:
The lack of a full disclosure by the FSP about the investment was not sufficiently linked to the investor’s loss. That is, the FAIS Ombud erred in stating that the FSP should have reasonably foreseen the collapse of the Sharemax Property Syndication, thereby holding the FSP liable. The FSP’s failure to discharge its statutory duty, is not remotely linked to the investor’s loss. The investor’s risk is therefore, not entirely  the FSP's fault. Further evidence is required in order to establish a link if indeed there is any. This resulted in the entire application being disposed of. Therefore, the matter was referred back to the Ombud for further reconsideration.

For more information on this Financial Services Tribunal decision click here

National Treasury issued the second draft of the new COFI (Conduct of Financial Institutions) Bill on 29 September 2020. For those of you that do not know, the COFI Act will will replace the FAIS Act in totality and be the focus for your compliance in coming years. In addition, the COFI Act will regulate the conduct of other services and product providers. The bill also wants to ensure a level playing field. We need to keep the regulator accountable and we need to ensure the regulation makes sense whilst preventing the situation where "all animals are equal, but some animals are more equal than others", as the book of Animal Farm in the picture above warns.

The latest changes in the second draft are:

• The application of the COFI Bill in relation to existing legislation.
• The approach to conduct standards
• Refined licensing approach
• More detail around transformation (BEE and EE) and enforcement thereof
• Medical schemes are removed until more work is done
• Streamlining of interaction between the Financial Markets Act and the COFI Act
• Application to the non-retail business where clients are corporates or where clients are professional investors, for example

We are responding and commenting as a compliance firm to the draft. If you are a member of an industry representative body (like the FIA or FPI) you can also provide your comments through them. If you are not a member of an industry representative body then you can send your comments directly to National Treasury or to us to add it to our comments and to send on your behalf.

​I, for one, am concerned at the new practise we see at the FSCA where they seem to ask extra and unlimited amounts of questions to new licensees without informing the applicant if these new requirements beforehand which leads to copious delays. In addition to that, I am concerned at how difficult it is with the FAIS Act in its current form to become a Key Individual or to start your own FSP. We will be taking up these and other concerns in our comments to the FSCA.

We encourage everyone to comment in whatever form because this piece of legislation will control your business in the future and determine the shape and form of your industry for years to come. Any risks, detriment to you or unnecessary red tape that is not addressed will become part of your life and we'd like to avoid that as much as possible.

The due date is 30 October 2020 but we've heard from some sources that they are still receiving comments after that as extensions were provided to certain industry representative bodies until 16 November 2020. Comments submitted directly to National Treasury can be sent to: marketconduct@treasury.gov.za .

You can view the full published bill and other documents here.

​You may be aware of third parties that offer the service of comparing product details when replacements are made on financial products. These comparisons are often relied on by advisors without ensuring all details contained therein are an accurate reflection of the financial product and all its unique and most updated features. 

When the advisor relies on the comparison without ensuring 100% correctness, incorrect advice may be given and the client may make a decision based on the incorrect advice. Consequently, when disputes arise, the advisor wants to hold the third party responsible for providing incorrect information. 

The FSCA is concerned about this practise and recommends that advisors check the factual correctness of all compared product features, before giving advice to the client. It is the responsibility of the advisor to ensure correctness, therefore, if a dispute arises, the advisor could be held responsible.

The same is true for pre-populated ROA's without replacements. We often see that advisors have a general statement that may or may not be tweaked to fit a client's circumstances, that paragraphs are copied between different clients' ROA's, or that one paragraph is copied and pasted over-and-over on the same ROA. This practise is a recipe for negligence and consequently, disputes. We urge all advisors to provide unique descriptions of a client's needs and reasons for preferences/choices, to ensure an accurate audit trail is kept and thus minimising opportunities for disputes. 

The FSCA communication on this subject can be accessed by clicking on the "FSCA Post" button below:

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.

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:
​

• the banking environment (including the operations of mutual banks, cooperative banks, co-operative financial institutions and the Postbank);
• the payments environment;
• the financial markets (including market infrastructures licensed under the Financial Markets Act, 2012 (Act No. 19 of 2012);
• the insurance environment;
• the savings and investment environment;
• pension fund administration;
• outsourced administration;
• medical schemes administration; and
• additional services designated in terms of regulation 11B(4A)(c)(i)'.

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:

• If your FSP can continue servicing and acquiring clients in a non-face to face manner, great! Please continue business.
• Avoid seeing clients face to face at all costs. If you cannot, then operate under the following rules below.
• FSP's need to have a permit issued by the CIPC to render essential services in person to clients when doing so face to face.
• All the staff of the FSP need to have a permit to perform essential service Regulation 11B (3) issued by the FSP if they are travelling.
• FSP's need to adhere to health and hygiene protocols during this period, and therefore rather make use of video conferencing to communicate with clients where possible, such as Skype, Google Hangouts, Zoom or MS Teams. Phone calls are also an option if it is not necessary to see a client in person. 
• FSP's should remind clients of the potential consequences that could result in canceling their financial products. This reminder should be in written format to keep it as proof of informing clients of the potential consequences of termination. (This can be done via email.)

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:
Applies to:

• Cat 1 Holding Funds (where X = 4)
• Cat 2 (where X = 8)
• Cat 4 (where X = 4)

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.

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.
 
Two Classes
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.

Other Impacts

• Advisers will not be allowed to be on more than one licsence – with some exceptions. This does not apply to KI’s.
• Juristic Representatives to be allowed to continue but the FSCA wants more compliance and oversight on them. There are currently over 4000 juristic representatives and 10000+ FSP’s.
• No commission can be transferred if a PSA changes to being a RFA and vice versa. RFA’s can transfer commission from one FSP to another if it is not a Product Supplier.
• Commission can only be paid out for services rendered and ongoing commission only where ongoing services are in fact, rendered.
• PSA’s must refer clients away that want a product type which the Product Provider does not have. Referral fees can be paid with this referral, so there is an opportunity for Product Suppliers and independent advisers to partner in this regard.
• PSA’s are not allowed to use the word “Independent” and one can also not use the term if you are owned or if you own a stake in a Product Supplier directly.
  
• There is a proposal that only CFP’s are allowed to use the term Financial Planning, Financial Planner. However, I expect this to be opposed as most advisers use this terminology and I think it would be unfair and confusing to clients. The designation of being a CFP should be enough to show clients that you’ve attained the certification. If you do not agree, I’d like to hear your thoughts in the comments on the matter. I am open to changing my mind if the argument makes sense.

 
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 fsca.rdrfeedback@fsca.co.za 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.

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.

FAIS Act General Code of Conduct Section 14 and 15:

14.
(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.
 
15.
(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. 

CONSEQUENCES
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.

RECORD KEEPING
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.