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. 

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

1. The Rep must meet the entry level requirements for qualifications;
2. The Rep must finish the RE exams, Class of Business Training, CPD requirements and experience requirements within the set periods;
3. There must be a supervision agreement that conforms to the requirements of the FSCA in terms of content;
4. The FSP must complete its duties during the supervision period;
5. The Supervisor must complete her duties during the period;
6. The Rep must complete her duties during the period;
7. The intensity of the supervision must be of a commensurate level with regard to the representative skill level, the risk to clients and nature of the financial services rendered.

More information on the content of the Supervision Contract

​The agreement must:

1. Identify who the Supervisor is;
2. Set out tasks and functions the Rep performs and categories under which she will render services;
3. Set out knowledge and skills required to perform the job correctly;
4. Set out the training needs of the Rep
5. Set out supervision arrangements such as:

• ​Duties of both parties
• Supervision Methodology and Procedures
• Assessment Procedures and intervals thereof
• Referral to the intensity of supervision
• Sign-off criteria by the supervisor

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.

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 –

• relates to an actual service provided to a policyholder;
• relates to a service other than rendering services as an intermediary; and
• does not result in the intermediary or other person being remunerated for any service that is also remunerated by the insurer."

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.

Other Brokers/Advisers/Intermediaries
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:

1. Does not meet the fit and proper requirements; and
2. has contravened or failed to comply with the provisions of the FAIS Act in a material manner.

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:

(1)
(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.
 
(2)
(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.

​

With the advent of the new FAIS Fit and Proper amendments the Financial Services environment has been shaken up a bit. Due to the complex nature of the requirements and short deadlines many have been left in the dark as to what exactly they should do and how. As usual we aim to quickly tease out some of the basic elements of what is in store. If you need more in depth details please contact us for advice.

​Product Specific training is intended to address the specific characteristics that differ from the general characteristics of products in the market. Product Specific training is usually provided by the FSP’s product supplier and must be done by KI’s and reps before rendering or overseeing financial services, as applicable.

Class of Business Training, on the other hand, is intended to address training in the subclasses of each product, as identified by the FSCA and must be done by KI’s and reps before rendering or overseeing financial services, as applicable. Only accredited provider or education institution can provide this type of training. At this stage there are only limited providers that offer this training.

For Product Specific training:
​Appointed before 1 April 2018 (excl. supervision):

• Deemed to have completed product specific training for the financial products for which they were authorised or appointed.
• The above does not apply to amendments to financial products where those amendments occurred after 1 April 2018.

Reps under supervision @ 1 April 2018:

• Has 3 months to comply from 1 May 2018.
• Hence, they have until 1 August 2018 to complete product specific training.

Appointed after 1 April 2018 but before 1 May 2018:

• Has 3 months to comply from 1 May 2018.
• Hence, they have until 1 August 2018 to comply.

We advise all FSPs to contact the product providers with whom they do business to enquire about product specific training.

For Class of Business training:
​Reps & KI’s of Cat II, IIA, III, IV and Reps of Cat I: Appointed before 1 April 2018 (excl. supervision):

• Deemed to have completed COB training in respect of that COB.

KI’s of Cat I: Appointed before 1 April 2018 (excl. supervision):

• Key Individual is deemed to have completed COB training in respect of that COB
• This KI must inform the registrar within 6 months (@ 1 October 2018) of those classes of business it currently manages and oversees in respect of all FSPs for which he/she is approved
• This information must be submitted as required by the registrar

Reps under supervision @ 1 April 2018:

• Has 12 months to comply from 1 August 2018.
• Hence, they have until 1 August 2019 to complete COB training.

Appointed after 1 April 2018 but before 1 August 2018:

• Has 12 months to comply from 1 August 2018.
• Hence, they have until 1 August 2019 to comply.

It remains to be seen how many FSP's will be compliant in time with the above-mentioned due dates, however we expect some teething problems. Never a dull moment in the state of constant change in the financial services industry.

Bob Dylan sang,  "The times they are a changin'...". This song is especially relevant in the wake of the ongoing regulatory changes and we need to keep up with them if we want to keep our eye on the horizon (see what I did there?). In line with the Twin Peaks changes, on 1 April the regulator we all know and love as the FSB (Financial Services Board) has changed its name to the FSCA (Financial Sector Conduct Authority). Most of the staff complement is the same for now but will likely change a bit during the transition period. The website itself seems to still have allot of work that needs to be done.

Although the guardhouse has a new coat of paint, FAIS (the Financial Advisory and Intermediary Services Act) itself is still keeping watch. It does have a few new accoutrements in the form of Fit and Proper amendments. These changes include:

There is a big move towards a principles based approach of regulation and it will be interesting to see how the FSB will enforce this and whether they will provide further guidelines on some of the gray areas. 

Have a look at the new FSCA website and let us know what you think. The old FSB site will still be up and running for a while during the transition phase (sorry if the link is no longer working due to obvious reasons).
​

Responsibilities are Key
The requirements and responsibilities placed upon Key Individuals (KI's) by the FAIS Act are numerous and it is important to note that although they can delegate some of their functions (for instance, compliance) the ultimate responsibility lies with the KI from the regulator's point of view.
The responsibilities of KI's can be divided into two main pillars:
·           Maintaining the personal character qualities of honesty and integrity; and
·           Competence and operational ability.
We'll look at these two pillars separately below. This is just a short overview but it will give you a good indication of where the battle lines are drawn.

Honesty & Integrity
According to the General Code of Conduct, to assess whether a FAIS KI complies with the requirement of honesty and integrity, the Registrar may refer to any information brought to its attention. Thus, any dishonesty or lapses of integrity that are material can be taken into consideration. Without detracting from the broad statement above, any of the following items also constitutes prima facie (on first encounter) evidence that a KI is no longer compliant with the honesty and integrity requirements if he/she:

(a)            has been found guilty in any criminal proceedings or liable in any civil proceedings by a court of law (whether in the Republic or elsewhere) of having acted fraudulently, dishonestly, unprofessionally, dishonourably or in breach of a fiduciary duty;

(b)            has been found guilty by any statutory professional body or voluntary professional body (whether in the Republic or elsewhere) recognised by the Board, of an act of dishonesty, negligence, incompetence or mismanagement, sufficiently serious to impugn the honesty and integrity of the Financial Services Provider (FSP), KI or representative;

(c)            has been denied membership of anybody referred to in subparagraph (b) on account of an act of dishonesty, negligence, incompetence or mismanagement, sufficiently serious to impugn the honesty and integrity of the KI;

(d)            has:

(i)          been found guilty by any regulatory or supervisory body (whether in the Republic or elsewhere), recognised by the Board; or

(ii)         had its authorisation to carry on business refused, suspended or withdrawn by any such body,
on account of an act of dishonesty, negligence, incompetence or mismanagement sufficiently serious to impugn the honesty and integrity of the KI;

(e)        has had any license granted to the financial services provider by any regulatory or supervisory body referred to in subparagraph (d) suspended or withdrawn by such body on account of an act of dishonesty, negligence, incompetence or mismanagement, sufficiently serious to impugn the honesty and integrity of the KI; or

(f)          has at any time been disqualified or prohibited by any court of law (whether in the Republic or elsewhere) from taking part in the management of any company or other statutorily created, recognised or regulated body, irrespective whether such disqualification has since been lifted or not.

Furthermore, any material non-compliance with the Act, in a manner which is dishonest and negatively affects the KI's honesty and integrity can also be taken into account.

For example: When there is a conflict of interest prevalent, the KI has an obligation to mitigate and avoid the conflict of interest. If the conflict is not mitigated or avoided it would constitute non-compliance with, among others, section 3(1) b and possibly section 3A(1)(b) of the General Code of Conduct.

The result of an honesty and integrity transgression is seen as serious by the Registrar of Financial Services Providers. It could lead to debarment of any KI's and Representatives involved and a withdrawal of the FSP licence in some cases. In less serious cases of where breach of any section of the Act is prevalent a penalty may be imposed.

​Competence and Operational Ability
Although it might be misleading, Competence, when referred to in the Act, does not refer to a person's actual ability to conduct work. It rather refers to the qualification and experience requirements of the KI's as put in place by the FAIS Act and its subsidiary fit and proper regulations.

Operational ability refers to the KI, in respect of his or her management and oversight of an FSP. The KI must have, and be able to maintain, the operational ability to fulfil the responsibilities imposed by the Act on FSPs, specifically the oversight of financial services (regarding of advice and intermediary services) provided by the FSP.

This is quite a broad responsibility in that it effectively states that the KI is ultimately responsible for the oversight of all the rendering of financial services and the operations ancillary thereto. The KI must be able to illustrate that he/she can do this. This relates to all items in the Act, Rules, Codes of Conduct and Determinations. Thus any material non-compliance of the Act can also be included. For example: Where an FSP does not have the necessary indemnity insurance in place as required by section (7) of Part VIII of the Determination of Fit and Proper Requirements.
​
The result of a lack of operational ability is that the FSP license may be withdrawn in serious cases and a penalty may be imposed in less serious cases. So think carefully when accepting a KI appointment. And for those KI's that have been doing it for a long time make sure you cover all of the bases.

We recently did a study for an international law firm group where we assessed Regtech and Fintech. What we saw is that these technologies are in the early stages of disruption of the financial services industry globally and in South Africa as well but that their growth is fast and the change is going to be permeating. 

With $36 Billion (yes, that's 9 zeroes) invested in 2016 in Fintech, the industry certainly has allot going for it. It can potentially cause allot of job loss or job creation, depending at how you look at it. Me, I'm a glass half-full kind of guy so I like to think that these changes are to the betterment of us all and that people can (if they are willing and able) migrate to other professions that will be born from this disruption or that other jobs will be created in startups and smaller companies. Even if AI does take over many human roles in financial services, I believe one is still going to need allot of human interaction to provide a good service (as was evidenced by some recent interactions I had with a bank that it is so focused on leveraging tech that it is bleeding clients due to the lack of human assistance when things go boom).

Automation and AI has essentially been around us for quite a while now and for some reason people tend to not think about these simple things as AI. They usually think of AI as some smooth talking humanoid robot. AI is defined by the Merriam Webster dictionary as:

1 : a branch of computer science dealing with the simulation of intelligent behavior in computers.
2 : the capability of a machine to imitate intelligent human behavior

Now, if you take your average mobile phone, for example. It is an AI device but we don't realise it. Yes, some people use it to only call or play a game of Angry Birds but for others it's a powerhouse of automation (if you're not refreshing facebook or your emails every minute that is, because that will kill your productivity quickly). As beauty is in the eye of the beholder so is tech in the hand of the user. It's all about how you use this technology that's going to make the difference.

"As beauty is in the eye of the beholder so is tech in the hand of the user."

Whether Fintech will become as accepted in South Africa as it is already in other parts of the world remains to be seen. What is clear is that more and more companies are getting on the bandwagon even in South Africa. Even regulators are taking more notice as we've seen at the Financial Services Board FAIS Conference earlier in the year where they gave their commitment to regulate these new Fintech services.

A question we get asked most often is whether or not a specific service falls within the ambit of the Financial Advisory and Intermediary Services Act 37 of 2002 (FAIS, and soon to be known as the Conduct of Financial Institutions Act).

The first leg of this assessment focuses on whether or not the specific Product or basket of Products are defined in the FAIS Act. The second leg focuses on the definition of Advisory and Intermediary Services. Remember: the FAIS Act does not regulate the products themselves but rather only the Advisory and Intermediary Services provided in conjunction with these products. What must also be taken into account is whether or not a product falls within any specific exemptions, such as credit and property.

​"Remember: the FAIS Act does not regulate the products"
​
If one establishes that your business does not need to comply with FAIS, good for you. If  you do establish that you need to comply, one needs to move on to more in depth assessments such as which categories to register for and so on but I won't get into it in this post. 

Ultimately one would have to do a thorough review of a business to ensure whether or not one needs to comply with the FAIS Act. It is certainly one of the most convoluted pieces of legislation we have in South Africa and isn't for the fain of heart. It is also important that you ensure you comply with any other pieces of legislation that regulate your Product(s) because, as I mentioned earlier, FAIS does not regulate your product. 

For more info or assistance give us a shout at hello@horizoncompliance.co.za or on 0723511653.