a reminder to accountable institutions to regularly submit CTRs, risk-rate clients (and potential clients) and comply with your own RMCP
This blog is about the recently imposed administrative sanctions on Momentum Wealth (Pty) Ltd and Momentum Collective Investments RF (Pty) Ltd by the FSCA.
The broad reason for the sanctions was the ineffective money laundering/terrorist financing control measures of both accountable institutions, as required by the FIC Act. The total financial penalty imposed by the regulator on these institutions amounted to R11,100,000.00 (excluding an amount of R100,000.00 which is suspended for three years).
The breaches identified by the FSCA were the following:
These cases serve as a reminder to accountable institutions to regularly submit cash threshold reports, risk-rate clients(and potential clients) and comply with your own RMCP.
For more information 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:
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.
this piece of legislation will control your business in the future and determine the shape and form of your industry for years to come.
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: email@example.com .
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:
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.
What is this?
We've recently received some calls from clients on the FSTC (Financial Sector Transformation Council) reporting BBBEE communication sent out by the FSCA on behalf of the FSTC. See the original communication here. To be clear, the FSTC is not to be confused with the FSCA. Although this does not fall in the realm of FAIS compliance we thought it is a good idea to perhaps just summarise the requirements and application thereof. Usually the BEE components of a business is handled internally/with HR or accountants in consultation with Verification Agents (BEE Compliance Officers) if need be.
The FSTC is mandated to obtain BBBEE statistical data from entities operating in the financial services sphere on their progress relating to BBBEE. They send out a request once a year for statistical data so they can compile their annual report on the progress of Financial Institutions with the Financial Sector BBBEE codes.
Who does this apply to?
The sectors/companies asked to report are:
This Amended FSC does not apply to:
How do I report if I need/want to?
FIs were requested to submit the full final verification reports, to the FSTC no later than the end of the business Friday, 05 June 2020. All reports are to be submitted electronically via email to firstname.lastname@example.org with the subject: FSTC 2018/19 Report– (name of entity). In the past, however, they did allow entities to still submit after this date, however we cannot guarantee this.
Should an entity encounter difficulty in providing the above-requested information they should contact the FSTC at email@example.com, or call (011)838 6696 or get in touch with their respective Trade Associations for more clarity
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 firstname.lastname@example.org 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:
The FSCA paused their compliance reports last year due to them not being done with the new format compliance reports. Although we do not have written confirmation or any notice to this effect - we've heard from some of their staff that it also affects AUM reports and Handover reports (still to be confirmed). And it does not seem that we have any news on new compliance reports for this year. However, there is some other news.
They are busy though, with onsite inspections. Some of our clients were recently inspected and only on FICA. From discussions with people in the industry they are doing inspections on a broad number of FSP's so you should be ready in case they come to visit you.
You should focus on your FICA compliance ASAP. If you do not have the basics in place your are at risk of being fined. Yes, several FSP's have recently been fined for not complying with even the smallest aspects of FICA after the inspections were conducted (none of our clients though).
Be ready for a FICA inspection - a few FSP's have been fined already
What do you need to have in place?
How will the inspection happen?
They will usually contact the Key Individual and inform them of the impending inspection. They will ask for certain documentation beforehand to peruse it before they visit you. They then provide you with a date on which they will arrive and state what you need to have ready on the day. You will likely not have a fun time during the inspection, but with our help we can make it a little less daunting.
This is a quick summary of what to look out for. If you need assistance please let us know - we are here to help.
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.
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.
by: Horizon Compliance team