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.
In a recent FSCA email newsletter the FSCA informed the industry that they have not completed their work on the new format of compliance reports (I am liberally paraphrasing) and as a result there will be no compliance reports for 2019 but instead there will be a General Information Request. Some are speculating that this is a result of the increased workload and resulting lack of resources in the FSCA with all the new changes. I am guessing that this might very well be the case, because, to everyone's chagrin, we have seen turnaround times with license applications and profile changes increase exponentially as of late.
Although the format of the format of this information request is unknown, it is expected that it will compare the information on the FSCA's systems and that of the FSP to ensure that they are correct when the new COFI Act comes into play. Things like bank accounts, reps, KI's, contact numbers and business addresses - to name a few.
It is important to note that all FSP's must submit the information when it is requested, even those FSP's that do not have to submit compliance reports (like the funeral services providers).
RE Exam Prep Guides
The FSCA also sent the latest RE Exam Prep Guides for RE 1 and 5 that you can download here or on our client portal. The RE Exam Preparation Guides have undergone many changes recently and there are many versions floating around. Make sure you and your staff are using the right set of guides!
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.
Fit and Proper Areas
Persons rendering financial services under the FAIS Act are all aware of the ability, and sometimes, the need to render services under supervision. This means that the person has not yet fully complied with some of the fit and proper requirements as stipulated under FAIS.
The main areas of fit and proper requirements for persons that are representatives under FAIS are:
For more detail you can view the full fit and proper requirements here. Just make sure you lie down as jou will inevitably fall asleep a few times while reading it. You can read about some of the new additions to the fit and proper list in this previous post. In that post we detailed the time-frames that one has to comply with the new changes. Some of which are continual in terms of their application unless you fall within the exemptions for certain of the Competence requirements. Remember full exemption in itself is not the same as rendering services under supervision, which is what we will cover next.
A person can currently render services under supervision if they do not meet the following Fit and Proper Requirements:
The Financial Sector Conduct Authority provided interim relief recently to persons appointed rendering services under supervision before 1 August 2018 to comply by 1 August 2019 and people appointed after 1 August 2018 to comply by 31 January 2019 with class of business training requirements. Yes, if compared, the two time-frames do not make much sense and it seems a bit unfair. We are speaking to the FSCA about it.
You can read more about the Transitional Exemptions here and here. One would have thought just planning ahead and drafting one exemption and aligning time-frames would be simpler. Anyway, we appreciate that they at least provided these exemptions in the end.
Possible Supervision in the Future
Recently the FSCA issued a consultation paper that would change the landscape a little in that the supervision provisions are expanded to include some of the new fit and proper requirements. This will inevitably replace the old and transitional period provisions. This would go a long way to assist FSP's in complying. You can view the paper here.
Some Suggested CPD and Class of Business Providers
If you do need to comply with the class of business and CPD requirements you can perhaps contact some of the following providers:
This is only a very limited overview of the new and proposed changes. If you need specific guidance on the aforementioned, please contact us. Although there are some exemptions and extensions with regards to the time-frames its best to get things in place sooner than later. FSPs are advised to acquaint themselves with the changes, their implications and implementation.
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
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
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.
There are certain FSP's that some of the training does not apply to. Contact us to find out more.
For Product Specific training:
Appointed before 1 April 2018 (excl. supervision):
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):
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).
Seeing your country being pulled down by corruption is hard for anyone. As compliance officers, it's even more difficult as we are often faced with situations where clients and other businesses are actually involved in this to some degree. I can tell you, from experience, that it is not something that one should take lightly. Let's take a look at the risks one faces with PEP's and what to do with them.
The FIC Amendment Act of 2017 still includes the concept of PEPs, however, the naming conventions have now changed to distinguish between foreign and domestic PEPs as follows:
What is the risk?
We must be able to identify PEPs because their prominent public position may increase the risk of their involvement in bribery and corruption and consequently of laundering the proceeds of any such activity (as one can see from the recent corruption scourge that plagued our country).
A high ranking South African government official opened a number of accounts with an overseas bank. However, his activity raised a number of concerns that the account was being used to launder the proceeds of corruption. The value of cash deposits into these accounts was inconsistent with the stated purpose of the accounts and the customer’s income. In addition, the official opened an offshore company in a “tax friendly” jurisdiction with himself as sole director and sole shareholder. The deposits paid into the company accounts were considerably more than expected and, contrary to what is expected of a functioning business, there were no outgoing payments. After a Suspicious Transaction Report (STR) was submitted, the individual was investigated and charged with money laundering offences and subsequently sentenced to prison.
Their prominent public position may increase the risk of their involvement in bribery and corruption and consequently of laundering the proceeds of any such activity.
What are the proposed controls?
Due to the susceptibility of bribery and corruption associated with PEPs, businesses often don’t want to do business with them, however this is an unintended consequence of the associated risk. Processes and procedures need to be in place to identify customers who are PEPs and when you identify a PEP you must follow your business procedures and compliance policies.
When looking at guidance from international bodies such as the Wolfsberg Group and the Financial Action Task Force, PEP relationships are considered higher risk and should ideally be subject to Enhanced Due Diligence (EDD) such as verifying their source of wealth, regular CDD/KYC reviews and the requirement for Senior Management to give their approval prior to entering into or maintaining the customer relationship. It can also happen that a PEP is not a customer of the accountable institution, but rather a related party such as a beneficial owner. The accountable institution needs to decide what its approach will be in these instances as well. This will usually be contained in the internal rules/policy/processes.
It is important to remember that categorising a customer as a PEP does not mean that they are, or have been, involved in any criminal activity. The can also be risk rated in terms of the accountable institution’s Risk Based Approach (RBA).
The FIC Amendment Act also requires that the following requirements be met for higher risk Foreign Prominent Public Officials and Domestic Prominent Influential Persons:
Risk rating your customers are very important in the new improved version of FICA and PEP's are certainly no exception. Do not take any chances and report any instances of proven or suspected criminal activity via the right channels. You would be doing yourself and everyone, for that matter, a great service.
by: Horizon Compliance team