FAIS Workshops for Small FSPs 2019–20

SMME Support Workshops
2019/2020

Agenda
08:00- 08:45 Registration
08:45 Introduction
09:00 Client Interaction
10:15 Tea
10:30 Client Interaction
12:15 Lunch
13:00 Maintaining your license 16:00 Close

Client Interaction

Applicability of Act, Codes and other legislation

• Operate ito license
• Every action is governed by a Code of Conduct
• If the FSCA or Ombud scrutinises the actions of a
  FSP, KI or representative – will do this against the requirements of the Act and the relevant Code of Conduct

Authorisation of FSPS - Sections 7, 8 & 11

• Licensing requirements; Application form; Fit and Proper requirements; Approval of key individuals Lapsing of a licence
  Duties on FSPs - Sections 17 to 19
• Approval of compliance officers ; Compliance reports; Audit reports; Recordkeeping requirements
  Codes of Conduct - Sections 15 & 16
• General Code of Conduct
  Supervision of FSPs - Section 4 Ombud - Sections 20 to 31 Regulatory action - Sections 9 & 14A (S153 of FSRA)
• Suspension of a licence ; Withdrawal of a licence; Debarment of persons other than representatives;

GCOC

• All FSPs must comply with the General Code of Conduct
  – Recordkeeping
  – Complaints
  – Advertising
  – Client funds
  – Advice:
• Suitability analysis
• Record of advice
• Single needs analysis
• Replacement of financial products
  – Disclosure requirements

Relationships (1) With Clients
Section 2
At all times render financial services honestly, fairly, with due skill, care and diligence, and in the interests of clients and the integrity of the financial services industry
Section 3: Specific duties of a provider
Representations to clients
Record Keeping
Conflict of interests: Mitigate & disclose Confidential information
Section 6

• Act honourably, professionally and with due regard to the convenience of the client
• At the commencement of any contact, visit or call initiated by the provider, explain the purpose thereof

Specific duties of the FSP

• Factually correct
• Avoid uncertainty/ confusion
• Not misleading
• Plain language
• Easy to read if in writing
• Adequate & appropriate to circumstance
• Provided timeously
• In accordance with contractual relationship, reasonable requests,
  instructions of client
• Executed as soon as possible, with interest of client in mind

Relationships (3)

• There is an agreement to form a relationship
• You need to make disclosures (S5):
  – The FSP
  – You and your role & nature of mandate with FSP – Details of service provided – Details of product suppliers

Relationships (4)

• The FSP has the relationship with the client
• The representatives represent the FSP

Relationships (5)

• Continuous relationship:
  – Give regular feedback to clients
• Termination of relationship (S20)
  – Inform the client
  – Inform the product supplier
• After termination of relationship
  – record keeping for 5 years

Disclosure requirements (1)
Rep
Financial services
Product
Supplier
Financial product
FSP

Disclosure requirements (2)

• Name, location
• Address & telephone
  numbers
• Registration details
  Details of FSP
• Name
• Contact details
  Compliance
  Officer
• Advice/
  Intermediary services
• Products
  Authorised to offer
• PI
• Fidelity, IGF
  Insurance held
• Appointment
  mandate
• Services under
  supervision
  Representatives
• Any exemptions
  granted
  Exemptions
• Contracts
• Contact details
• +30% remuneration
• +10% shares
  Product suppliers

Disclosure requirements (3) when, how, what?
FSP’s

• Establishing relationship
• Provide disclosure upfront
  FSPs = Direct marketer
• Include in script
• Record

Disclosure requirements (4) The Representative

• Written certificate – FSP has contract/ mandate with
  representative
• Name & contact details of representative
• Type of financial services & products the representative
  may render obo the FSP
• Type of relationship FSP & representative
• The FSP takes responsibility for actions of representative

Disclosure requirements (5) The Financial Services

• Full disclosure of all information needed to let client
  make informed decision
• What requirements must be met for transaction to
  be completed/ submitted:
  – Client disclose all material facts related to transaction – – All information supplied in application form is client’s responsibility

Disclosure requirements (6) The Financial Products

• Name, class & type of product
• Details of benefits provided by the product
• Guarantees provided by the product supplier
• Details of limitations, terms etc
• Extent the product is realisable/ accessibility of funds
• Early termination/ withdrawal
• Tax implications
• Cooling-off periods
• Risks

Disclosure requirements (7) Client Obligations

• Obligations assumed by client on behalf of:
  – The product supplier
  – The FSP

Disclosure requirements (8) Investments

• Value of investment
• Fees & charges against product
• Past investment performance
• Rebate arrangements
• Platform fees

Disclosure requirements (9) Replacement Products

• Financial implications
• Costs
• Comparison “old” & replacement product
• Insurance products – age & health impact
• Record of advice – specific requirements

Disclosure requirements (10) Replacement Products Guiding principle:

• … must at all times render financial services honestly, fairly, with
  due skill, care and diligence, and in the interests of clients and the integrity of the financial services industry.
• Therefore, where a replacement is done, evidence the fact that it
  was done in the client’s interest.

Suitability Analysis (1)

• Section 8(1) –(4) of GCOC
• In simple form it is the matching of clients NEEDS to
  advice given together with products recommended
• It is more than an affordability test

Suitability Analysis (2)
Before giving advice:

• Seek appropriate and available information regarding the client’s financial situation, financial product
  experience and objectives
• Conduct Analysis
• Identify financial products appropriate to clients’ risk profile and financial needs
  No analysis conducted due to:
• Client not providing sufficient information as requested
• Time constraints
• Disclose actual and potential financial implications, costs and consequences of replacement to client
• Maintain record of advice with regards to:
• Comparisons made
• Reasons for suitability of the replacement product
  Content of a record of advice:
• Brief Summary of information and material
• Financial Product(s) Considered
• Financial Product(s) recommended and explanation

Suitability Analysis (3)

• Recommendations must be appropriate and address client
  needs
• Documenting advice given
• Ensuring clients understand risks
• Avoid unsuitable advice – replacement of products
• Single needs client

Suitability Analysis (4)

• Use plain language and avoid jargon
• Analyse the information which the client has provided, in
  order to conduct a needs analysis – What they need (Now, future) – Affordability
• Use this to base recommendations on
• If no needs analysis/ limited needs analysis done:
  – Selection of product is client’s responsibility

Suitability Analysis (5) TCF perspective

• Target products to the right clients
• Appropriateness, fairness and reasonable pricing of their
  financial products
• Contractual terms should be fair
• The rendering of financial services should be done in a
  fair, efficient and transparent manner
• Provide information before, during & after sale
• Assist with complaints & where allowed to, claims

Suitability Analysis (6)

• Take reasonable steps to:
  – ensure that the client understands the advice – that the client can make an informed decision. – establish if the proposed financial product will replace an existing financial product of the client

Suitability Analysis (7)

• If client chooses to:
• conclude a transaction that differs from that recommended by the
  provider,
• not to follow the advice furnished, or
• receive more limited information or advice than the provider is able to
  provide
• the provider must make the client aware of:
• the clear existence of any risk to the client,
• the need to take particular care to consider whether any product selected
  is appropriate to the client’s needs, objectives and circumstances.

Suitability Analysis (8)
No suitability analysis

• No analysis done
• Appropriateness of advice is limited
• Client must consider if advice appropriate
  Advice not taken/ different decision than recommended action taken
• Alert client to any risks that may exist
• Advise client to take care to consider
  whether product selected is appropriate

Suitability Analysis (9) “Single Needs”

• If the client has not provided all information requested by a FSP furnishing
  advice, as part of the analysis or
• where the FSP was unable to conduct such an analysis because there was
  not reasonably sufficient time to do so,
• the FSP must fully inform the client thereof and ensure that the client
  clearly understands that-
• a full analysis in respect of the client could not be undertaken;
• there may be limitations on the appropriateness of the advice provided; and
• the client should take particular care to consider on its own whether the advice is
  appropriate considering the client’s objectives, financial situation and particular needs

Suitability Analysis (10) Replacements

• If a financial product replaces another product
  (total/ partial) then:
• Fully disclose to the client the actual and potential
  financial implications, costs and consequences of such a replacement

Record of Advice (1)

• A provider must maintain a record of the advice furnished to a client
• Documentation or record of:
  – Client needs
  – the advice given
  – Issues considered
  – Recommendations & reasons
  – Final decision & reasons
• The record of advice is only required to be kept where client entered into
  a transaction as a result of the advice given to the client
• Must provide a client with a copy of the record in writing.

Record of Advice (2)
Gather Information
Conduct a suitability analysis Identify the financial product/ service Provide disclosures about the financial service Provide a record of advice

Reporting (1) To clients

• Statutory requirements
• Section 7(4) of the General Code of Conduct for
  Authorised FSPs and Representatives (“General Code”) sets out the reporting requirements for FSP.
• A financial services provider (“FSP”) is required by
  legislation to report to its clients at least once a year.

Reporting (2) To clients

• At least annually
• Written statement:
  – Products that still exist
  – Ongoing monetary obligations − the main benefits provided by the products; − investment /investment component:
  − value of the investment
  − amount of such value which is accessible to the client; − ongoing incentives, consideration, commission, fee or brokerage payable to the provider in respect of such products:
  − The statement is not required if:
  − the client is aware, or ought reasonably to be aware, − that the provider concerned does not render or has ceased rendering ongoing financial services in respect of the client or the products concerned.

Contacting clients

• Act honourably, professionally and with due regard
  to the convenience of the client; and
• When contacting the client:
  – Explain the purpose
  – As soon as possible provide the information about the FSP.

Intermediary services
Receive an instruction from the client Disclose on the financial product and service Enter into a transaction obo the client or perform the intermediary service

Maintaining your license

License Certificate

• Legal entity – Name on Certificate
  – Sole proprietor
  – Partnership – partners are key individuals – Juristic person – appoint key individuals
• Close corporation
• Company
• Trust
• Trade name on certificate
• Annexure to licence certificate
  – Restrictions to licence – product categories – Conditions – what you must do – Exemptions

Important Obligations

• Comply with the fit and proper requirements on an ongoing basis
• Comply with Codes of Conduct applicable to FSP
• Comply with Financial Intelligence Centre Act
• Keep records
• Submit the required reports
• Prepare monthly accounts
• Maintain financial soundness
• Annual levies payable to the FSCA

Business Continuity and Succession Planning

• Legislative requirements
• Continuity of business when an emergency occurs
• Plan for when the FSP is incapacitated
• Making clients aware of who they can approach
• Inform the product suppliers
• Inform the FSCA

Insurance required (BN 123 of 2009) Protect if bad advice/ negligence Minimum of R1 million PI Cover Protect if fraud or theft of client assets/ money Minimum of R1 million FI

Risk Management

• Identification of risks
• Implementation of controls
• Monitoring of risk
• Good business practice
  – documenting a risk management plan – Consider all the risks the business face, not just the compliance risks

Conflict of Interest (S3A of the General Code)

• Avoid conflict of interest
• Develop conflict of interest management policy
• Change disclosure documentation
• Implement controls to ensure comply with prohibitions on financial
  interest
• FSPs dealing with other FSPs
• Financial interest
• Immaterial interest
• FSPs representatives
• Compliance officer/ KI/ FSP must monitor the COI implementation

Competence requirements
FAIS Act
Fit and Proper
Requirements for
FSPs
Honesty, Integrity and
Good Standing
Competence
Experience
Qualification
Regulatory
Examination
Class of Business and
Product Specific Training and Assessment Continuous Professional Development (CPD) Operational Ability Financial Soundness Services under Supervision

Regulatory Exams
Category I Category IV
FSP (sole proprietor – natural person) RE1 RE1 KI RE1 RE1 Representative RE5 RE5

Class of Business
❑ Content covered in class of business is generic in nature, and address the fundamental knowledge a person requires to identify a product in that particular class of business based on generic features, benefits, risks and principles. ❑ Class of Business training can be recognised for CPD purposes (if done to update skills and knowledge)

Product Specific Training
❑Must be assessed
❑Can be offered by the FSP, a product provider or any other person/ body ❑Must meet requirements of section 29(5) of Fit and Proper

Class of Business & Product Specific training Applies to Does not apply to Class of Business All KIs for the class of business approved/ seeking approval Cat 1.1 and 1.19 – FSP, KI & Rep All Reps Cat 1 Rep appointed to:

• Execution of sales – Tier 1 products
• Tier 2 financial products
  Product specific All Reps for cat I and IV Cat II, IIA, III FSP or Reps KI’s of all categories

CPD
Class / Subclass of Business CPD Hours Required Single subclass within a single class of business 6 hours per CPD cycle

• e.g. Class of business: Health Services Benefits, no subclass
• 6 hours of CPD required
  More than one subclass of business within a single class of business 12 hours per CPD cycle
• e.g. Class of Business: Investments
• Subclass: Shares
• Subclass: Bonds
• 12 hours of CPD required
  More than one class of business 18 hours per CPD cycle
• e.g. Class of Business: Short –term Insurance Personal lines, and
• Class of Business: Short-term Insurance Commercial lines
• 18 hours of CPD required

Operational Ability (Ch 5 of Fit and Proper) ❑General Requirements:

• Financial products
• TCF framework
• Contact details
• Storage systems

Operational Ability (2)
❑Governance Requirements:

• Business plan
• Risk management policies
• Accounting policies & procedures
• Sound & sustainable remuneration policies
• Regular monitoring & evaluation of the adequacy & effectiveness of systems

Operational Ability (3)
❑Appointment of representatives:

• Due diligence
• Remuneration
• Fit and proper

Representatives (1)
In terms of section 13(1)(a)(b),no person may render the financial services for or on behalf of a person who:

• is not authorised as an FSP
• is not exempted from being an FSP

Representatives (2)

• Nobody may act as a representative, unless such a person can
  provide information certified by the provider to the clients that:
  – a service contract to represent the FSP exists
• The FSP must record the representative on the representative
  register:
  – FSCA register:
• Manually: filling in form FSP 5 or
• Electronically.
  – FSP’s register

Profile Changes
What is a PFC?

• A change of details (profile) that were given to the Authority.
  What can be changed?
• Name of FSP
• Addresses, telephone & cellphone contact numbers
• Products & categories
• Directors, Shareholders & CC member interest
• Key Individuals, Representatives, Compliance Officers, Auditors
• Mandates.
• NB: If you change from a Sole Proprietor to a CC or a CC to a Company you have to apply
  again.

Licensing Condition 2.1
Condition 2.1 of the Licensing Conditions/ Restrictions determined under Sec 8(5) of the FAIS Act:

• The FSP must inform the Authority in writing,
  within 15 days after the change has taken place, of any change in respect of business information of the FSP.
• Profile changes: faispfc@fsca.co.za

Financial Soundness & Reporting to the FSCA Financial Statements:

• Sec 19(2)(b)(iii) –
  – Submit Financial Statements within 4 months of the FSP’s year end on an annual basis.
• Sec 19(1)(a) – A complete set of financial statements:
• balance sheet,
• income statement,
• cash flow statement and
• notes.

Financial Reporting to the FSCA (2)

• Sec 19(2) Auditors’ report if required i.e.:
  – Public companies,
  – Private companies,
• Sec 19(3) Auditors report on separate bank account
  if client funds are handled.
• Sec 19( 4) Material irregularities report – supplied
  with the financial statements or at a later stage if the auditors identify any such irregularity.

Financial statements

• Submit within 4 months of financial year-end
• Audited financial statements if premiums collected
• Separate bank account for premiums – audited
• Annexure A

Financial soundness (Ch 6 of Fit and Proper)

• Assets must exceed liabilities
• Must always have enough resources to carry out activities & meet liabilities as they
  are due
• Cannot become/ continue as FSP if:
  – Declared insolvent/ provisionally insolvent – Placed under liquidation/ provisional liquidation – Subject to proceedings that lead to above – Seriously & persistently fails to manage financial obligations
• May not become a FSP or Juristic Rep if business rescue proceedings have
  commenced.

Premiums collected (S10 of General Code & S19.3 of Act)

• Separate bank account
• Only used for premiums
• Pay the bank charges from FSP’s business account
• Pay the premiums over timeously to product supplier
• Submit a section 19(3) report for each separate bank account
• If collect short term insurance premiums:
  – as from 28 September 2019,
  – FSP will have to have a separate bank account – will have to submit the 19(3) reports.

Compliance Function

• If more than 1 KI or if KI + 1 Representative:
  – need a CO
• The CO must monitor the compliance of the FSP and
  report:
  – To the FSP
  – To the FSCA

THANK YOU