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Additional requirements that FSPs, KIs and Reps need to meet to be in good standing

Posted on 1 February 2018   

It has long been a requirement that FSPs, KIs and Reps must meet fit and proper requirements, specifically relating to honesty and integrity. This is over and above the requirements relating to competence, operational ability, and financial soundness. However, in terms of recent changes to the fit and proper requirements, there is now an additional requirement that all FSPs, KIs and Reps also need to be ‘in good standing’. This is not a once-off requirement, but rather something that must be met on an ongoing basis.

While the regulations do not define what it means for an FSP, KI or Rep to “be honest and have integrity” or what it means to be “in good standing”, they do set out a list of incidents that would disqualify FSPs, KIs and Reps from meeting these requirements.

Without going into all of the incidents listed, we focus on a few categories:

  • There are criminal incidents that will count against FSPs, KIs and reps. These include:
    • Being found guilty by a court of law of theft, fraud, an offence involving dishonesty, breach of fiduciary duty or of unprofessional conduct.
    • Being found guilty of any offence after 1996 where the penalty is imprisonment without the option of a fine. The regulations are worded in such a way that they also apply to possible future convictions.
  • Civil proceedings, e.g. where there has been a civil judgement against a person for matters relating to theft, dishonesty, breach of fiduciary duty, misrepresentation, or negligence.
  • The Registrar will also look at incidents that involve actions taken against persons by professional membership bodies.
  • They will also look at one’s role as a director or executive in a company. So, where a person is or was involved as a director (or other senior person) of a company that is or was placed in liquidation or business rescue, such person could fail to meet the fit and proper requirements.
  • An important additional incident listed in the regulations is where the FSPs, KIs and/or Reps have “… demonstrated a lack of readiness and willingness to comply with legal, regulatory or professional requirements and standards.”

The consequences of not meeting the “honesty and integrity” or “good standing” requirements are serious. Being disqualified effectively means losing one’s licence to operate. It is therefore critical that FSPs, KIs and Reps not only know the requirements, but that they ensure that these requirements are met at all times.

In order to meet these requirements, FSPs will need to set out adequate policies and internal processes to ensure that the KIs and Representatives fulfil their duties in an honest manner and also comply and continue to comply with the requirements and keep a record of this.

It is very clear that the regulators are continuing on their path of professionalising the industry, focusing on good governance and introducing more principle-based regulation. But, it does mean more focus and greater responsibility for FSPs, KIs and Reps. These new requirements will take effect on 1 April 2018, and we advise you to read the full Board Notice which you can access by clicking on this link.

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A national supplier of risk management services to independent financial advisors and other licensed financial service providers (FSPs). Established in 2004, we help our clients overcome their risk management challenges so they can grow and thrive in an increasingly regulated industry. Providing professional guidance and practical support, our team of specialists is passionately committed to delivering tangible solutions.

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