The ‘new’ Fit and Proper requirements, published in December 2017, replaces the ‘old’ Fit and Proper requirements and introduces several changes and new requirements.
The Fit and Proper requirements that FSPs, Key Individuals and Representatives must comply with are largely dependent on the licence category(ies) and subcategories (‘product categories’) which they are authorised for.
The new requirements introduce:
- 6 new product categories, separated from or are associated with existing subcategories.
- Two tiers of financial products with more complex financial products falling under Tier 1 and the less complex financial products falling under Tier 2.
‘New’ Product Categories
Details of the 6 new product categories have been set out in Table 1. Five of these product categories are only new in the sense that they have been stripped out from existing product categories and have been given their own grouping or name. This means that FSPs who are already licensed for the associated or ‘old’ subcategory and make use of financial products which now fall into the new product category will have to take the necessary steps to update their licence. Failure to do so means that an FSP will no longer be able to do business in those financial products which now fall under a new product category.
Table 1: New Product Categories
The new Securities and Instruments product category is, essentially, a ‘catch-all’ subcategory as it includes securities and instruments which do not already fall into the existing product categories.
The new requirements allow for certain transitional provisions where FSPs are already licensed for a product category which is associated with the applicable new product category. In some cases, an FSP will automatically be granted approval for the ‘new’ product category and in other instances, an FSP will have to follow an application process which the FSB will prescribe in due course.
FSPs already licensed at 1 April 2018 for:
- Long-term Insurance B1 will automatically be granted approval for Long-term Insurance subcategory B1-A.
- Long-term Insurance B2 will automatically be granted approval for Long-term Insurance subcategory B2-A.
- Short-term Insurance Personal Lines will automatically be granted approval for Short-term Insurance Personal Lines A1.
FSPs which are granted automatic approval will be deemed to have been authorised for the new product category(ies) on the same date as the associated existing or ‘old’ subcategory.
FSPs have 3 months from the date of the automatic amendment to their licence to update the central representative register.
Application Process Required
FSPs already licensed at 1 April 2018 for:
- Short-term or Long-term Deposits must apply to the FSB to add Structured deposits to their licence before 30 June 2018.
- Collective Investment Schemes must apply to the FSB to add CIS Hedge Funds to their licence before 30 June 2018.
Provided that an application to add the associated ‘new’ product category has been submitted before the deadline date, FSPs can continue to provide financial services in respect of financial products falling into the ‘new’ CIS Hedge Funds and Structured Deposit subcategories, until their application has been processed and is approved or declined.
An FSP that does not submit the required application by the deadline date will have to cease doing business in any financial product falling into the ‘new’ product categories on that deadline date.
FSPs who want to take advantage of the transitional provisions can approach Masthead to assist with the application process, by emailing us on email@example.com or contact your Masthead compliance officer.
Any FSP that is not licensed for the ‘old’, corresponding product category will have to follow the standard application process.
‘New’ Financial Product Tiers
In addition to the introduction of the 6 new product categories, the new requirements divide financial products into two Tiers. The reason for this is to distinguish between those financial products which are, in general, simpler and easier to understand (Tier 2) and which may, therefore, have lighter competency standards, and those which are more complex (Tier 1). The financial products falling under each Tier have been set out in Table 2 below, and will need to be referred to when we discuss the competence requirements in later articles.
Table 2: Financial Product Tiers
Please take some time to read the full Board Notice to familiarise yourself with the new definitions, understand the new requirements and the impact these changes will have on your business, and to establish whether you need to apply for the new product types. You can download the Board Notice by clicking on this link.