At the end of July, the FSCA published a Consultation Paper on the Exemption of Services Under Supervision for Representatives who do not yet meet all the Fit and Proper requirements. Masthead has submitted comment to the FSCA and we expect to see the proposed requirements finalised before the end of the year.
In this article, which is the second part in a series, we focus on the Condition for an FSP to enter into a written supervision agreement with a representative acting under supervision.
What is different?
This is not a new requirement as FSPs have always had to enter into a written agreement which “details the procedures regarding the rendering of services under supervision.” However because, in the FSCA’s experience, the content of supervision agreements varies from one FSP to another and do not always address all the supervision requirements, the draft Exemption now sets out the specific aspects that must be covered by a supervision agreement. Even though the elements to be included in the agreement are prescribed, there is still a lot left up to the FSP. This reflects the shift from rules-based to principles-based regulation, as the FSP will need to decide what is appropriate in the specific circumstances.
What aspects must be covered by a supervision agreement?
- Supervisor’s name
Although the agreement is between the FSP and the representatives, it must include the name of the person that has been appointed by the FSP to supervise the representative.
- Tasks and functions
The agreement must indicate the category and subcategories that the representative has been appointed for as well as the various tasks and functions that the representative will perform on behalf of the FSP.
- Knowledge, skill and expertise required
Before appointing a representative, an FSP should identify the knowledge, skills and expertise that the representative needs in order to do what he/she has been appointed for. This will need to be recorded in the agreement.
- Training requirements
Once the FSP has established the training needs of the representative, a training programme will need to be developed and this must form part of the agreement. This is the plan that the FSP will follow to ensure that the representative gains the necessary knowledge, skill and expertise needed to perform the various functions appointed for.
- Supervision arrangements
There are 5 broad arrangements that will need to be addressed in the agreement.
- Firstly, the agreement must set out the duties and responsibilities of the supervisor and the representative. The draft sets out the duties of both the supervisor (e.g. regular review and assessment of the representative’s progress) and the representative (e.g. provide the supervisor with proof of enrolment for a qualification). We will discuss these responsibilities in more detail in a later article.
- The method, processes and procedures which the FSP will follow in supervising a representative must be explained in the agreement and must demonstrate adequate oversight and monitoring of the representative concerned. FSPs should develop a standard of supervision that can be applied to representatives acting under supervision, taking into consideration the specific tasks and functions which the representative is appointed to perform.
- Currently, the timeframe for direct and ongoing supervision in respect of each product category has been prescribed. However, the draft Exemption removes the definitions of “direct supervision” and “ongoing level of supervision” and instead places the decision regarding the intensity of supervision squarely in the hands of the FSP. The agreement must include the criteria and the procedures which the FSP will use to decide whether a reduced level of intensity of supervision is appropriate. This means that an FSP must be able to substantiate how it arrived at a decision to reduce the supervision intensity.
- The agreement must also include the criteria that the FSP will use to evaluate the representative’s competence as well as the frequency of each assessment.
- A supervisor has the responsibility to assess the representative on a regular basis and will have to ‘sign-off’ when satisfied that the representative has reached the required standard of competence for those activities and functions that the representative is appointed to do. The agreement must, therefore, include the criteria that the supervisor must use in the sign-off process.
How should FSPs prepare for the new requirements?
The FSCA is busy reviewing the input it has received from industry regarding the draft Exemption and it is anticipated that the new Supervision conditions will come into effect towards the end of 2018 or early in 2019. FSPs that have representatives acting under supervision should, therefore, start preparing for these changes. This should involve a thorough review of the supervision process in the business, from the time that a representative is appointed to act under supervision through to the final sign-off by the supervisor that the representative fully meets the fit and proper requirements.
Keep a look out for our next article where we continue to unpack the proposals.
Click here to read the Consultation Paper: Exemption on Services under Supervision.
Click here to read our previous article.