Being compliant by staying on top of regulatory requirements is one of the main concerns that keeps advisors up at night, according to a recent Masthead survey. This concern is understandable, as the financial services industry has become increasingly regulated with a focus on rendering financial services within the framework of treating customers fairly.
Complying with regulatory requirements strengthens the integrity of the financial services industry, protects consumers and ensures quality service is rendered. Being compliant also safeguards your licence.
A recent hearing by the Financial Services Tribunal, following the case of K & L Brokers CC v Financial Sector Conduct Authority (FSCA), reflects that it is in your and your business’ best interests to meet all regulatory requirements timeously by planning ahead of deadlines.
The decision, sets out how the FSCA responded to an application for exemption from the competence requirements, and in particular addresses the concern that regulatory requirements cause financial or other forms of hardship:
“……it is widely recognised and accepted that regulation has and always will have a negative financial impact on and/or may create other burdens for regulated persons. This must have been within the contemplation of the lawgiver when it decided to introduce the competency requirements. Therefore, the question … is not whether it creates hardship but rather what reasonable grounds exist in relation to that hardship to support an application for exemption, for example whether the hardship you experience is excessive in relation to other persons that must comply with the same requirements and having cognisance of the purpose of the requirements and the objectives of the Act. ln the absence of such information, the Respondent is of the view that merely claiming that compliance with the requirements creates hardship does not constitutes (sic) reasonable grounds as contemplated in section 44(4) of the Act.” (paragraph 29 of the decision)
The Tribunal decision also highlights other important considerations in an application for exemption from regulatory requirements.
Briefly, Mr Van der Spuy (the applicant), the sole proprietor and key individual of K & L Brokers CC, applied to the FSCA (the respondent) for an exemption from completing the regulatory examinations (RE) as contained in the Fit and Proper requirements. The applicant had previously written RE1 and RE5 but failed both. The FSCA dismissed the application for exemption, so the applicant approached the Financial Services Tribunal for a reconsideration of the FSCA’s decision.
The applicant’s averments
The applicant alleged that if the exemption was not granted, his licence would ultimately be revoked. This would render him unemployed and cause him to suffer financial hardship.
He also alleged that he suffers from post-traumatic stress disorder, has a medical condition that makes studying difficult, and that his current client base would be prejudiced. He claimed he has many years of experience and can therefore properly advise clients and provide sound financial services. He also undertook to complete online training courses that meet the class of business and product specific training requirements.
The FSCA dismissed the application for exemption, as the applicant had had sufficient time to comply with the examination requirements and his conduct indicated a lack of commitment and a disregard of the peremptory requirements of the FAIS Act. Further, the exemption would conflict with public interest, prejudice the interest of clients and frustrate the achievement of the objective of the FAIS Act.
The Financial Services Tribunal hearing
During the hearing before the Tribunal, it was revealed that the applicant had written RE1 and RE5 only once and had made no further attempt to successfully complete the regulatory examinations. In addition to the regulatory examination requirements, the applicant also did not meet his qualification requirements and had previously submitted financial information and reports late. The FSCA had previously taken regulatory action against the applicant on numerous occasions for non-compliance with the requirements of the FAIS Act.
The Tribunal found, inter alia, that the applicant had failed to take advantage of the lengthy period granted to Financial Services Providers to comply with the RE requirement. The applicant was also unable to show that granting the exemption would not conflict with public interest. In addition to non-compliance with the competence requirements, he continued doing business for almost three years knowing that he was neither compliant with, nor exempted from the competency requirements. Accordingly, the Tribunal dismissed the application for reconsideration.
There are several lessons to be learned from this case. Always plan ahead so you have enough time to meet regulatory deadlines. Do not rely on applying for an exemption, as it may not always be granted; instead, rather attempt to comply with the requirement within the prescribed period.
Also, if you apply for an exemption, demonstrate a readiness and willingness to comply with the applicable regulatory requirement. This can be done by showing what steps you have taken to comply with the requirement and provide a good reason as to why you could not meet the requirement by the deadline.
Although regulatory requirements may seem burdensome, they also grow you as a professional, so you can provide competent and quality service in line with the latest industry standards.
For more information on how Masthead can help you to become and remain compliant, speak to your Masthead Compliance Officer or email us at email@example.com.
Masthead offers the Regulatory Update – Know the Impact seminar which highlights some of the main regulatory changes and requirements and how this impacts financial services providers, so that they can prepare for these changes. To find out more about this seminar, click here.