In the previous issue of Mastering Compliance, we unpacked part of the new Supervision Notice (FSCA FAIS Notice 86 of 2018) which impacts FSPs who have Reps under Supervision. (Click here to read Part 1)
Part 1 covered Definitions, Entry Level Requirements, Regulatory Exams, Class of Business Training, Qualifications, CPD, and the Experience requirements of Reps under Supervision. In this article (Part 2) we unpack the requirements for: Supervision Agreements, the various Duties of the FSP, the Supervisor and Supervised Rep, and the Intensity of Supervision. The Notice came into effect on 1 February 2019 except for the provisions relating to Supervision Agreements that have a delayed effective date which is set out further below.
The exemptions which are afforded to FSPs and Reps, where the Rep does not meet all the competency requirements, is subject to compliance with a number of conditions. FSPs that have or anticipate appointing Reps under supervision must be sure to understand their duties and obligations set out in the new Notice.
The FSP and supervised Rep must enter into a written supervision agreement prior to the rendering of services under supervision. Although this is not a new requirement, the ‘old’ Notice did not prescribe the aspects to be included and the Authority found that supervision agreements varied significantly amongst FSPs. Therefore, Condition 3 of the new Supervision Notice sets out exactly what must be contained in the supervision agreement such as the identity of the supervisor; the tasks, functions, training needs and training programme of the supervised Rep; the duties and responsibilities of both the supervisor and the supervised Rep; the supervision methodology; processes and procedures regarding monitoring, oversight, assessment criteria, sign-off criteria by the supervisor, and whether a reduced level of intensity of supervision should be applicable to the supervised Rep.
FSPs that have Reps under supervision will need to review their supervision agreements to ensure that they comply with the new requirements.
The condition relating to Supervision Agreements has a delayed effective date and must be in place by:
- 1 March 2019 – for supervised Reps appointed on or after 1 December 2018
- 1 June 2019 – for supervised Reps appointed before 1 December 2018
Duties of the FSP, the Supervisor and Rep
The duties of the FSP, the Supervisor, and the supervised Rep are set out in Conditions 4, 5, and 6 respectively.
Some of the duties of an FSP that appoints a supervised Rep is to have the operational ability to appoint and monitor such Reps, to ensure that the appointment does not cause any material risk to the FSP or the fair treatment of its clients, to assign a competent supervisor and to update its registers to reflect the status of the supervised Rep. FSPs must regularly review their processes to ensure that they continue to be effective and must make certain that the supervised Reps actively work towards completing the competency requirements.
A Supervisor has a duty to implement and ensure compliance with the supervision agreement, mentor and coach the supervised Rep, review and assess the learning activities and progress of the supervised Rep, report to the FSP any actions of the supervised Rep that caused unfair treatment of clients, and record keeping of all supervision related documents.
The duties of a supervised Rep are to disclose to clients that he or she is rendering services under supervision, complete the class of business training, RE, and qualification requirements within the prescribed time limits, and to adhere to the provisions set out in the supervision agreement.
Intensity of Supervision
Condition 7 sets out a new duty of the FSP which relates to the intensity of supervision. Previously the intensity of supervision was prescribed. However, the definitions of ‘direct supervision’ and ‘ongoing level of supervision’ and the timeframe for each has fallen away.
A duty is now placed on the FSP to determine the supervision arrangements and the level of intensity of supervision that must be applied in each case having regard to the nature, scale and complexity of the financial services and financial products to be rendered by the supervised Rep, the Reps level of competency, and the risk to clients and the FSP. FSPs will need to develop assessment criteria so that they can demonstrate how they decided upon the level of intensity applicable to a supervised Rep and why the intensity level is reduced.
In conclusion, it is imperative that FSPs that have Reps working under supervision, or are looking to appoint such Reps, familiarise themselves with the new Supervision Notice. This should involve a thorough review of the supervision process in the business of the FSP, from the time that a Rep is appointed to act under supervision through to the final sign-off by the Supervisor that the Rep fully meets the fit and proper requirements. FSPs should also review their recordkeeping processes and keep detailed records of the dates Reps are first appointed to each financial product to ensure that the required deadlines are met.
Click here to download FSCA FAIS Notice 86 of 2018