FSCA FAIS Notice 86 of 2018 was published on 3 December 2018 and impacts FSPs who have Reps under Supervision. The Notice comes into effect on 1 February 2019 except for the provisions relating to Supervision Agreements that have a delayed effective date which is set out below.
The ‘new’ Exemption of Services Under Supervision Notice (new Notice) aligns the requirements for Reps under supervision with the new fit and proper requirements which came into effect at the beginning of April 2018. This Notice, subject to certain conditions, exempts an FSP and a supervised Rep, insofar as they relate to Reps, from the general competence requirements, class of business training, minimum experience and qualifications, regulatory exams and CPD.
In this article we deal with the entry level requirements and specific periods which supervised Reps have to meet the competency requirements. We will deal with the Supervision Agreement, Duties of the FSP, supervisor and supervised Rep and intensity of supervision in a later edition.
Consequences of FSCA FAIS Notice 86 of 2018
When the new Notice comes into effect on 1 February 2019:
- The ‘old’ Exemption of Services Under Supervision requirements will be withdrawn .
- FAIS Notice 52 of 2018 which gave certain Reps (i.e. Reps entering the industry for the first time after 1 August 2018 or Reps appointed for the first time to provide financial services in respect of financial products which require class of business training after 1 August 2018) until 31 January 2019 to comply with the class of business training requirements is also to be withdrawn. This is good news for these Reps as they will have more time to complete class of business training.
- The content of the Regulatory Exams for RE 1 and RE 5 will now be aligned to the new Notice insofar as it relates to Reps under Supervision.
Important provisions of the “new” Supervision Notice (FSCA FAIS Notice 86 of 2018)
Below are some of the changes in definitions which FSPs should be aware of.
- “Date of First Appointment” – The “date of first appointment” or DOFA as it is commonly known, means the date on which a person was first appointed as a Representative. Some of the competence deadlines which we discuss below will depend on the date on which a person was first appointed as a Representative in respect of a particular financial product. This addresses instances where a Representative is appointed for additional financial products subsequent to their DOFA, and as a result have to meet additional requirements.
- “Supervision” – the definitions for “direct supervision” and “ongoing level of supervision” have been replaced with a definition of “supervision” which means the guidance, instruction and oversight, by any means or medium, by a supervisor using a variety of assessment, observation and oversight methods or tools that are appropriate for the assessed level of competence of the supervised Representative. The appropriate level of intensity of supervision must now be decided by the FSP. We deal with this in more detail below.
- “Supervised Representative” – This is a new definition which replaces the term “supervisee”. It means a Representative who does not meet one or more of the competency requirements and who renders financial services under supervision.
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. We look at each condition below.
- Entry Level Requirements
Before deciding to appoint a Rep under supervision, an FSP must make sure that the person at least meets the entry level requirements. This will differ depending on the category which the Rep is to be appointed for. A supervised Rep for a:
– CAT I or CAT IV FSP must have a Grade 12 National Certificate or equivalent qualification.
– CAT I FSP, appointed only to perform execution of sales, must have a Grade 10 or equivalent academic achievement.
– CAT II, IIA or III FSP must have a recognised qualification applicable to the category appointed for.
These entry level requirements do not apply to a supervised Rep of a CAT I FSP that is appointed only for Long-term Insurance subcategory A and/or Friendly Society Benefits.
- Regulatory Exams
A supervised Rep must complete the applicable RE Exam within 2 years from date of first appointment. This differs slightly from the old requirements with the annual 30 June deadline no longer applying. FSPs must calculate the deadline date from the date the Rep first entered the industry.
In terms of the fit and proper requirements, certain Reps do not have to complete the regulatory exams at all. However, if these Reps are subsequently appointed for specific financial products where the requirement to complete regulatory exams does apply, then they will have 2 years from the date on which they were first appointed for those financial products.
- Class of Business Training
A supervised Rep has 12 months from the date that he/she was first appointed as a Rep in respect of a particular financial product to comply with the class of business training requirements applicable to that financial product. This means that there could be more than one deadline date.
For example, if a Rep is appointed under supervision for Shares 15 February 2019, then he/she must complete the investment class of business training within 12 months, i.e. by 15 February 2020. However, if the same Rep was thereafter appointed under supervision for Health Services Benefits on 1 June 2019, then the deadline to complete class of business training in Health Services Benefits would be 1 June 2020.
As part of the transitional arrangements, Reps appointed under supervision before 1 February 2019 have until 1 February 2020 to meet the class of business training requirements.
A supervised Rep must within six years from the date that he/she was first appointed as a Rep in respect of a particular financial product comply with the qualification requirements applicable to that financial product.
The requirement for a supervised Rep to start collecting CPD hours will start as soon as he/she has completed the relevant class of business training, RE and qualification requirements, OR after six years from date of first appointment – whichever occurs first. If the start date referred to above does not coincide with the start date of the formal CPD cycle (i.e. 1 June of each year), then a pro rata calculation of CPD hours will be required. As there may be different class of business or even qualification deadlines where Reps are appointed under supervision for different financial products at different times in their career, FSPs must use the first relevant deadline dates to work out when the CPD requirement will begin.
The new fit and proper requirements prescribe the amount of minimum experience required for each financial product in each category of FSP. The supervised Rep must work under supervision for at least the prescribed minimum experience period. The time starts to run on the date the supervised Rep was first appointed as a Rep in respect of a particular category of financial service or financial product and may run concurrently where appointed for more than one. The supervised Rep must remain under supervision until assessed as having the required experience.
In conclusion, it is imperative that FSPs that have Reps acting under supervision as well as Reps working under supervision 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 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. FSPs should also review their recordkeeping processes to ensure that they can keep track of appointment and deadlines dates.
Click here to download FSCA FAIS Notice 86 of 2018