On 23 June 2017, the FSB published a Press Release  dealing with the provisional suspension of an FSP as a result of the Key Individual not fulfilling the required management and oversight duties.
We often hear of FSPs (mainly where there is only one Key Individual) appointing an additional Key Individual who does not actively take part in the oversight role in the business. Such Key Individuals are appointed on the FSP’s licence to ensure continuity in the event that something happens to the main Key Individual and they are commonly known as “dormant” Key Individuals. The question then arises: is this okay?
A Key Individual  is:
- A natural person – not a Company, CC or Trust.
- Approved by the Registrar to manage the business of the FSP.
- Responsible to oversee the activities relating to the rendering of any financial service – including advice and/or intermediary service.
- Responsible to oversee the activities of its representatives and administrative staff.
- Appointed by the FSP and approved by the FSB – management and oversight responsibilities stretch across the entire business of the FSP.
In South Africa, our law accepts that the employer bears the responsibility for the wrongful acts committed by its employees in the scope of their employment. This means that if an employee negligently harms or injures another, that party may sue the employer for damages. The employer, in its personal capacity, need not be at fault in any way but the wrongful conduct of the employee is transferred or imputed to the employer. Similarly, Key Individuals can be held liable for the wrongful acts committed within an FSP. It is therefore imperative that Key Individuals actively oversee and manage their FSPs.
In the case of Quantum Portfolios CC vs Registrar of Financial Services Providers, which was decided on 30 August 2010, the Appeal Board noted that:
“Key Individuals are the very heart and soul of the licensed entities. There must always be natural persons who will have to carry out the statutory obligations in terms of the FAIS Act. The ‘key individual’ takes on personal responsibility for all decisions made by staff members and will have to put measures in place in order to fully comply with the FAIS Act…. The ‘key individual’ can therefore not be separated from the FSP. They are the life force of the FSP. The very responsibility and activities of the FSP are due to the key individuals, management and conduct therein.”
A Key Individual therefore bears the responsibility, inter alia, to:
- Oversee the statutory obligations of the FSP.
- Ensure that the correct processes are implemented in the business.
- Have knowledge of the operations and processes of the business.
- Accept personal responsibility for financial services provided to clients by staff members.
The FSB will not tolerate or be lenient with a Key Individual who fails to perform their duties in terms of the FAIS Act. This can be evidenced from the press release referred to above. Further, the FSB mentions in the Press release that: “The FSB will not tolerate unlawful activities by its licence holders.”
The extent of a Key Individual’s responsibilities can result in challenges to FSPs who wish to appoint one or more Key Individuals to the licence for purposes of succession and business continuity. We are concerned that, in a strict interpretation and application of regulation and precedent, there is no recognition of “dormant Key Individuals”. Therefore, Key Individuals and FSPs acting in this way are exposing themselves to regulatory risk. Until further guidance is obtained from the regulator, we recommend that any person who agrees to be appointed as a Key Individual to an FSP, understands their obligations and duties imposed by legislation and any associated risks.