The Application of S13(1)(c) on Tripartite Agreements
On 7 September 2015 the Registrar of Financial Services Providers published FAIS Information Circular 4 of 2015.
The purpose of this information circular is to;
(a) reflect the way in which the FSB will apply section 13(1)(c) of the FAIS Act, on agreements in which representatives are cited; and
(b) clarify that section 13(1)(c) does not impact on the requirement in section 7(3) of the Act that provides that a financial services provider (FSP) may only conduct financial services related business with a person rendering financial services if that person is authorised to render those services or is a representative.
Section 13(1)(c) of the Act states that a person may not render financial services or contract other than in the name of the FSP of which such person is a representative.
Services and contracts must be in the name of the FSP, not the representative
The FSB has become aware of situations where Representatives have been included as a contracting party in agreements between the FSP and a product supplier which results in a tripartite agreement. Under these three-way agreements each party is contracting in their own capacity and will have certain rights and obligations set out in terms of the agreement. However, Section 13(1)(c) is very clear that a financial service can only be rendered or a contract can only be entered into in the name of the FSP and cannot be in the name of the Representative. Therefore it follows that a Representative cannot contract in his/her/its own name and this includes contracting as one of the parties in a tripartite agreement.
Representatives can carry out obligations on behalf of the FSP
It is possible for a representative to carry out some of the obligations which the FSP has to fulfil under an agreement, but the representative cannot be the “owner” of those obligations. In cases where the representative takes on the responsibilities, he does so on behalf of the FSP. This means that if there were to be a breach of any of the terms of the contract then the other contracting parties could not call on the representative to remedy these as the contracting party would be the FSP and not the representative, even if the representative was mentioned. If the agreement did provide that other parties to the agreement have the right to call on the representative to remedy a breach under the agreement, then this would mean that the representative is a contracting party and would then be in contravention of Section 13(1)(c).
Relook at agreements
We recommend that FSPs take a look at their existing agreements with product suppliers and with customers and make sure that the agreement is with the FSP and not with any of the representatives (including juristic representatives) to make sure that there is compliance with Section 13(1)(c). The FSB is particularly concerned that some FSPs are using tripartite agreements to facilitate “rent-a-licence” type arrangements between FSPs and their representatives. If you are unsure about any of your agreements, please contact your Masthead Compliance Officer for assistance and guidance.
Make sure third parties are appropriately licensed
It has also been brought to the attention of the Registrar that some FSPs are of the view that as a result of the introduction of S13(1)(c), they are no longer required to ensure compliance with s7(3) but this is not the case.
When doing financial services related business with a third party you must make sure that they are appropriately licensed. There have been a number of cases where enforcement action has been taken against an FSP for doing business with a party who is not appropriately licensed. Part of your due diligence process before deciding to do business with any party, should include a check as to whether they are correctly licensed to carry out the financial service.
S13(1)(c) of the Act is clear and unambiguous in its ambit and provides that a representative may not render financial services or contract in its own name.
To read the full circular, follow the link below: