On 26 June 2020, the FSCA published FSCA Communication 35 of 2020 (FAIS) confirming publication of the following final amendments:
- Amendment of the General Code of Conduct for FSPs and Representatives;
- Amendment of the Specific Code of Conduct for FSPs and Representatives conducting Short-term Deposit business; and
- Amendment of the Determination of Fit and Proper Requirements (BN194 of 2017).
Masthead provided input and commentary on the proposed amendments, which can be read in the Consultation Reports which we have referenced below. Members can also access Masthead’s Regulatory Commentary by accessing the website for members.
We have summarised the amendments below.
AMENDMENTS TO THE GENERAL CODE OF CONDUCT
The process of making certain changes to the General Code of Conduct has now come to an end with the final amendments published on 26 June 2020. Some of the provisions come into effect immediately while other provisions only start 6 or 12 months from date of publication (i.e. 26 December 2020 or 26 June 2021).
The key sections that come into effect immediately and which, therefore, require careful attention are:
- Changes to existing and new definitions – understand them (section 1(1))
There are several existing definitions which have been amended and quite a few new definitions inserted which FSPs need to come to grips with, e.g. “replace or replacement”, “variation”, “white labelling” and “loyalty benefit”.
- Unregulated products or services – be careful not to imply that these are regulated by the FSCA (section 3)
The FSCA has clarified that FSPs that offer products or services that are not regulated by the FSCA cannot give the impression that they are. This is not a new requirement – however, those FSPs that deal in unregulated products or services or operate in areas that fall outside of FAIS, need to pay attention.
- Independent – when can you not use that term? (section 3)
A new sub-section explains when an FSP may not describe itself or the financial services which it renders as independent. FSPs that own or are owned in whole or in part by a product supplier or FSPs that earn fees other than commission from product suppliers, for example binder fees, or where there is some other material conflict, need to read this section carefully as it may impact how they can describe themselves.
- Comparisons – some new requirements
The section that deals with what you can and cannot do when comparing different financial products, product suppliers, providers or representatives is now followed by a section that requires FSPs to apply the same principles when using comparisons in advertisements to these types of financial product or product supplier comparisons. This includes things like ensuring that you only compare products or services that are similar in characteristic, ensuring that not only price but also benefits are compared, being careful not to focus on price to the exclusion of suitability or delivery on client expectations, using current, complete and accurate information.
- Forecasts, illustrations, hypothetical data or projected benefits and past performance data – be careful when using these in your dealings with clients
The amendments introduce a number of requirements relating to advertisements specifically when using forecasts, illustrations, projected benefits, past performance data, etc. These requirements must also be applied when using this type of information in the provision of a financial service to a client.
- Information to be obtained before giving advice
This section used to apply to all FSPs other than direct marketers. The proverbial playing fields have been levelled and this requirement now applies across the board to all FSPs. While in principle the requirements are largely the same, the amendments serve to clarify the type of information to be taken into consideration before giving advice, such as the affordability of the client, their ability to bear risk, the extent to which they understand risks, and also extends to employee benefits/group schemes where the advisor must consider the collective needs and circumstances of the members.
- The extent of information necessary to provide appropriate advice
Previously, if a client did not give an advisor enough time or information to conduct an analysis, the advisor had to meet certain obligations, such as warning the client about the limitations in the advice. There is no longer any reference to being “unable to conduct such an analysis” – the amendments clarify that when performing an analysis there may be circumstances that vary the extent or depth of the information needed to provide appropriate advice and that these circumstances can be taken into consideration. It goes further to require that where an analysis is performed in any of the circumstances set out in the amendments, the client must be warned of the limitations in the advice in light of such circumstances and take care to ensure that it is appropriate, particularly any aspects that were not considered in light of the circumstances – although similar to what was previously required, there are some differences to be cognisant of, which may require a shift in the approach currently being taken.
- Record of Advice – the FSCA can prescribe the format
The FSCA is now able to determine the format of a record of advice. For now, this only provides the FSCA with the power to do this – no prescribed format accompanied the amendments.
The sections and some of the changes which come into effect after 6 months or 12 months from date of publication (i.e. 26 December 2020 or 26 June 2021) are as follows:
- Financial interest and conflict of interest management policy (section 3A)
There have been some enhancements to ensure that clients fully understand and agree to fees payable and the services they can expect in return for those fees. The financial interests which can be offered by an FSP to its representative have also been expanded to incorporate measurements relating to fair customer outcomes. The changes will require FSPs to re-look at their Conflict of Interest Management Policy, the way they remunerate representatives and any fee arrangements with clients, to ensure that these are aligned with the amendments. This section will take effect from 26 December 2020.
- Information about a financial service – enhancing disclosure of a client’s monetary obligations (section 7)
This requires that where feasible, there should be a written agreement between the client and the provider which deals with the specifics relating to the client’s monetary obligations in terms of amount, frequency, payment method, services to be provided, termination arrangements etc. This section will take effect from 26 December 2020.
- Advertising (section 14)
The section on advertising has been completely overhauled and aligned, where possible, with other regulation such as the Long-term and Short-term Insurance Policyholder Protection Rules (PPRs). This section will require FSPs to have a close look at their Advertising Policy and Procedures and to make appropriate changes by the end of the year when it takes effect on 26 December 2020.
- Direct Marketers (section 15)
There have been some slight changes to this section which, in the main, align with the fact that direct marketers are no longer excluded from sections 7, 8 and 9 and, therefore, those sections now apply and do not need to be separately addressed under this section. These changes will take effect from 26 December 2020.
- Complaints (sections 16 – 19)
Like the changes on advertising, the requirements relating to complaints have been replaced with a completely new section which is aligned with the PPRs as far as possible. While there is still some time before these requirements kick in (some in 6 months and others in 12 months), FSPs need to start looking at their complaints management framework and identify necessary adjustments to bring it into line with the new requirements.
FSPs will need to spend some time digesting the new requirements and consider their impact on different policies and procedures in the business.
Click here to read the Amendment of the General Code of Conduct for Authorised FSPs and Representatives.
Click on the links below to read previous articles relating to the proposed amendments to the General Code of Conduct.
- Proposed amendments to the FAIS General Code of Conduct, Short-term Deposits Code of Conduct and Determination of Fit and Proper requirements sent to parliament.
- Proposed changes to General Code of Conduct
Click here to read the Consultation Report relating to the proposed Amendments to the General Code of Conduct and Short-term Deposits Code of Conduct.
AMENDMENTS TO THE CODE OF CONDUCT FOR FSPS – SHORT-TERM DEPOSIT BUSINESS
The main purpose of the amendments to this Code is to align the provisions relating to advertising, marketing, and complaints management with the changes to the General Code of Conduct. These changes come into effect 6 months after the effective date of the Amendment of the General Code of Conduct.
Click here to read the Amendment of Specific Code of Conduct for Authorised FSPs and Representatives conducting Short-term Deposit Business.