Business continuity is a provision of the FAIS Act that presents a challenge to many financial services providers (FSPs), who often ask why it is important to have a workable continuity plan.
The Act requires a documented plan to provide for events of voluntary and/or involuntary succession.
- The General Code of Conduct for authorised FSPs and representatives (the Code) specifies that, “A provider must at all times render financial services honestly, fairly, with due skill, care and diligence, and in the interests of clients and the integrity of the financial services industry.”
- Section 20(b) of the Code states that a provider “who ceases to operate as such, must immediately notify all affected clients accordingly and take, where reasonably necessary or appropriate in consultation with the clients and product suppliers concerned, reasonable steps to ensure that any outstanding business is completed promptly or transferred to another provider.”
It is clear from the above legislative requirements that the client ought to be the central focus of an FSP.
The main aim of a business continuity plan is to ensure a smooth transition. It should document matters such as: how to deal with all outstanding activities; where and how to transfer clients; and when and how to communicate with clients. It should eliminate the possibility of clients not being serviced or suffering a loss due to unfinished business in the event of a disruptive incident.
Here are the main elements that you need to consider:
The legal structure of an FSP
FSPs that operate as a sole proprietor should consider converting their FSP to a legal entity such as a company, if the plan is for the FSP to continue operating. The reason for this is that sole proprietors will cease to exist when the Key Individual passes away or exits the business.
Identifying a successor
There are some considerations when identifying a successor to take over your client base. Ask yourself if they adhere to the fit and proper requirements of the FAIS Act in terms of qualifications, regulatory examinations, and management and product experience.
Also check if they:
- are licensed to provide advice on the products that you offer
- provide the same services on all the different product categories
- have the same or easy transferable CRM systems
- have staff to handle extra work
- have documented operational processes
- have the required knowledge and skills
- have good quality of financial advice
- have the correct personal attributes.
Each FSP’s situation is unique, so your continuity plan should be personalised. Once it is in place, be sure to check it regularly so that it remains up to date. Also make sure your continuity plan is part of your will and last testament. As you work hard to build a legacy, let your family and clients have peace of mind knowing that you have looked after them.
“Having a business continuity plan is a legislative and best business practice requirement.”
Not having an adequate, up to date, practical, documented continuity plan can be disastrous for your family and clients.
Whether you plan to have your FSP cease or continue in the event of retirement, death, incapacity or for any other exit reason, you are required to create a workable process. This requires that there is a smooth transition for your clients and that they continue to be serviced without being prejudiced. It must also be possible to track and measure the implemented process to ensure successful execution.