Key Individuals have an enormous responsibility to ensure that they carry out their duties of managing and overseeing the activities of an FSP with the necessary due care, skill and diligence. The activity of “managing” means to have executive control or authority and “overseeing” is the function of supervising a person/s and their work in an official capacity.
A Key Individual also has fiduciary responsibilities which means that they must make sure that the customers of an FSP are able to have confidence in and place their trust in the advice and services provided to them by the FSP. The fiduciary duty of a Key Individual goes far beyond just ticking the compliance boxes. Fiduciary duty involves transparency and a level of accountability over and above the normal compliance and commercially accepted standards. This is further emphasised in the TCF framework where the first outcome seeks to ensure that customers are confident that they are dealing with an FSP that treats customers fairly. This responsibility falls squarely on the shoulders of the Key Individuals to continuously manage and oversee all the processes and people inside the business so that customers are assured of fair outcomes.
Key Individuals are accountable for activities of business and representatives
Although Key Individuals are appointed by the FSP, in order to act in the capacity of a Key Individual approval must first be obtained from the FSB. A Key Individual must meet the fit and proper requirements of honesty and integrity, management and financial product experience, a recognized qualification, regulatory exams and in due course, continuous professional development. Individuals, however, should carefully consider what is expected of them before accepting the appointment as a Key Individual as they will be held accountable for the activities and actions of both the business and the Representatives who have been authorised to act on behalf of the FSP. All financial services business must be conducted in the name of the FSP in terms of Section 13(1)(c) of the FAIS Act and it is the Key Individuals who are the natural persons responsible for the oversight of all such business activities.
Some of the key responsibilities of Key Individuals are:
- Act with due care, skill and diligence in the execution of all duties;
- Act within the standards and rules set by legislation;
- Fulfil contractual obligations as agreed to;
- Management and Oversight of:
- Statutory obligations of the FSP;
- Rendering of financial services of the FSP and persons authorised to act on its behalf;
- Business processes and operational ability.
- Instil a culture of treating customers fairly in all aspects of the business.
FSPs have statutory obligations which they must meet in order to maintain their licence and it is the direct responsibility of the Key Individuals to ensure that these obligations are met. To list a few:
- Financial management includes ensuring that the FSP meets the financial soundness requirements. These requirements may differ depending on the activities or category of licence of the FSP. All FSPs must keep an up to date set of monthly accounts to enable the Key Individuals to ensure continued compliance with the financial soundness requirements. FSPs are required to submit their Annual Financial Statements to the FSB within four months of their financial year end and again it is the Key Individual who is responsible to make sure that this is done within the prescribed period to avoid the possibility of penalties and/or licence suspension or if necessary to make timeous application for an extension.
- PI Cover must be maintained in accordance with legislation.
- The Key Individual must ensure that the Compliance Report/s is submitted to the FSB timeously even if this is done by the appointed Compliance Officer;
- Every year an FSP is responsible to pay Levies to the FSB and the FAIS Ombud. Failure to pay by the deadline of 31 October may result in the FSP’s licence being suspended. The Key Individual must implement a process to ensure that this is attended to.
Oversight of the Rendering of Financial Services
Key Individuals are responsible for the rendering of financial services by those who have been authorised to act as Representatives for the FSP. Some of these duties have been set out below:
- Ensure compliance by all authorised persons with the General Code of Conduct and any other applicable Codes of Conduct, which duty should not be taken lightly.
- Ongoing compliance with the fit and proper requirements. A process should be implemented to check in on a regular basis with Representatives to make sure that they are on track or have already met the requirements. Key Individuals need to know the status of those acting for the FSP including their honesty and integrity. Although this can sometimes be difficult to monitor, a robust pre-authorisation process should be put in place to make sure that you have done enough to know the person that you are authorising to act as a Representative and ongoing checks and declarations will help to demonstrate that this duty is being carried out diligently.
- Oversight of training, knowledge and skill of the Representatives rests with the Key Individuals. It is important that measures have been put in place so that Key Individuals are able to identify any gaps in product or other knowledge that Representatives may have. Where the Key Individual is also the Representative, this includes assessing yourself to make sure that you “know what you don’t know”.
- Monitoring the activities of Supervisors who are responsible for Representatives appointed under supervision is an important role which Key Individuals must fulfil. There is greater risk where advice is being given by Representatives under supervision. In our experience we have found that the documented evidence of the activities of monitoring Representatives is often insufficient. If a Key Individual is called upon to show operational ability, then adequate record keeping will be necessary to substantiate the processes which have been followed.
- Oversight of advice given, intermediary services rendered and fair treatment of customers is an ongoing requirement which could include a review of the advice process followed and recorded, joint visits with customers, review of feedback from customers, assessment of the new business register to understand the type of business being written, the level of replacements and the size of transactions. It is imperative that Key Individuals satisfy themselves that the advice which is being given under the licence of the FSP is appropriate and suitable in the circumstances of the customer.
Business Processes and Operational Ability (Risk Management)
Key Individuals are required to ensure that the FSP has implemented correct and appropriate processes in line with the requirements of the legislation and the principles of TCF. The operational ability of the FSP must be regularly reviewed and any risks, non-compliant areas and recommendations reported to the members/shareholders/directors. Key Individuals must make sure that there is ongoing monitoring of the risks which face the business and manage and oversee the implementation of solutions or actions to mitigate such risks.
Treating Customers Fairly
Key Individuals must be involved in the process of ensuring that the principles of TCF are incorporated in all aspects of the business and are monitored continuously. Part of this would be to ensure that there is a process to gather appropriate management information for continuous assessment.
In conclusion, existing Key Individuals should make sure that they fully understand what it means to manage and oversee an FSP and any person who is looking to take on the responsibility of a Key Individual should do so with clear knowledge of the obligations and duties which they will have to carry out as it will require commitment and time.