Most Key Individuals and sole proprietors (Key Individuals) are unaware of the huge responsibility resting on their shoulders, especially in terms of their duty of management and oversight. These responsibilities are increasing with the new principle-based approach to regulation.
While the FSP is responsible for establishing and maintaining procedures to be followed to comply with the FAIS Act, Key Individuals are required to manage and oversee the FSP’s activities with due care, skill and diligence. The activity of ‘managing’ means to have executive control or authority, while ‘overseeing’ is the function of supervising a person/s and their work in an official capacity.
In a case heard by the Appeal Board in November 2016, WD Jonker vs The Registrar of Financial Services, the Appeal Board stated: “A Key Individual … plays a critical oversight role which must be performed with utmost bona fide.”
Even as one of a Key Individual’s main responsibilities, monitoring seems to be one of the most commonly neglected duties.
As Key Individuals are responsible for the rendering of financial services by those who are authorised to act as representatives for the FSP, they required to monitor the activities of supervisors, representatives and representatives under supervision.
This starts with the appointment of representatives. Be aware of the date of first appointment, qualifications, regulatory exams and, more recently, class of business, product specific training and CPD requirements, which need to be monitored and confirmed before appointing new representatives. Never assume a representative previously employed by another FSP complies with the relevant requirements without confirming it for yourself.
Furthermore, Masthead has found that the documented evidence of monitoring representatives is often insufficient to pass regulatory scrutiny. If a Key Individual is called upon to show operational ability, adequate record keeping will be necessary to substantiate the processes which have been followed.
In addition to the monitoring records that Key Individuals must keep for representatives under supervision, these representatives need to show a record of the following in client files:
- Contact stage disclosures.
- Client authority / broker’s note on file.
- The process followed in terms of the FICA risk management compliance programme (RMCP) with special reference to a client’s due diligence.
- Policy schedule.
- Process of seeking information from client / completed fact finding document.
- Completed risk profile.
- Financial needs analysis conducted.
- Comparative quotes / schedule of quotes.
- Client warned where limited advice is given.
- Record of advice / completed client advice record.
- Client fully advised of consequences of replacements.
- Information, documents and advice records properly stored and retrievable.
Other areas that require oversight include advice given, intermediary services rendered and fair treatment of clients. The latter ongoing requirement could include a review of the advice process followed and recorded, joint visits with clients, a review of client feedback, and assessment of the new business register to understand the type of business being written, level of replacements and size of transactions. Key Individuals must be satisfied that the advice being given under the FSP’s licence is appropriate and suitable to meet clients’ circumstances.
Oversight of representatives’ training, knowledge and skill is also often neglected. It is important to have measures in place so Key Individuals can identify any gaps in product or other knowledge that representatives may have. Where the Key Individual is also the representative, this includes assessing oneself to make sure you ‘know what you don’t know’.
If an FSP has more than one Key Individual to monitor activities, monitoring needs to take place between these Key Individuals, as the accountability function of Key Individuals cannot be delegated.
If you are looking to take on the responsibility of a Key Individual, ensure your FSP has a clear process that deals with monitoring. You should completely understand what is meant by management and oversight, and have immaculate knowledge of the obligations and duties which will require commitment and time.
You should also have the operational ability to comply with the requirements. This may differ depending on the type of FSP. Often, large FSPs with many branch offices and representatives only have one Key Individual. Practical solutions in this instance may include appointing additional Key Individuals or using technology and efficient processes to ensure monitoring is done.
For further guidance, consider consulting your compliance officer or practice management consultant.
Masthead hosts the Key Individual Responsibilities Seminar – Understanding Your Role and Obligations seminar to help you know what is required of a Key Individual when managing and overseeing the FSP. To learn more about this seminar, click here