Appointing a representative to your licence is not something which should be taken lightly. The FSB officially approves the licence of a financial services provider (FSP) and the Key Individuals who have been appointed to oversee the rendering of financial services in respect of that FSP. But the responsibility to “approve” a Representative rests squarely on the shoulders of the Key Individual/s. Section 13 of the FAIS Act which deals with the qualifications of representatives and duties of authorised FSPs makes it clear that it is the FSP which must accept responsibility
”.. for those activities of the representative performed within the scope of, or in the course of implementing, any such contract or mandate…” and “… must at all times be satisfied that the provider’s representatives, and the key individuals of such representatives, are, when rendering a financial service on behalf of the provider, competent to act, and comply with – (i) the fit and proper requirements; ….”
In this article we do not focus on the fit and proper requirements, but rather on how to verify the information which a prospective representative provides as evidence that the requirements are met. The fit and proper requirements focus on education, competency and the personal character of honesty and integrity. This may appear to be simple in theory, but how is this actually checked and verified by the FSP? Does an FSP know whether a document submitted by an applicant-representative is actually what it purports to be?
In our discussions with the FSB, they have highlighted some elements which are of concern and should be verified by FSPs and Key Individuals before merely accepting the information provided by an applicant as ‘truth’:
- ID – ensure that the name, surname and ID number included in the copy of the ID is verified. This is to ensure that when criminal and credit checks are run through the verification systems, that the ID number of the actual person is used. A false ID number may be provided to hide criminal charges and blacklisting against a person’s name which will negatively impact their fit and proper requirements and ultimately their opportunity of becoming a licenced representative.
- Qualification – a formal qualification certificate will be watermarked or marked with a unique certificate number. It is important to verify that the representative did in fact obtain the qualification as stated in his/her CV and on the certificate. This may be falsified by a representative who does not meet the education requirements.
- RE Certificate – In order to become a licenced representative, the regulatory exam for representatives must be written within the specified time period from the date of first appointment. An FSP must therefore verify that the exam was written and passed by the representative. This should not be accepted at face value.
- Relevant and recognised experience – it is advised that a reference check is done to ensure that the applicant-representative has previously gained the relevant experience. This should also be verified to determine whether a representative should be under supervision or not. A reference check will also be of value to the FSP to verify the character and integrity of the representative and whether there were, for instance, previous disciplinary hearings which the FSP should know about.
- Unregistered representatives – It has come to light that there are instances where FSPs appoint representatives as meeting all of the fit and proper requirements, but where such representatives were not previously added to the representative register with the FSB by the previous FSP(s) he/she was working for. In those instances, the FSB would have no record or date of first appointment (DOFA) for the individual and the experience as a representative must therefore be questioned. It is important to establish and verify the amount of experience which a person has in rendering a financial service both from previous employers and with the FSB. With the written consent of an applicant-representative, the FSP is able to request the dates of first appointment in each product category from the FSB so that this can be tested against the CV and references.
- Foreign Nationals – the FSB has indicated that currently there is a trend for foreign nationals to apply to become representatives in South Africa. In these instances, the foreign representatives may present their work permit to the FSP as proof of work experience. There have also been instances where asylum seeker documents have been submitted. It is the responsibility of the FSP to conduct its own due diligence process in order to confirm that the documents received are authenticated before appointing and authorising a person to act as a representatives of the FSP.
These points indicate how important it is for an FSP to have a formalised due diligence process and procedure which is followed before an FSP makes a decision to appoint a representative. With the consent of an applicant-representative, an FSP can conduct appropriate background checks. There are verification agencies to whom this function can be outsourced, and it may well be worth it in the long run.
Appointing a representative that does not meet the necessary requirements, even if the FSP was not aware of it, will mean that the FSP is in contravention of the legislation and regulatory action may be taken against it.