The Financial Sector Conduct Authority (FSCA) shifted compliance from rules and standards to principles on 1 April 2018 through Board Notice (BN) 194 of 2017. The advice industry now needs to comply with subjective issues such as honesty, integrity and good standing.
How does one measure honesty? What is the defining criteria of integrity? What does it even mean to be in good standing? Even though BN 194 comprehensively defines when one is not honest, does not have integrity or is not in good standing, it does not define what it means to be in good standing.
Chapter 2, section 9 of BN 194, however, provides information on incidents you need to be aware of. The examples below explain good standing from a practical perspective:
Why do I need to fill in the Fit & Proper questionnaire again? I completed it just a few months ago!
It may seem unnecessary to complete your Fit & Proper questionnaire regularly but being in good standing is a continuous process. Someone who was in good standing earlier this year might not be in good standing today.
Filling out the questionnaire regularly enables the FSCA to keep on par with the current good standing status of the FSP, key individual (KI) and representatives. A representative might have been declared insolvent or a KI might have accepted civil liability for conduct involving negligent, dishonourable and/or unprofessional conduct. This could happen at any time, and it needs to be recorded and monitored.
You applied for an FSP licence but never proceeded with it and did not inform the FSCA to cancel the request and withdraw the application. Under s9(1) (l), this is viewed as an incident that indicates a lack of honesty, integrity and good standing. Why is that so?
This event can unexpectedly creep up on one. Imagine you and a business partner decided to start an FSP. Halfway through the licence application process, you and your partner part ways, so you stop responding to further requirements from the FSCA.
If the FSCA is not aware that you do not wish to continue with the licence application, it will consider the application as it was submitted. If inadequate information was provided, it will most likely reject or deny the licence application and that will reflect on the applicant’s file. Without a proper explanation, the FSCA may well draw adverse inferences.
The FSCA may also view this as poor business conduct, as it may see the lack of response as a reflection of the applicant’s willingness – or lack of willingness – to work with regulatory bodies, as well as the applicant’s honesty and integrity.
If your licence has been withdrawn due to this kind of business conduct, you will have to motivate why you need a licence and consider the following, as set out in section 9(3)(a) to (c) of BN 194:
a) The seriousness of a person’s conduct, whether by commission or omission, or behaviour, and surrounding circumstances to that conduct or behaviour that has or could potentially have a negative impact on a person’s compliance with honesty, integrity and good standing;
b) The relevance of such conduct or behaviour that has or could potentially have a negative impact on the person’s compliance with honesty, integrity and good standing, to the duties that are or are to be performed and the responsibilities that are or are to be assumed by that person; and
c) The passage of time since the occurrence of the conduct or behaviour that had a negative impact on the person’s compliance with section honesty, integrity and good standing;
If you decide to cancel your FSP licence application, it is crucial to formally notify the FSCA. It is also important to keep the FSCA informed about changes in your FSP and keep record of your communication.
As the FSCA works towards creating an honest and professional industry, coming to grips with compliance regulation can be daunting. But FSPs, KIs and representatives need to do their part to keep their status of good standing. After all, your reputation is at stake.