Terminating a business relationship with a client must be done the right way. This ensures that you comply with the applicable legislation and treat customers fairly.
As a financial service provider (FSP), you will encounter terminations of agreements or business relationships during your time in the industry. Terminations occur for numerous reasons. You may decide to exit the financial services industry, or a representative may resign from your FSP. In other instances, you, your representative or a product provider may decide to terminate a client relationship. This must be done in line with regulatory requirements but must also consider the clients’ best interests, in accordance with the Treating Customers Fairly (TCF) principles.
Section 20 of the FAIS General Code of Conduct (GCOC) prescribes how to terminate agreements or business relationships. Your process should align with these requirements to protect clients and protect your business. In this way, you also comply with Board Notice 194 of 2017, and specifically section 37(2)(g)(ii). This regulation requires you to regularly monitor your systems, processes, internal control mechanisms and measures to ensure clients are treated with due care, skill and diligence in a fair, honest and professional manner.
Client termination
If a client submits a request to terminate an agreement, you will need to immediately terminate the financial services agreement with the client, subject to any contractual obligations. Alternately, if you advise a client to terminate your agreement, you will need to explain to the client the implications of termination.
Be sure to confirm terminations in writing within a reasonable time and recommend that clients seek financial services elsewhere. The relevant product providers should also be informed within a reasonable time to cease commission payments.
Ceasing to operate
You can cease to operate voluntarily, or because the FAIS compliance department has suspended or withdrawn your licence.
If you voluntarily lapse your licence and cease to operate, you will need to notify all your clients. Unfinished business should be completed promptly or transferred to another FSP where reasonable, necessary or appropriate.
If your licence is suspended or withdrawn, you will need to immediately cease conducting business, inform clients and product providers, and return clients’ funds.
In consultation with clients and product providers, any outstanding business should be transferred to another authorised FSP, this applies whether the termination is a voluntary lapse of licence, suspension or withdrawal.
When a representative leaves
If a representative leaves your FSP, unless otherwise agreed, the clients remain the FSP’s clients, even if the representative sourced them.
The Key Individual must ensure that clients who were assigned to the representative are immediately notified of the resignation. Outstanding business must be completed or transferred to the FSP or another representative of the FSP, in consultation with the clients and product providers concerned. Product providers must also be notified within a reasonable period of time.
Additional considerations
Be sure to communicate any changes to your licence to the Financial Sector Conduct Authority (FSCA) as the regulator requires or directs. To comply with the Financial Intelligence Centre Act (FICA), keep the records of clients with whom you have terminated a relationship for five years from the date of termination.
The correct termination process should entail following regulatory requirements, being clear and practical, with concise communication. By considering clients’ needs in this manner, you protect their best interests and thereby meet the objectives of TCF.
Doing this affords you a level of protection and peace of mind that you have acted with due skill, care and diligence as required by the GCOC.
If you need advice or guidance on the termination process, or if you have any questions, please contact your regional Masthead Compliance Officer.