The new Fit & Proper requirements came into effect on 1 April 2018. FSPs, Key Individuals and Representatives must take note of these new requirements, especially Continuous Professional Development (CPD) as the first annual regulatory CPD cycle comes to an end on 31 May 2019.
CPD is applicable to almost all Representatives of FSPs, and Key Individuals should be checking that their FSP has processes and structures in place to comply and understand the risks should they not comply.
The minimum CPD hours that must be obtained is determined by the number of classes and subclasses of business which an FSP, Key Individual or Rep is appointed for. So, depending on these classes and subclasses, the CPD hours required will range from 6 to 18 hours per annum.
There has been some confusion between FSCA CPD and CPD from other institutions such as FPI or SAICA. These must be treated as separate from each other as the requirements may be different, and therefore Reps that comply with an institution’s CPD requirements, will not necessarily comply with FSCA’s CPD requirements.
What happens if FSPs, Key Individuals and Reps don’t meet the CPD requirements?
Part of an FSP’s operational requirements is that it must have adequate procedures in place should a Rep no longer comply with the Fit and Proper requirements and/or fails to comply with any provisions as set out in the FAIS Act.
Further, Key Individuals and Reps must submit their CPD activities to the FSP within 15 days after expiry of the CPD cycle – in other words by 15 June. The FSP will have a further 15 days (until 30 June) to record these CPD activities in the competence register and keep records of the supporting evidence.
If it is unlikely that a Rep will meet their CPD requirements within the prescribed period, then the FSP needs to consider various actions. A key factor determining the appropriate action is the date– is it before the end of the prescribed period (i.e. the end of May) or after that (e.g. somewhere in June):
1. Where the Rep unlikely to meet the required CPD hours by 31 May
- Take decisive action to get the Rep to meet the CPD requirements before the end of May, or
- If the FSP anticipates that the Rep will not be able to meet the requirements by the end of May, remove the Rep from the representative register and withdraw the mandate.
It is not necessary at this stage for the FSP to embark on a debarment process.
2. Where the Rep has not met the required CPD hours by 31 May
The FSP will have to follow the debarment process. To reinforce this, an FSP does not have any discretion whether to debar a person or not. Section 14(1) of the FAIS Act makes it compulsory to debar a person if he/she fails to comply with the Fit and Proper requirements.
In a case like this, the FSCA will require the FSP to explain why they did not act proactively. FSPs will have to explain how they got into the position where one or more Reps did not meet the CPD requirements and why the FSP and its Key Individuals did not take steps to prevent debarment, by removing the Reps from the representative register beforehand.
In this article we are not going to go into the debarment process, except to state that before debarment can take place, an FSP must ensure that the debarment process is lawful, reasonable and procedurally fair. And, in this regard, we point readers to the Mondisa Cindi Appeal case which found that “the primary consideration which remains is fairness to all’.
Consequences of withdrawal of authority to act or debarment
A Rep who is no longer Fit and Proper may not render financial services to a client whereas a person who is debarred may not render any financial service in the financial industry.
After the FSP has taken the appropriate action in respect of a Rep who does not meet the CPD requirements (i.e. removal from Rep register or debarment), it may only reappoint such a person as a Rep if he/she has completed the applicable CPD hours of the previous CPD cycle.
Therefore, if the Key Individual wishes to reappoint a Rep, he/she will have to monitor the activities of the Rep to ensure he/she catches up with the CPD requirements. If that Rep does not catch up, he/she will not be Fit and Proper and the FSP must follow the actions outlined above.
CPD is a serious matter for FSPs, KIs and Reps. The consequences of not meeting the CPD requirements can be severe and therefore KI and Reps should not take them lightly.