In previous issues, we unpacked the amended Fit and Proper requirements of Board Notice 194 of 2017. This is the final issue of our series where we will recap the highlighted changes and various requirements that need to be implemented and complied with before each deadline date.
FSPs must pay close attention to these changes to ensure that they meet the requirements that apply to their FSP licence, and those Fit and Proper requirements that its Key Individuals and Representatives need to comply with.
The Board Notice will come into operation on 1 April 2018, but there are certain provisions which have been delayed until later dates. Click here for a schedule of the timelines.
Here is a summary of the articles published. To read more about each requirement, click on the relevant heading.
The new Fit and Proper Requirements introduce six new product categories (subcategories) and two tiers of financial products. FSPs who are already licensed for the associated or ‘old’ subcategory and make use of financial products which now fall into the new product category will have to take the necessary steps to update their licences.
There are some new product categories that will require an FSP to follow an application process with the FSB (e.g. Structured Products and Hedge Fund CIS). The deadline date for submission of these applications is 30 June 2018.
To be in good standing means being able to meet standards or principles like keeping up-to-date with regulatory obligations, having a valid licence, having no outstanding reports, not owing any fees and ensuring that all requirements are met. FSPs will have to monitor that its Key Individuals and Representatives remain in good standing, in addition to the existing requirements of being honest and having integrity.
FSPs and Representatives must have appropriate experience in the rendering of a particular financial service linked to a particular financial product and particular category of FSP for which it is authorised or in respect of which it seeks authorisation. In addition, Key Individuals must have experience to manage or oversee the rendering of a particular financial service (i.e. advice and/or intermediary services) of a particular category of FSP for which it is approved. The regulations now explicitly include the lapsing of experience in a product category where a financial service has not been rendered in the last 5 years.
Class of Business (COB) and Product Specific Training are new requirements which will have the greatest impact on those FSPs, Key Individuals and Representatives approved or appointed after 1 April 2018, as well as on those FSPs, Key Individuals and Representatives that want to add new product categories. Representatives under supervision at 1 April or Representatives appointed under supervision between 1 April and 31 July 2018, will have to obtain COB training and they will have 1 year from 1 August 2018 (i.e. until 31 July 2019) to complete this training. FSPs must ensure processes are in place to ensure that representatives under supervision as at 1 April 2018 must complete the required product specific training before 31 July 2018.
We remind you that Key Individuals must inform the FSB of all classes of business it manages and oversee iro of all FSPs for which the Key Individual is approved – this must be done within 6 months from date of commencement of the regulations (i.e. by 30 September 2018). The first CPD cycle will kick in on 1 June 2018 and will affect all FSPs, Key Individuals and Representatives, unless an exemption applies.
FSPs are required to implement an effective governance framework which, amongst other things, must deal with treating customers fairly, include a business plan, elaborate on the Business Continuity Policy and implement a process to monitor the effectiveness of this framework. This must be in place by 1 April 2018.
Key Individuals and Representatives will also have to comply with certain operational ability requirements. There are requirements that an FSP must meet before appointing a Representative to ensure that the appointment does not increase any risk to the FSP, compromise fair treatment of or continuous and satisfactory service to clients. For instance, a person who is declared insolvent cannot be appointed as a Representative until the FSP has established whether they pose a risk to the FSP or its clients.
The Financial Soundness requirements only apply to FSPs and Juristic Representatives. They do not apply to Key Individuals or Representatives that are natural persons. FSPs that are registered Banks, Long-term or Short-term insurers are also exempt as long as they meet the financial soundness requirements of the specific legislation that applies to them.
All FSPs must at all times maintain financial resources that are adequate to carry out their activities and to ensure that they can meet their liabilities as these fall due. Cat I FSPs that collect premiums or hold assets and Cat II, IIA, III and IV FSPs must also implement a financial strategy to assess and maintain on an ongoing basis adequate financial resources. In addition, these FSPs must regularly report to the FSB relating to the margin by which their assets exceed their liabilities.
This also applies to Juristic Representatives but only from 31 March 2019.
It is important that you familiarise yourself with the new definitions, understand the new requirements and the impact which these will have on your business, your processes, training plans and reporting requirements. Please take some time to read the full Board Notice which you can access by clicking on this link.