AMENDMENTS TO FIT AND PROPER REQUIREMENTS

 

The proposed amendments to Fit Proper are currently being finalised by the FSB and include updated definitions regarding financial products and product categories as well as new competency requirements.

 

DEFINITIONS

 

·         Automated advice has been added to cover the ever growing ‘Robo Advice’

 

·         Financial product has been extended to include any product issued by a foreign product supplier and products with a foreign currency denomination.

 

·         Class of business and class of business training are defined as new competency requirements. Current product subcategories are broken down further to class of business.

 

·         Participatory interests in Hedge Funds, Structured Deposits, and Securities and Instruments are defined within new product categories. Forex investments and foreign currency deposits are newly defined product categories.

 

·         Long-Term Insurance B1-A means B1 products which require no or minimal underwriting.

 

·         Long-Term Insurance B2-A means long-term insurance subcategory B2 which provide for the premiums to be invested in an investment portfolio managed by the product supplier with no option by the policyholder to request a change or amendment to that portfolio.

 

·         Tier 1 and Tier 2 product subcategories are introduced with Tier 1 being the more complex products and Tier 2 being the simple products.

HONESTY, INTEGRITY AND GOOD STANDING

 

Applicable to all FSPs, Key Individuals and Representatives.

 

Good standing has been included in the character qualities and extends to boundaries as previously set out. In looking at the good standing of an entity, focus is placed on the corporate behaviour as well as the behaviour of directors and Key Individuals.

COMPETENCE

 

Compliance to the competence requirement will now be principle based. It will no longer entail merely meeting the minimum requirements of ticking a box.

 

The FSP will be responsible for evaluating and reviewing the competence of both Key Individuals and Representatives.  A competence register will now need to be kept and maintained to ensure that competence is evaluated.  This must take into account technical knowledge, skills and expertise, and changes in the market and legislation. Training will thus have to be provided to ensure competence. The FSP has an obligation to notify the registrar of any non-compliance regarding competency.

 

Product categories are now divided into Tier 1 and Tier 2 products

 

 EXPERIENCE

 

Experience must be adequate, appropriate, and current in respect of a particular financial product and/ or category.  This applies to FSPs, Key Individuals and Representatives.

 

Experience lapses if it falls outside of the five-year experience rule.  This now also applies to Key Individuals who must have experience in the categories and product categories for which they are registered and not just management experience in the industry. For Key Individuals in Cat II, IIA, III and IV, the amendments require that they have rendered financial services in terms of the relevant category and product categories.  This has been amended to allow for management only and is aimed at preventing the lapsing of experience.

 

 QUALIFICATIONS

 

Qualification must be on the list of recognised qualifications and must be relevant to the categories and product categories for which financial services are being rendered. Representatives rendering services for funeral policies and friendly societies are exempt.  Direct markets who render services by means of a script and who are registered with FSPs that meet the requirements do not need a qualification.

 

 REGULATORY EXAMINANTIONS

 

Product categories are now divided into Tier 1 and Tier 2 products.

 

Regulatory Exams are not applicable to:

 

·         a Category I FSP, its key individuals and representatives that are authorised, approved or appointed to render financial services only in respect of the financial products: Long-term Insurance Subcategory A and/or Friendly Society Benefits

 

·         a representative of a Category I FSP that is appointed to perform only the execution of sales in respect of a Tier 1 financial product provided that the requirements are meant for direct marketing and/ or scripted sales.

 

·         a representative of a Category I FSP that is appointed to render financial services only in respect of a Tier 2 financial product.

CLASS OF BUSINESS TRAINING AND PRODUCT SPECIFIC TRAINING

 

This forms part of the Competence Requirements but excludes Tier 2 representatives, Tier 1 representatives who perform only the execution of sales by means of a script.

 

The responsibility lies with the FSP to ensure that Key Individuals and Representatives are proficient, understand and have completed training on:

 

·         the class of business in which the financial product falls

 

·         the financial product, including amendments to that product

 

Key Individuals and Representatives must have been assessed on the class of business and product specific training.  Product and Product Specific Training can be provided by any person for a Category I FSP.  Class of Business training must be provided by an accredited training provider and class of business training does not apply to

 

·         representatives and Key Individuals rendering financial services in terms of Funeral policies/ Friendly Societies

 

·         Cat I Representatives – Tier 2 products

 

·         Cat I representatives only performing execution of sales (all products)

 

 RECORD KEEPING AND REPORTING REQUIREMENTS

 

·         All training must be recorded in the register within 15 days of the training taking place.

 

·         Information must be retained for a period of 5 years

 

·         The FSP must be able to retrieve the information within a reasonable time period.

 

 CONTINUOUS PROFESSIONAL DEVELOPMENT

 

FSPs, Key Individuals and Representatives must establish and maintain competence.  The FSP must establish and maintain policies and procedures to ensure that the CPD requirements are met.  These must include:

 

·         How the FSP, Key Individuals and Representatives will maintain and update relevant knowledge and skills and attain and develop new knowledge and skills.

 

·         Training Plans for each CPD cycle which ensure skills and knowledge are current, address needs and skill gaps and continually improve the professional standards of the FSP, Key Individuals and Representatives.

 

A CPD register must be kept and updated within 30 days of the completion of a CPD cycle. The register must reflect the CPD activities and the number of hours.  There must be evidence that the CPD activities were completed.

 

Minimum CPD hours:

 

·         a single subclass of business within a single class of business must complete a minimum of 6 hours of CPD activities per CPD cycle

 

·         more than one subclass of business within a single class of business must complete a minimum of 12 hours of CPD activities per CPD cycle

 

·         more than one class of business must complete a minimum of 18 hours of CPD activities per CPD cycle

OPERATIONAL ABILITY

 

Additional requirements for Automated or Robo advice are now included under operational ability.

 

Appointment of Representatives are the responsibility of the FSP and the KI. Juristic representatives are now included in operational ability and will need to adhere to the same requirements as the FSP. Juristic representatives will need to be registered as an FSP.

 

Key Individuals hold full responsibility and there are stricter requirements for Key Individual appointments to ensure that the ‘rent-a KI’ trend is stopped. Where a Key Individual is approved or appointed on more than one FSP, or Juristic Representative, they must be able to demonstrate that they have the operational ability to to effectively and adequately manage or oversee the financial services related activities of all the FSPs or juristic representatives for which the key individual was approved or appointed.

FINANCIAL SOUNDNESS

 

The financial Soundness requirements now include Juristic representatives. Juristic representatives will also need to submit financial statements.  All FSPs and juristic representatives will need to submit liquidity calculation to the registrar on an annual or bi-annual basis.

 

An early warning requirement has been implemented.  An FSP must notify the Registrar in writing immediately when:

 

·         the assets of the FSP or that of its juristic representative exceed the liabilities by less than 10%;

 

·         the current assets of the FSP or that of its juristic representative exceeds the current liabilities by less than 10%;

 

·         in respect of a Category IIA and III FSP and juristic representatives of that FSPs, the additional assets of the FSP or that of its juristic representative exceeds the minimum requirement by less than 10%;

 

·         the FSP or its juristic representative does not meet any of the requirements as laid out in the Fit and Proper Requirements

 

·         the FSP becomes aware of an event or situation that may or will result in the effect of any of the above.

 

If any of the above situations arise, the FSP may not directly or indirectly make any payments by way of a loan, advance, bonus, dividend, repayment of capital or other distribution of assets to any director, officer, partner, shareholder, related party or associate without the prior written approval of the Registrar.

 

The notification to the registrar must be signed off by the CEO, controlling member, managing or general partner, trustee as per the relevant entity.

 

If the FSP is registered for more than one category of FSP, the most onerous of the financial soundness requirements must be met.

 

 GENERAL

 

The new Fit and Proper requirements will result in Amendments to the General Code of Conduct

 

Transitional Arrangements regarding Product and Product Specific Training:

 

·         Persons authorised, approved or appointed prior to the implementation of the new Fit and Proper Requirements are not required to do product specific training.

 

·         Training on class of business – if appointed prior to 1 January 2015 training is not required on subclasses of products.

 

Compliance officers – An exemption will be introduced regarding the minimum number of visits of a compliance officer to the business premises.  The number of onsite visits will be reduced.

 

Amendments will be made to the debarment process.

 

 

 

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AMENDMENTS TO FIT AND PROPER REQUIREMENTS