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Fit and Proper competency requirements and failure to comply

09 April 2010 SAIA

The South African Insurance Association (SAIA) supports the information published in recent Financial Services Board (FSB) circulars regarding the Financial Advisory and Intermediary Services Act (FAIS) Fit and Proper competency requirements and the debarment when sole proprietors (FSPs), key individuals and representatives fail to comply.

SAIA urges all financial services providers to comply with the necessary requirements and expectations as paraphrased below to protect policy holders.

Background

When reading the Fit and Proper requirements together with the provisions in the FAIS Act, Section 13(2)(a)(b) of the FAIS Act states that an authorised financial services provider must at all times be satisfied that the provider’s representatives, and key individuals of such representatives, are, when rendering a financial service on behalf of the provider, be competent to act, and comply with the requirements contemplated in paragraphs (a) and (b) of section 8(1) and subsection (1)(b)(ii) of this section, where applicable; and take such steps as may be reasonable in the circumstances to ensure that representatives comply with any applicable code of conduct as well as with other applicable laws regarding conduct of business.

In the determination of competency requirements, Section 2 of part III of the FAIS Act, states that subject to paragraphs (3) to (7), an FSP of any category and, where applicable, any key individual and/or representative of such FSP must comply with the applicable minimum experience requirements; have the relevant qualification; have successfully passed the relevant first and/or second level Regulatory Examination(s), as may from time to time be set by the Registrar and comply with the CPD requirements.

Date of first appointment: 2004 to 2007

In terms of the FAIS Act, people appointed between 2004 (when the Act went into effect) and 31 December 2007, must have met the relevant qualification requirements by 31 December 2009.

Date of first appointment: 2008 – 2009

The competence requirements for representatives, who were appointed for the first time in respect of a specific product category in 2008 or 2009, are provided for in Part 10 of the Determination of Fit and Proper Requirements for Financial Services Providers.

Representatives with a date of first appointment in 2008, have a choice of either completing an appropriate skills programme by 31 December 2011 or a qualification by 31 December 2013.

Failure by a representative to meet the competency requirements by the relevant date could result in penalties imposed by the FSB.

Failure to comply with the qualification requirements

The outcome of the failure to comply with the qualification requirements suggests that the representative is no longer fit and proper in terms of section 8(1) of the FAIS Act.

In terms of section 14(1) of the FAIS Act, an authorised financial services provider must ensure that any representative of the provider who no longer complies with the requirements referred to in section 13(2)(a) or who has contravened or failed to comply with any provision of this Act in a material manner are dealt with in the correct way and immediately take steps to ensure that the debarment does not prejudice the interest of clients of the representative, and that any unconcluded business of the representative is properly concluded.

Debarment in terms of the Act means that such representatives are prohibited from rendering any new financial service by the financial services provider withdrawing any authority for the representatives to act on behalf of that provider. The provider should also ensure that the representative’s name and the names of the relevant key individuals are removed from the register referred to in section 13(3).

Section 3 of the FAIS Act states that, subject to the provisions of this Act, any notice given, approval or exemption granted, determination made, requirement or condition determined or imposed, or any other decision taken by the Registrar under an enabling provision of this Act, is valid only if it is reduced to a durable written or printed form or, where communicated electronically, has been correctly transmitted in a legible form.

Appropriate action by the FSP

The Registrar of Financial Services Providers has deemed it proper that if the FSP (sole proprietor) or key individual does not meet the required qualifications or appropriate skills programme as specified in Table E, Part 10 of the Determination of Fit and Proper Requirements for Financial Services Providers, the FSP may do as follows:

In respect of a FSP:

  • Request a profile change to remove the product/s for which the FSP is not qualified for; or
  • If the FSP does not meet any of the qualification requirements, request the Registrar to lapse the license.

In respect of a key individual:

  • Request a profile change to amend the approval of the key individual to remove the product/s for which the key individual is not qualified for; or
  • If the key individual does not meet any of the qualification requirements, request the Registrar to amend the approval of the key individual in its entirety to reflect the fact that the key individual does not meet any of the requirements.

If a representative does not meet the required qualifications or appropriate skills programme, the FSPs may do as follows:

  • Debar the representative and request the Registrar to list the latter on the list of debarred persons; or
  • Request a profile change to remove the product/s for which the representative is not qualified for; or
  • Remove the said representative from the register of the particular FSP and subsequently request the Registrar to remove that representative from the central register.

In terms of condition 1 of the licensing conditions imposed on FSPs, an FSP is required to inform the Registrar within 15 days of any change to its licensing conditions. This means that the FSP is required to inform the Registrar of the failure to meet the qualification requirements by a FSP (sole proprietor) or key iIndividual within 15 days after the due date for meeting the relevant qualification requirements.

Where FSPs have failed to inform the Registrar of any instances as described above by 15 January 2010, in respect of the 31 December 2009 deadline, the Registrar will accept such notification up to and including 30 April 2010. Any omissions in this regard will be regarded as a failure to comply with Section 8 of the Act, and the Registrar will take regulatory action.

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