Top tips for a compliant 2016

Richard Rattue, Managing Director of Compli-Serve SA.

This is the ninth year that Richard shares pointers for a compliant year ahead and fittingly, he has provided 9 tips to assist brokers and financial planners in 2016.

1. Get professional advice

It never ceases to amaze me that Financial Service Providers pay good money for lawyers and accountants and then head for the bargain basement for a compliance officer to guide them on regulatory compliance. Compliance is a profession and you should seek out a professional for advice. Most professional compliance officers are members of the Compliance Institute of South Africa (www.compliancesa.com). This should be one of your first ports of call when you are looking for compliance professionals to assist you in managing your regulatory risks.

2. Get to know RDR

While the Retail Distribution Review may certainly appear intimidating at first glance, it is important that all stakeholders in the financial services industry find time to understand the proposals set forth by the Financial Services Board. You should also try and stay up-to-speed with subsequent updates issued by the Regulator giving more detail on how they are thinking in respect of their initial 55 proposals. To ignore RDR or adopt a head-in-the-sand approach is not a particularly sound option to take.

3. Make sure your contact details are correct

Every year I receive calls from desperate folk who have been on the wrong end of regulatory attention after apparently ignoring correspondence from the Regulator. On further investigation, in many instances it transpires that the contact details held by the Regulator for their business are out of date and hence warning letters have gone to an incorrect address. It is the responsibility of all registered providers to ensure that the details held by the Financial Services Board are correct and I would strongly advise that licensed entities make contact with the Registrations Department of the Financial Services Board to ensure that details held on file are indeed correct.

4. TCF has not gone away

Some people seem to feel that with the advent of RDR, the TCF programme has gone into the background and will likely not really feature going forwards. This is a tragic error on their part as TCF is not simply one piece of legislation or a vague set of guidelines or principles; it is an overarching conduct structure of which the retail distribution is a key component. It is important to ensure that you continue the principles of TCF within your financial services businesses and are able to demonstrate that you are indeed doing so.

5. Show me the money

If one is to believe the rhetoric coming from the Registrar, the days of rather gentle and reasonably easy going onsite visits are coming to an end. We are told that more “intensive and intrusive” oversight will be upon us once the Financial Sector Regulation Bill (FSR Bill) comes into effect towards the end of next year. I however, do not think we are going to have the luxury of waiting until the end of next year for regulatory visits to become a little bit more pointed and direct, and indeed it has been the case over the last few months that supervisory visits have certainly become a little more clinical than was previously the case. It is advisable that you prepare properly for your regulatory visit and ensure that when questions are asked by the supervisory team, you have evidence to hand that can back up any statements that you make.

6. Tick-box is out

If you still believe that regulatory compliance involves ticking boxes and not much else, you are in for a rude awakening. I must reiterate that tick-box is out as we see methodology morph into a conduct based regime. This will likely translate into major changes to the way that we are required to report to the Regulator on our business activities going forward. For those older folk who have grown up in a tick-box world, this will require a seismic shift in thought and approach to ensure that we are aligned to the new principles-based regime.

7. Google “market conduct risk”

You are advised to ensure that you understand the meaning of market conduct risk and how it affects your business. You will need to watch this space with an eagle eye as this will certainly be an area that the Regulator spends a lot of time on going forward. I advise it be included fairly near the top, if not at the top, of any risk management plan that you present for their review.

8. Check your licence scope

It is important to ensure that you are not rendering a financial service on products that are not licensed; and even more than ten years after the enactment of the FAIS legislation, I do still inevitably find some registered providers are not licensed correctly, and it tends to be the usual suspect product categories over and over again. You are advised to engage with your compliance provider and ask for an assessment of your business to be benchmarked against your authorisation scope to ensure that you are not in breach of your product category controls.

9. Don't try and be clever with numbers

A number of FSPs have attempted to be clever insofar as the solvency calculations are concerned, and the FSB has indicated that it intends to take stern action against miscreants in this regard. You are therefore advised to avoid massaging financial statements to meet solvency requirements as this will certainly lead you into conflict with the Regulator.