Maintenance and Management of the FSP Licensing Conditions
Module 10 Key Individual
Module 10
Maintenance and management of the FSP licensing conditions
10.1 LICENSING CONDITIONS AND RESTRICTIONS
10.1.1 The impact of licensing conditions on an FSP
A FSP FAIS licence also carries conditions.
There are standard conditions and there are conditions specifically applicable to the FSP licence. Specific conditions include reference to the categories for which the FSP is authorised, as well as any other applicable conditions about the fit and proper status of the key individuals who need to obtain certain qualifications within a certain period of time from the date of licensing the FSP. The licensing conditions may also include exemptions applicable to the FSP.
FSP’s must adhere to the conditions and must also ensure that there are adequate systems and processes in the business to ensure compliance with the conditions. Where representatives (and key individuals) work across various (sub) products and Licence Categories, there must be internal controls to ensure that the financial service (or management and oversight) they provide correspond with the specific licence conditions and restrictions.
A FSP may request additional product categories to be added to its licence and it may also have more than one licence because the structure of the business may be such that products are grouped together, which makes it logical to have a specific licence for that part of the business. The FAIS Act requires that a certified copy of the FSP licence must be displayed in a prominent and durable manner within every business premises of the FSP.
10.1.2 Different types of conditions
There are a few standard conditions that appear in each licence – for example:
"I. The licence authorises the licensee to carry on business in respect of financial advisory and/or intermediary services as ordinary financial services provider/discretionary FSP administrative FSP in respect of the following financial product/products:______2. Further conditions/restrictions:
1. The financial services provider must inform the Registrar in writing, by facsimile or in an appropriate electronic format, within 15 days after the change has taken place, of any change in respect of business information of the financial services provider as provided in Form FSP1, FSP3, FSP4, FSP9, FSP10, FSP10A or FSP11, respectively, of the Application Form which was submitted by the provider for purposes of obtaining a licence, and in particular relating to the provider's representatives, auditor, compliance officer or any foreign clearing firm or foreign forex service provider involved (if any) and nominee company or independent custodian involved or the shareholders, directors or trustees of any such company or custodian (if any).
2. The financial services provider must at all times during the currency of the provider's licence maintain the services of any key individual or key individuals mentioned in the information submitted on the said Application Form, and must as regards changes in respect of such information relating to a key individual, or appointment of a new key individual, of the provider, in addition to acting also in such cases in accordance with the procedure and time limit set out in Condition 1, also ensure full compliance with Section 8(4)(b) of the Act, the provisions of which must be regarded as included in this Condition.
3 The financial services provider must within 15 days of the date contemplated in Section 7 of the Act, submit a copy of the register kept in terms of Section 13(3) of the Act to the Registrar, and must thereafter in accordance with the procedure and time limit set out in Condition 1, inform the Registrar of any change effected to the details as contained in that register.
4. The financial services provider must not in any manner change the name of the financial services business as reflected on the licence concerned, or carry on any financial services business under such a changed name, unless- (a) the provider has fully complied with the provisions of any other law than the Act which regulates such change of business name if any); (b) the provider has fully disclosed to the Registrar the details of such compliance with such other law; (c) the Registrar is satisfied that such change of name is otherwise lawful and has approved such change of name; and (d) the Registrar has issued to the provider an appropriately amended licence under the provisions of Section 8(5)(b)Q) of the Act.
5. The financial services provider must at all times ensure that any financial product in respect of which the provider intends to render a financial service, qualifies as a financial product contemplated in the Act and is or will be lawfully issued by the relevant product supplier by virtue of an authority, approval or right granted to such supplier under a law as contemplated in the definition of 'product supplier' in Section 1 (1) of the Act."
3. Applicable exemptions (if any):”
10.1.3 Managing the licensing conditions
Condition 1 - Reporting changes
If there are certain changes, the FSP must have procedures in place to ensure that the Registrar can be advised (of the change) within 15 days after the change - there are designated forms to be used for this purpose.
The changes include:
· Any change in the name of the business; / · Any change in the trading name or any division of the business;· Any change in the type of business (conversion to a close corporation, partnership, etc); / · Any change in the business contact details (address, telephone, fax and email);
· Any change in the contact person (address, telephone, fax and email); / · Any change in the financial year-end;
· Any change in the bank details; / · Any change in the trading name or any division of the business;
· Any change in the contact person responsible for dealing with the payment of fees, penalties and levies; / · Any change in shareholders;
· Any change in directors; / · Any change in members;
· Any change in the name of the business; / · Any change of compliance officer;
· Any change in auditor; / · Any change in the representatives;
· Any change in foreign clearing firm or foreign forex service provider involved; / · Any change in nominee company or independent custodian involved
Condition 2 – Reporting changes relating to key individuals
This condition requires that there must be a key individual appointed in terms of a licence at all times and that the key individual's details and changes in personal circumstances of key individuals that affect his honesty and integrity are maintained and updated.
In the example of licensing conditions we see that Condition 2 stipulates that the FSP must inform the Registrar if and when there are changes to the approved key individual position(s). This means that when a key individual leaves the employment of the FSP, the necessary profile change must be done WITHIN 15 DAYS.
In addition, Section 8(4)(b) of the FAIS Act requires that when a key individual leaves the employ, or is replaced, or there are changes in the person's personal circumstances of a key individual which makes him no longer fit and proper, the key individual must not be allowed to take part in the conduct or management or oversight of the licensee’s business in relation to the rendering of financial services.
Condition 3 - Submit representative register
A newly authorised FSP must submit the representative register within 15 days of authorisation. Thereafter updates to the register must be sent to the Registrar every 15 days.
Condition 4 - Change of business name
If there is a change in the name of the business, the requirements of Condition 4 (above) must be met – which are the following:
· Ensure that the name change is not in conflict with any other law and complies with other applicable laws (such as the Companies Act or the Banks Act in relation to banks);
· Disclose compliance with other applicable laws to the Registrar.
If the Registrar is satisfied that the change of name is lawful and has approved the change of name, the Registrar will be issued an amended licence.
Only when the amended licence is issued may the FSP continue/start with providing financial service under that name.
Condition 5 – Only deal with authorised FSP’s
This condition requires that the FSP must have internal controls and procedures in place to ensure that any financial product regarding which the FSP wants to render a financial service, qualifies as a financial product as required by the Act and is lawfully issued by the relevant product supplier.
Only financial products of product suppliers whose products are authorised by an authority, or by approval or rights granted under an appropriate law (for instance the Insurance Acts) may be sold by FSP’s.
10.2 SUSPENSION, WITHDRAWAL AND REINSTATEMENT OF AUTHORISATION
The Registrar may suspend or withdraw a FAIS licence, subject to certain conditions. The licence may also be reinstated, subject to certain conditions.
Suspension or withdrawal of a licence
The diagram below indicates the steps before the Registrar may suspend or withdraw a FAIS licence.
10.2.1 Suspension or withdrawal
Once the requirements have been met (outlined in the diagram above), the Registrar may suspend or withdraw any licence if the Registrar is satisfied on the basis of available facts and information that the licensee:
· No longer meets the requirements of Section 8 of the Act;
· didn't disclose all required information upon applying for a licence or submitted Nalse or misleading information;
· Nailed to comply with any provision/s of the FAIS Act;
· Ntill owes levies, penalties or administrative sanctions to the FSB and hasn't paid it.
10.2.2 Urgent suspension or withdrawal
Notwithstanding the fact that the Registrar must follow certain procedures before suspension or withdrawal, the Registrar may do certain things on an urgent basis if there are reasonable grounds that the public or clients may be substantially prejudiced.
If such grounds exist, the Registrar:
· May provisionally suspend or withdraw a licence. The Registrar must inform the licensee of the grounds and the period as well as allow the licensee a reasonable opportunity to respond thereto and to provide reasons why the provisional suspension or withdrawal should be lifted or why the period and terms should be changed;
· May publish the provisional suspension or withdrawal in the Gazette and if necessary, by means of any other appropriate public media.
The Registrar must consider a response received from the licensee and may decide to:
· Lift the provisional suspension or withdrawal; or
· Make it final.
The licensee must be advised accordingly and notification must happen in the Gazette and other media if necessary.
If a licence is suspended or withdrawn, the licensee is not authorised to act as an FSP.
10.2.3 Debarment following suspension of withdrawal
If a licence has been withdrawn in terms of Section 9 of the Act (which deals with suspension and withdrawal of licences), the person is debarred for a period specified by the Registrar from applying for a new licence and the Registrar may change the period if there are good grounds for the change.
10.2.4 Registrar must consult a regulatory authority
Before suspending or withdrawing a licence, the Registrar may consult "any regulatory authority". This implies that the FAIS Registrar may (and should) consult another regulator if the FSP concerned is also authorised or licensed for business under that regulator.
In the diagram above we used the example of the FAIS Registrar consulting the Registrar of Banks in the event of a possible suspension or withdrawal of a bank-related FSP licence. It may be critical for the FAIS Registrar to consult another applicable regulator (such as the Insurance Registrar) because suspension or withdrawal of an FSP licence may have dire consequences in the financial services industry.
10.2.5 Accreditation under Medical Schemes Act 1998
Section 8(7) of the FAIS Act, which we discussed above, has certain implications in respect of the certain requirements for FSP’s that are also accredited under the Medical Schemes Act.
If an accredited Medical Schemes FSP loses its accreditation in terms of the Medical Schemes Act, the FAIS Licence will also be deemed to be suspended or withdrawn.
Similarly, if the accredited (FAIS) FSP's licence is suspended or withdrawn in terms of the FAIS Act, it will also lose its accreditation in terms of the Medical Schemes Act.
We discuss lapsing of licences in the next Module.
10.3 OFFENCES
10.3.1 Offences
When a person commits a certain offence and is convicted by a court, the court may impose a fine of a maximum of R1 000 000 or a prison sentence of a maximum of ten (10) years or both.
The offences, which carry the above penalties, are the following:
1. Contravention of or failure to comply with the following Sections inthe Act: /
Failure to get a licence to operate as an FSP - s7(1). / Conducting financial services-related business with a person who is not licensed for such services and the conditions and restrictions, allow the specific services or the person is a representative as described in the Act – s7(3).
· Failure to display a FAIS licence,
o or to refer to the licence in business documentation, advertisements and other promotional material
or failure to have the licence available when proof is requested or when required to enter into a business relationship with the licensee – s8(8). / · Failure to ensure that directors, trustees or partners (excluding key individuals) meet the fit and proper honesty and integrity requirements
o or failure to notify the Registrar
or give the Registrar the required information within 15 days of changes in respect of these persons – s8(10)(a).
1. Contravention of or failure to comply with the following Sections in
the Act:
· Failure to ensure that a representative acts on behalf of an authorised FSP or an exempted FSP
o and failure to ensure that a representative provides adequate information to prove his/her agreement/mandate with an FSP
or failure to ensure that a debarred representative's reappointment meets the requirements of the Act – s13(1). / · Failure to ensure that the FSP's representatives and key individuals of representatives are fit and proper
· or failure to comply with the requirements for reappointment after debarment
as well as failure to ensure that representatives comply with applicable codes and laws on conduct of business - s13(2).
Failure to debar a representative as described in Section 14(1). / Failure to submit compliance reports to the Registrar – s17(4).
Failure to maintain and keep records as required in Section 18. / · Failure to have the financial statements audited and reported within four (4) months as required in Section 19(2).
Failure by an external auditor to report any irregularity/suspected irregularity in the conducts of the affairs of the FSP as required in Section 19(4).
Carrying on with business as an FSP after the Registrar declared the business an undesirable practice – s34(4). / Failure to rectify the effects of an undesirable practice within 60 days of being ordered to do so by the Registrar – s34(6).
2. Deliberately making a misleading, false or deceptive statement, or conceals any material fact with regard to anything relating to the Act. s36(b)
3. Giving an appointed auditor or compliance officer information which is false, misleading or conceals any material fact in the execution of duties imposed by this Act. s36(c)
4. Pretending to be an appointed or mandated representative of a licensed FSP when providing financial services to clients. s 36(d)
10.3.2 Civil remedies