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Fais Fit and Proper: Exemption of services under supervision - Differences between 2008 Exemption and the Draft Exemption (part 2)

Published

2018

Fri

10

Aug

 

The FSCA’s discussion on the substance of the Draft Exemption is structured to highlight the significant differences between the 2008 Exemption and the Draft Exemption rather than to address each and every difference or new requirement.

In our
previous article we highlighted the definition of "date of appointment" and compliance periods; and intensity of supervision and direct and on-going supervision. In today’s article we will focus on entry level requirements, supervision agreement, duties of FSP and Supervisor, duties of Representative as well as initial comments by our Compliance team.

Entry level requirements

No changes were affected to the entry level requirements other than to -

  • provide for a different entry level requirement for representatives appointed only to perform the execution of sales in accordance with section 22(b)(ii) of the Fit and Proper Requirements in view of the lower qualification requirement applicable to those representatives; and
  • remove the entry level requirements for representatives rendering financial services in respect of the Financial Products Long-term Insurance Category A and/or Friendly Society Benefits.

The changes referred to above are necessary to ensure alignment with the new qualification requirements in the Fit and Proper Requirements.

Supervision agreement

The 2008 Exemption merely required that "there must be a written agreement, ..., that details the procedures regarding the rendering of services under supervision". As a result, the FSCA found that what was contained in the supervision agreements varied significantly amongst FSPs. In some instances, the agreement had no real purpose or value, did not address the representative's specific training needs having regard to the representative's level of competency and did not provide for criteria and procedures to assess whether it is appropriate for the representative to work under a reduced level of intensity of supervision. In order to address the aforementioned, the Draft Exemption now prescribes what must be set out in the supervision agreement.

Duties of FSP and Supervisor

The Draft Exemption imposes additional duties on the FSP mainly to ensure that the FSP has the operational ability to appoint representatives to work under supervision and that it is able to monitor and supervise those representatives without -

  • materially increasing any risk to the FSP or the fair treatment of clients;
  • materially impairing the quality of the governance framework of the FSP; and
  • compromising the protection of or continuous and satisfactory service to clients.

The Draft Exemption further clarifies that the FSP is responsible for ensuring that the supervisor has the necessary skills and operational ability to supervise the representative, including meeting the minimum prescribed competency requirements applicable to the representative working under supervision.

The Draft Exemption, as opposed to the 2008 Exemption, does not prescribe what supervision arrangements must be applied or what the intensity of that supervision must be. It is for the FSP to determine what supervision arrangements will be most appropriate having regard to the factors set out in Condition 7 and referred to in paragraph 4.2 above. The proposed changes ensure that the requirements are proportionate and that a one-size fits all approach is not applied.

Duties of Representative

A significant difference from the 2008 Exemption is that a representative who is not meeting the qualification requirements is required to enrol for a qualification within two years of date of appointment. The FSCA, through the exemption process, has identified a trend with representatives to only commence with a qualification close to the expiry of the supervision period. The requirement, therefore, is proposed to ensure that representatives timeously commence with a qualification thereby reducing the instances of non-compliance at the expiry of the supervision period.

Initial comments from the Compliance team

  • The definition of “Date of First Appointment” has changed to the date a person was appointed as a representative of a FSP. Previously, it referred to the date a person was first appointed by a FSP to render financial services in relation to a specific Category and financial product. The implication of this is that a Representative will now only have one DOFA, instead of a colloquially called “industry” DOFA and DOFA per financial product. This proposed change will make it easier to determine the person’s Regulatory Examination and Qualification deadline dates.
  • Product Specific Training is not mentioned in the Consultation Document which leads us to believe that a person will need to complete the required Product Specific Training before he/she can start to render financial services under supervision.
  • A requirement to have a structured recordkeeping process has been included in the form of a “Supervision File” which must contain all the documents relating to the Representative’s supervision.
  • A Representative under supervision’s CPD cycle starts after they have completed their required qualification, Regulatory Examination and Class of Business training.
  • Representatives working under supervision, appointed prior to the commencement of the proposed exemption, must complete the applicable class of business training within 6 months from the date the proposed amendment commences.

Click here to download the Consultation Paper: Exemption of services under supervision dated 31 July 2018. The closing date for comments and submissions is 31 August 2018. 

 
Source: Moonstone Compliance (Pty) Ltd
 
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