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Cash-strapped FSP gets no relief from the tribunal

The Financial Services Tribunal has declined an FSP’s request for reconsideration of the FSCA’s refusal to exempt him from the Fit and Proper Requirements on the grounds of financial hardship.

In 2020, George Duiker told the FSCA that his business, Baphuthing Marketing and Finance Consultancy (Pty) Ltd, had been operating at a loss for more than five years, and he was using his monthly pension to keep it afloat.

He applied to be exempted from the experience requirements for investment products and services in Table 1 (Annexure 1) of Board Notice 197 of 2017, excluding short-term insurance: commercial lines and health services benefits.

According to the FSCA’s website, Baphuthing is approved only to provide advice on products that fall under Long-term Insurance Sub-category A (funeral policies up to R30 000).

Duiker told the FSCA he had applied, unsuccessfully, for employment at two large financial services companies so he could gain the experience required by Board Notice 194 for investment products.

He also asked the companies to assign a key individual to his FSP and supervise him for a year, but to no avail. His attempts to recruit a KI had also not borne fruit.

In March last year, the FSCA declined Duiker’s application for an exemption from the experience requirements. However, it did grant his request to be exempted from the fee, in Government Notice 89 of 9 February 2018, for applying for an exemption from the qualification or regulatory examination requirements.

The FSCA also advised Duiker on what he could do to add more products to his licence.

  • Render financial services under the supervision of a representative with the required experience. Duiker told the tribunal that all the companies to which he applied to act as KI and representative to his FSP need a licence with additional products.
  • Appoint a representative to his FSP who complies with the experience requirements. Duiker told the tribunal he had considered this option, but advertisements and recruitment incurred costs.

Before the tribunal, Duiker argued that the FSCA should assist him, because he was a pensioner facing financial hardship. Its refusal to grant an exemption was prejudicial to him and his clients, because he could not render services that would empower him and his business.

Section 44 limits the FSCA’s power

The FSCA’s rejection of the exemption request, as well as the tribunal’s dismissal of the reconsideration application, rested mainly on how section 44 of the FAIS Act qualifies the regulator’s authority to grant exemptions.

In terms of sub-section 44(1), the FSCA may grant exemptions to FSPs and representatives if it is satisfied that:

  1. The rendering of a financial service by the applicant is already partially or wholly regulated by another law; or
  2. The application of the provision of the FAIS Act will cause the applicant or its clients financial or other hardship or prejudice; and
  3. The exemption will not conflict with the public interest, prejudice the interests of clients, and frustrate the achievement of the objectives of the FAIS Act.

Sub-section 44(4)(a) empowers the FSCA to, in any case not provided for in the FAIS Act, on reasonable grounds, exempt any person or category of persons from any provision of the Act.

The tribunal accepted the FSCA’s argument that Duiker had not provided information that could trigger the application of either sub-section 44(1) or 44(4).

On the contrary, it agreed with the Authority that exempting Duiker from the experience requirements for the products he sought to add to his licence might conflict with the public interest, be prejudicial to the interests of his clients, and frustrate the achievement of the objectives of the FAIS Act.

Duiker also argued that sub-section 44(1)(a) provided grounds for an exemption because the products he sought to add to his licence by were wholly or partially regulated by another law, such as the Collective Investment Schemes Control Act.

The tribunal said this submission was “misplaced” because such financial products are regulated by the FSCA.

Compliance does create a financial hardship

The tribunal also agreed with the FSCA’s response to the cost implications of complying with regulation, namely that “it is widely recognised and accepted that regulation has and always will have a negative financial impact on or/and may create other burden for the regulated persons”. The regulator must have known this would be the case when it introduced the competency requirements.

The question is not whether a law or regulation creates hardships but what reasonable grounds exist in relation to that hardship to support an application for exemption – for example, whether the hardship experienced by the applicant is excessive relative to that experienced by other people who must comply with the same requirement and the objective of the FAIS Act.

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