The FSCA has confirmed that the provision for a pro rata reduction in CPD hours as a result of parental leave, or because of illness or disability, applies only to an FSP’s representatives, not to its key individuals.
Section 33(4) of Board Notice 194 of 2017 (the Fit and Proper Requirements) states:
“An FSP, key individual and representative that is authorised, approved or appointed for a period of less than 12 months in a particular CPD cycle must, by the end of that CPD cycle, complete a pro-rated minimum number of CPD hours calculated as follows […]”
However, section 34(1) states:
“An FSP may pro rata reduce the CPD hours in respect of a representative for the period of time during which that representative is continuously absent from work if that absence is due to:
(a) maternity, paternity or adoption leave;
(b) long-term illness or disability; or
(c) the representative’s responsibilities to care for a family member of that representative who has a long-term illness or disability.”
Moonstone Compliance asked the FSCA whether it had intentionally excluded representatives from section 34(1). Why should a KI who takes maternity leave, for example, be treated differently from a representative who takes leave for the same reason?
The FSCA told Moonstone Compliance that the distinction is, indeed, intentional. It provided the following reasons:
The pro-rata calculation in section 33(4) simply means that if you are not authorised as a KI or appointed as a representative, you are not required to comply with the CPD requirements for the period that you were not authorised or appointed. In this scenario, it makes sense that the pro-rata calculation also applies to a KI, because if the KI is not authorised by an FSP, it cannot be expected for that KI (and representative, for that matter) to continue complying with the CPD requirements.
However, a KI is intentionally excluded from section 34 due to the role that he or she performs. KIs manage and oversee the functions of the FSP, and they are therefore expected to keep their knowledge up to date in order to perform their managerial and oversight functions, even during a long absence from work. A KI cannot be regarded as properly performing his or her functions when his or her knowledge is outdated.
If a KI wants to remain a KI who manages and oversees the FSP, he or she needs to keep his or her knowledge up to date by complying with the CPD requirements.
If the KI’s circumstances are such that he or she cannot work, manage and oversee the FSP, the FSP is expected to replace him or her with another KI until such time that he or she can resume his or her functions. This is because a FSP cannot act without the services of a KI who is actively involved in the business.
If the KI is then removed from the licence, the pro-rata calculation in section 33(4) would apply to him or her. Other than in the case of a KI, the business can still carry on when a representative is continuously absent from work, and it is for this reason that this section applies only to representatives.