Services under Supervision Proposals

This is the time of year when a vitamin B jab becomes obligatory if you want to make it to the festive season. To make matters worse, the burden of budgeting for 2019 also starts rearing its unwelcome head.

A recent consultation paper, published by the FSCA, contains some very relevant issues which may have a bearing on your plans for 2019. The closing date for input was 31 August, so do not be surprised if this forms part of the Authority’s Christmas presents which are traditionally published towards the end of December.

Last year we received the 2017 Fit and Proper Determination. This year it is likely to be, amongst others, changes to the 2008 exemption regarding services under supervision. This stands to reason, as much has changed, particularly the Fit and Proper requirements.

The new regulations will provide for conditions which are more principles based and outcomes focused, rather than rules driven.

Why the exemption?

The objective of the exemption is to facilitate the entry of new participants into the financial services industry without compromising the fair treatment of clients.

The Draft Exemption, similar to the 2008 Exemption, allows a representative who does not meet all the competency requirements to work under supervision subject to compliance with certain conditions. This has been changed to address the issues mentioned above.

Amended Date of Appointment definition

The definition of “date of appointment” (DOFA) has been changed to remove the link between the appointment date and particular categories of financial services or particular financial products. This means that a person’s date of appointment is the date on which that person was first appointed as a representative of a financial services provider.

The reason for the change is to limit the overall period a representative may work under supervision. Some FSPs extended the supervision periods of reps by regularly changing the financial products for which they were originally appointed.

Additional exemptions apply to reps who only render services in respect of a tier 2 product, or perform only an “execution of sales” function in terms of the F & P requirements.

Mid-year compliance date scrapped

It is proposed that the current provision, which allows reps to work until 30 June following the end of their second service anniversary, will now fall away.

The general mid-year compliance date created an advantage for certain representatives in that it extended their compliance periods, in some instances by a year, which defeated the purpose of the prescribed maximum periods.

“The Authority is satisfied that the removal of the mid-year compliance date will result in minimal impact on industry in light of the requirement that came into effect on 1 May 2018 that obliges an FSP to establish, maintain and update on a regular basis the Competency Register contemplated in section 13(5) of the Fit and Proper Requirements.”

Intensity of Supervision

“The Authority, in line with principle based and outcomes focused regulation, removed the distinction between direct and on-going supervision and the requirements relating to prior approval of transactions. It is proposed that the FSP must determine the supervision arrangements and the level of intensity of supervision that must apply to a particular representative…”

“The FSP further must, at regular intervals, review the appropriateness, effectiveness and adequacy of the supervision arrangements and the level of intensity of the supervision and must determine criteria and procedures to assess whether it is appropriate for a representative to work under a reduced level of supervision.”

The 2008 Exemption merely required that “there must be a written agreement … that details the procedures regarding the rendering of services under supervision”. The Draft Exemption now prescribes what must be set out in the supervision agreement. See link below. It may be wise to compare your current documentation to these guidelines beforehand.

Qualification Requirement

A representative who does not meet the qualification requirement at appointment is required to enroll for a qualification within two years of date of appointment. This is to counter a current trend where FSPs only commence with a qualification close the expiry of the supervision period, making it virtually impossible to comply within the supervision period, and consequently apply for an extension.

Whilst it makes sense to delay initiating such training until one has assessed the “staying potential” of a new appointee, the very least one should do is to include this in the Competency Register to ensure that you comply with the two year enrollment requirement.

Please click here to download the Consultation Paper: Exemption of services under supervision document.


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