A certain individual in my previous life, who bore a strong resemblance to Attila the Hun, was fond of saying: “One cannot be a little pregnant.”
He was, of course, referring to small transgressions and more serious ones, almost like in rugby, where your sins could result in anything from a scrum against you to a red card. It seems the FSB regards compliance officers as assistant referees to monitor transgressions more closely – particularly those with the potential of warranting a yellow or red card.
A document published on the FSB website entitled “Circular for reporting of material irregularities…” provides very important guidelines on how to handle such matters. It also refers to a guide on reporting of material irregularities published by the Compliance Institute of Southern Africa which contains practical guidelines for COs.
The FAIS Act requires that a compliance officer inform the Registrar in writing of any irregularity or suspected irregularity in the conduct or the affairs of an authorised FSP. “Irregularity” is defined as follows:
“An event of non-compliance with or a breach of, the FAIS Act and any event that has, or has a potential to have, an adverse effect on the regulatory authorisation of the FSP or the clients of such provider will be referred to as an “irregularity” and any reference to “irregularity” will include a reference to “suspected irregularity”.”
Reporting events of a more serious nature, as defined above, should not be delayed until the official annual report is due for submission. The circular referred to above contains guidelines on how to submit such irregularities on-line. This is a new addition to the on-line reporting system.
In an article last week, we mentioned the onus which rests on compliance officers (COs) to report material transgressions of the FAIS Act and associated legislation. How does a CO determine the severity of the irregularity? The document drawn up by the Compliance Institute provides the following guidelines:
“Whether an irregularity is material or not will depend on the individual circumstances thereof. The nature, scale and complexity of the business of an FSP may also affect whether a particular irregularity is material or not. A compliance officer will need to decide whether an irregularity is material and thus reportable.
“Material” may be defined as being of real importance or great consequence. Reportable matters would thus be those that will have a significant adverse effect on the regulatory authorisation of the FSP or the clients of such provider.”
When a compliance officer discovers an irregularity, such compliance officer must consider the circumstances and materiality of the irregularity. If the irregularity is considered to be material, a compliance officer must report to:
- Its employer/client without undue delay (unless it can be shown that a reasonable person would have believed that the employer/client would use the time to hide the information etc), notifying them that the matter will be reported and giving them a reasonable opportunity to provide written comments as to why the irregularity is in fact not material and/or the steps that will be taken to address it; and
- The FSB without undue delay, including any response by the employer /client as to why the irregularity should not be considered material and steps taken by the employer/client since being informed of the irregularity, to rectify it.”
It is important to note that the CO is not required to become a super sleuth. The circular specifically states that it refers to facts that came to light during the performance of his duties as a compliance officer.
Reporting is also not restricted to the COs own clients. Reports concerning other FSPs (non-clients) will be handled as a complaint, and will be investigated by the FSB’s Compliance Department.