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The ActThe Act

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Key impact areasKey impact areas

Legal Accountability for Advisors who:Legal Accountability for Advisors who:– Mis-sell productsMis-sell products– Give negligent adviceGive negligent advice– Utter or deliver misleading statementsUtter or deliver misleading statements– Fail to act in the client’s best interestsFail to act in the client’s best interests– Make secret profitsMake secret profits– Fail to undertake appropriate due diligenceFail to undertake appropriate due diligence– Fail to live up to reasonable standardsFail to live up to reasonable standards

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Increased PressuresIncreased Pressures

Increasing legislative pressureIncreasing legislative pressure Increasing scrutiny of mediaIncreasing scrutiny of media Increasingly aggressive regulatorIncreasingly aggressive regulator Increasingly active consumerIncreasingly active consumer Decreasing small independentsDecreasing small independents Increased opportunitiesIncreased opportunities

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““Advice” – any recommendation, guidance or Advice” – any recommendation, guidance or proposal of a financial nature furnished to any proposal of a financial nature furnished to any client or group of clients-client or group of clients-– In respect of the purchase of any financial product; orIn respect of the purchase of any financial product; or– The investment in any financial product;The investment in any financial product;– Conclusion of any other transaction, in respect of any Conclusion of any other transaction, in respect of any

financial product; financial product; – On the variation of any term or condition applying to a On the variation of any term or condition applying to a

financial product, replacement or on the termination, financial product, replacement or on the termination, irrespective of whether it:irrespective of whether it:

» Results in any such purchaseResults in any such purchase

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““Authorised financial services provider” or Authorised financial services provider” or “provider” – a person granted an authorisation by “provider” – a person granted an authorisation by issue of a licenceissue of a licence

““Client” – specific person/persons, who is or may Client” – specific person/persons, who is or may become the subject to whom a financial service is become the subject to whom a financial service is rendered intentionally; or the successor in titlerendered intentionally; or the successor in title

““Complaint” – a complaint relating to a financial Complaint” – a complaint relating to a financial service rendered by a financial services provider or service rendered by a financial services provider or representative to the complainant, and in which representative to the complainant, and in which complaint it is alleged:complaint it is alleged:– FSP failed to comply with a provision of this Act and the FSP failed to comply with a provision of this Act and the

complainant has suffered prejudice;complainant has suffered prejudice;– FSP Willfully or negligently rendered a financial service FSP Willfully or negligently rendered a financial service

which has caused prejudicewhich has caused prejudice– Has treated the complainant unfairlyHas treated the complainant unfairly

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““Financial Product” – Financial Product” – – Securities and instrumentsSecurities and instruments– Participatory interest in one or more collective Participatory interest in one or more collective

investment schemesinvestment schemes– A long-term or a short-term insurance contract or A long-term or a short-term insurance contract or

policypolicy– A benefit provided by a pension fund organisationA benefit provided by a pension fund organisation– A foreign currency investmentA foreign currency investment– A deposit as defined in the Banks ActA deposit as defined in the Banks Act– A health service benefit provided by a medical schemeA health service benefit provided by a medical scheme– Any other product similar in nature to any financial Any other product similar in nature to any financial

product referred to above, declared a financial product product referred to above, declared a financial product by the registrarby the registrar

– Any financial product marketed in the Republic similar Any financial product marketed in the Republic similar to a financial product referred to aboveto a financial product referred to above

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““Financial services provider” [FSP]– means Financial services provider” [FSP]– means any person, other than a representative, who any person, other than a representative, who as a regular feature of the business of such as a regular feature of the business of such person-person-– Furnishes advice; orFurnishes advice; or– Furnishes advice and renders any intermediary Furnishes advice and renders any intermediary

service; orservice; or– Renders an intermediary serviceRenders an intermediary service

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““Intermediary service” – any act other than the Intermediary service” – any act other than the furnishing of advice, performed on behalf of a furnishing of advice, performed on behalf of a client or product supplier –client or product supplier –– The results of which is that a client may enter into any The results of which is that a client may enter into any

transaction in respect of a financial product with a transaction in respect of a financial product with a product supplier; orproduct supplier; or

– With a view to-With a view to-» Dealing in a financial product purchased by a client from a Dealing in a financial product purchased by a client from a

product supplier or in which the client has invested:product supplier or in which the client has invested: Collecting or accounting for premiums payable by the client to a Collecting or accounting for premiums payable by the client to a

product supplier; orproduct supplier; or Processing the claims of a client against a product supplierProcessing the claims of a client against a product supplier

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““Key individual” – in relation to an authorised Key individual” – in relation to an authorised FSP carrying on business asFSP carrying on business as– i.r.o.a Trust, Corporate Body:-i.r.o.a Trust, Corporate Body:-

» Any natural person responsible for managing or overseeing the Any natural person responsible for managing or overseeing the activities of the bodyactivities of the body

– One natural person as member, director, shareholder or One natural person as member, director, shareholder or trustee means any such natural persontrustee means any such natural person

‘‘Person” – natural person, partnership or trust and Person” – natural person, partnership or trust and includes:includes:– Any organ of stateAny organ of state

– Any company incorporated or registeredAny company incorporated or registered

– Any body of personsAny body of persons

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““Product supplier” – any person who lawfully Product supplier” – any person who lawfully issues a financial productissues a financial product

““Representative” – any person who renders a Representative” – any person who renders a financial service to a client for or on behalf of a financial service to a client for or on behalf of a FSP, in terms of conditions of employment or FSP, in terms of conditions of employment or agreement, excluding clerical, administrative agreement, excluding clerical, administrative persons, where the service-persons, where the service-– Does not require judgementDoes not require judgement

– Does not lead a client to any specific transaction in Does not lead a client to any specific transaction in respect of a financial productrespect of a financial product

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For the purposes of this Act-For the purposes of this Act-– Advice does not include-Advice does not include-

» Factual advice given merely:Factual advice given merely: On the procedureOn the procedure In relation to the description of a financial productIn relation to the description of a financial product In answer to routine administrative queriesIn answer to routine administrative queries Objective information about a particular financial productObjective information about a particular financial product Display of promotional materialDisplay of promotional material

» An analysis without any express or implied An analysis without any express or implied recommendationrecommendation

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Chapter 1.Administration of the ActChapter 1.Administration of the Act

Powers of RegistrarPowers of Registrar– Will act to ensure compliance with the ActWill act to ensure compliance with the Act

– Can compel FSP to furnish information re registrar’s Can compel FSP to furnish information re registrar’s concernsconcerns

– May prevent publication of advertising materialMay prevent publication of advertising material

– Can “subpoena” FSP to appearCan “subpoena” FSP to appear

– Can bring urgent application to court to restrain FSPCan bring urgent application to court to restrain FSP

– Aim is to prevent prejudice or damage to clientsAim is to prevent prejudice or damage to clients

– FSP has right to be heard and to make submissionsFSP has right to be heard and to make submissions

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Chapter 2.Authorisation of FSPChapter 2.Authorisation of FSP

(S7) From specified date a person may not act as a FSP (S7) From specified date a person may not act as a FSP unless issued with a license unless issued with a license

(If after specified date services are rendered without the (If after specified date services are rendered without the license,and transactions concluded between product license,and transactions concluded between product supplier aqnd client - this does not make it unenforceable)supplier aqnd client - this does not make it unenforceable)

Application for authorisation procedure – dealt with belowApplication for authorisation procedure – dealt with below Registrar, if applicant complies with Act’s requirements, Registrar, if applicant complies with Act’s requirements,

must grant the licensemust grant the license Registrar may impose conditions to be included in license Registrar may impose conditions to be included in license

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If license granted same issued to applicant If license granted same issued to applicant along with certified copies as requestedalong with certified copies as requested

Registrar has power to withdraw or amend Registrar has power to withdraw or amend the license, and may impose new the license, and may impose new conditions. This only after licensee has had conditions. This only after licensee has had the chance to make submissionsthe chance to make submissions

If application refused – Registrar must If application refused – Registrar must notify applicant and give reasonsnotify applicant and give reasons

Authorisation of FSP continuedAuthorisation of FSP continued

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A licensee must:A licensee must:– Display certified copy of license in every Display certified copy of license in every

business premisesbusiness premises– Ensure reference to license contained in all Ensure reference to license contained in all

business documentation, advertisements and business documentation, advertisements and promotional materialpromotional material

– Ensure the license is available to any person Ensure the license is available to any person requesting proof of licenserequesting proof of license

Authorisation of FSP continuedAuthorisation of FSP continued

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Suspension of AuthorisationSuspension of Authorisation

Registrar may suspend any license if licensee fails to meet Registrar may suspend any license if licensee fails to meet requirementsrequirements

Before suspending, Registrar must inform licensee of:Before suspending, Registrar must inform licensee of:– Intention to suspendIntention to suspend– Grounds thereforeGrounds therefore– Intended period of suspensionIntended period of suspension– Whether licensee prohibited from concluding new business Whether licensee prohibited from concluding new business

Licensee has right to be heardLicensee has right to be heard Registrar may under urgent circumstances provisionally Registrar may under urgent circumstances provisionally

suspend the licensesuspend the license Publication of suspension published in Government Publication of suspension published in Government

GazetteGazette

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Withdrawal of AuthorisationWithdrawal of Authorisation

(S10) Registrar may withdraw any license if (S10) Registrar may withdraw any license if satisfied licensee:satisfied licensee:– Did not make full disclosure of informationDid not make full disclosure of information– Furnished false informationFurnished false information– Fail to comply with the Act in a material Fail to comply with the Act in a material

mannermanner

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Lapsing of LicenseLapsing of License

A license lapses where licensee:A license lapses where licensee:– Is permanently incapable of carrying on Is permanently incapable of carrying on

businessbusiness– Is sequestrated/liquidatedIs sequestrated/liquidated– Dies (!!!)Dies (!!!)– Voluntary surrenders licenseVoluntary surrenders license

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Exemptions in respect of Product Exemptions in respect of Product SuppliersSuppliers

Registrar may exempt a product supplier Registrar may exempt a product supplier who applies for exemption, from submitting who applies for exemption, from submitting some/all information required from an some/all information required from an applicantapplicant

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Chapter 3Chapter 3.Representatives of Authorised .Representatives of Authorised

FSP’sFSP’s Qualifications of representatives and duties of FSPQualifications of representatives and duties of FSP

– Representative cannot:Representative cannot:» render financial services to clients on behalf of an unauthorised FSPrender financial services to clients on behalf of an unauthorised FSP» Act on behalf of FSP unless FSP provides:Act on behalf of FSP unless FSP provides:

A service contract, andA service contract, and The FSP accepts responsibility for the representativeThe FSP accepts responsibility for the representative

– The authorised FSP must:The authorised FSP must:» Be satisfied the representative – and its key individuals – are Be satisfied the representative – and its key individuals – are

competent (see “application”)competent (see “application”)» Ensure representative complies with Code of Conduct and LegislationEnsure representative complies with Code of Conduct and Legislation» Maintain a register of representatives and key individuals of such Maintain a register of representatives and key individuals of such

representatives – the register to contain full details of the representatives – the register to contain full details of the representative and the categories in which the representative are representative and the categories in which the representative are competent (to render financial services!)competent (to render financial services!)

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Debarment of RepresentativesDebarment of Representatives

FSP to prohibit representative who no FSP to prohibit representative who no longer complies – no longer “competent”longer complies – no longer “competent”

FSP must immediately take steps to prevent FSP must immediately take steps to prevent prejudice to the client and to conclude prejudice to the client and to conclude unconcluded businessunconcluded business

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Chapter 5.DUTIES OF FSP:Chapter 5.DUTIES OF FSP:Compliance OfficerCompliance Officer

Compliance officers:Compliance officers:– An FSP with more than one key individual must An FSP with more than one key individual must

appoint one or more compliance officers who will:appoint one or more compliance officers who will:» Monitor FSP and representatives compliance with this ActMonitor FSP and representatives compliance with this Act» Liaise with the RegistrarLiaise with the Registrar

– Compliance officer to:Compliance officer to:» Be independent – must function objectively and, if an Be independent – must function objectively and, if an

employee, must ensure no conflicts of interest ariseemployee, must ensure no conflicts of interest arise» Be competent and diligentBe competent and diligent» Have authority to actHave authority to act» The personality to challenge anyoneThe personality to challenge anyone» A sound understanding of the businessA sound understanding of the business

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– Must have:Must have:» Sufficient knowledge of the Act and duties of the FSPSufficient knowledge of the Act and duties of the FSP

» Adequate resources to ensure compliance monitoringAdequate resources to ensure compliance monitoring

» Direct access to and support from senior managementDirect access to and support from senior management

– They must:They must:» Report non-compliance to the FSPReport non-compliance to the FSP

» Make recommendations re compliance or monitoringMake recommendations re compliance or monitoring

» Keep written recordsKeep written records

» Ensure FSP assists with the resolution of non-complianceEnsure FSP assists with the resolution of non-compliance

Compliance Officer continuedCompliance Officer continued

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Compliance ReportCompliance Report

Is in a standard formatIs in a standard format Sets out:Sets out:

– the list of key individualsthe list of key individuals– Licensing and display of licenseLicensing and display of license– List of representatives and their compliance with the ActList of representatives and their compliance with the Act– A declaration that regulations have been maintained and records A declaration that regulations have been maintained and records

and directives complied withand directives complied with– That FSP not involved in civil, criminal or ombud proceedings and That FSP not involved in civil, criminal or ombud proceedings and

no contraventions of the Act or General Codeno contraventions of the Act or General Code– If contravention, what steps have been taken to remedy sameIf contravention, what steps have been taken to remedy same

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Compliance Officer’s QualificationsCompliance Officer’s Qualifications

A director, member, trustee etcA director, member, trustee etc If not one of the above then:If not one of the above then:

– Holds a legal or accounting degree with three Holds a legal or accounting degree with three years experience or more in financial servicesyears experience or more in financial services

– Has passed compliance relating courses Has passed compliance relating courses recognised by the Registrarrecognised by the Registrar

– See Schedule relating to section 17.1.bSee Schedule relating to section 17.1.b

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DUTIES OF FSP cont.DUTIES OF FSP cont.Maintenance of RecordsMaintenance of Records

FSP must:FSP must:– Maintain record for minimum of five years Maintain record for minimum of five years

regarding:regarding:» Premature cancellation of transactionsPremature cancellation of transactions

» Complaints received/resolvedComplaints received/resolved

» Continued compliance with “application” Continued compliance with “application” requirementsrequirements

» Cases of non-compliance with the ActCases of non-compliance with the Act

» Continued compliance of representativesContinued compliance of representatives

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Accounting RequirementsAccounting Requirements

(S19) FSP must maintain full and proper (S19) FSP must maintain full and proper accounting recordsaccounting records

Prepare Annual Financial Statements Prepare Annual Financial Statements reflecting financial position of business, reflecting financial position of business, including balance sheet, income statement including balance sheet, income statement etcetc

Audited? Depends on the nature of your Audited? Depends on the nature of your businessbusiness

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Financial StatementsFinancial Statements

Must:Must:– Fairly represent the affairs of the businessFairly represent the affairs of the business– Refer to material likely to affect the financial Refer to material likely to affect the financial

affairs of the businessaffairs of the business The FSP must keep separate all clients The FSP must keep separate all clients

money from the business accountsmoney from the business accounts See s19 for further recordsSee s19 for further records

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Chapter 6.EnforcementChapter 6.Enforcement

Office of the OmbudOffice of the Ombud– Objective is dispose of complaints in fair, informal, economical Objective is dispose of complaints in fair, informal, economical

and expeditious mannerand expeditious manner Complaints, prescription and jurisdictionComplaints, prescription and jurisdiction

– Receipt of complaint suspends prescriptionReceipt of complaint suspends prescription– Ombud must decline any complaint older than three years from Ombud must decline any complaint older than three years from

date complainant aware of occurrence date complainant aware of occurrence – Ombud must decline complaint where court proceedings instituted Ombud must decline complaint where court proceedings instituted

The Ombud must follow the following procedure when The Ombud must follow the following procedure when investigating a complaint:investigating a complaint:– Inform all partiesInform all parties– Provide all particulars to all partiesProvide all particulars to all parties– Give parties opportunity to submit and respondGive parties opportunity to submit and respond

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Ombud may:Ombud may:– implement any procedure – including implement any procedure – including

mediationmediation– allow legal representationallow legal representation– explore a conciliated settlementexplore a conciliated settlement– Make a recommendation re settlement – if Make a recommendation re settlement – if

accepted and settled, it is finalaccepted and settled, it is final

Enforcement continuedEnforcement continued

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Determinations by OmbudDeterminations by Ombud

(S28) The Ombud may:(S28) The Ombud may:– Dismiss a complaintDismiss a complaint– Uphold a complaintUphold a complaint– Award compensationAward compensation– May make any other order a court may makeMay make any other order a court may make

The Ombud must reduce the determination to The Ombud must reduce the determination to writing along with reasonswriting along with reasons

The decision is regarded as a civil judgement of a The decision is regarded as a civil judgement of a courtcourt

The writ of execution may be issuedThe writ of execution may be issued

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Other Enforcement MeasuresOther Enforcement Measures

Civil remedies:Civil remedies:– The Registrar may apply to court to restrain an FSP The Registrar may apply to court to restrain an FSP

contravening the Actcontravening the Act Undesirable practices:Undesirable practices:

– The Registrar may by notice in the Gazette declare a The Registrar may by notice in the Gazette declare a particular business practice undesirable and will particular business practice undesirable and will consider:consider:

» Harm to clientsHarm to clients» Prejudice to clientPrejudice to client» Deceiving of client andDeceiving of client and» The objectives of the ActThe objectives of the Act

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Offences and PenaltiesOffences and Penalties

Any person who contravenes:Any person who contravenes:– Any material provision of the Act (see Section Any material provision of the Act (see Section

36) or36) or– Deliberately makes a misleading, false or Deliberately makes a misleading, false or

deceptive statement, is guilty of an offence and deceptive statement, is guilty of an offence and on conviction liable to a fine of up to R1m or on conviction liable to a fine of up to R1m or imprisonment not exceeding 10 years or imprisonment not exceeding 10 years or BOTH!BOTH!

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Voluntary Sequestration - ClosureVoluntary Sequestration - Closure

No application by FSP will have legal force No application by FSP will have legal force unless a copy or notice is lodged with the unless a copy or notice is lodged with the Registrar and the Registrar has declared the Registrar and the Registrar has declared the arrangements satisfactoryarrangements satisfactory