1 The Act

2 Key impact areas Legal Accountability for Advisors who: Legal Accountability for Advisors who: –Mis-sell products –Give negligent advice –Utter or deliver misleading statements –Fail to act in the client’s best interests –Make secret profits –Fail to undertake appropriate due diligence –Fail to live up to reasonable standards

3 Increased Pressures Increasing legislative pressure Increasing legislative pressure Increasing scrutiny of media Increasing scrutiny of media Increasingly aggressive regulator Increasingly aggressive regulator Increasingly active consumer Increasingly active consumer Decreasing small independents Decreasing small independents Increased opportunities Increased opportunities

4 “Advice” – any recommendation, guidance or proposal of a financial nature furnished to any client or group of clients- “Advice” – any recommendation, guidance or proposal of a financial nature furnished to any client or group of clients- –In respect of the purchase of any financial product; or –The investment in any financial product; –Conclusion of any other transaction, in respect of any financial product; –On the variation of any term or condition applying to a financial product, replacement or on the termination, irrespective of whether it: »Results in any such purchase

5 “Authorised financial services provider” or “provider” – a person granted an authorisation by issue of a licence “Authorised financial services provider” or “provider” – a person granted an authorisation by issue of a licence “Client” – specific person/persons, who is or may become the subject to whom a financial service is rendered intentionally; or the successor in title “Client” – specific person/persons, who is or may become the subject to whom a financial service is rendered intentionally; or the successor in title “Complaint” – a complaint relating to a financial service rendered by a financial services provider or representative to the complainant, and in which complaint it is alleged: “Complaint” – a complaint relating to a financial service rendered by a financial services provider or representative to the complainant, and in which complaint it is alleged: –FSP failed to comply with a provision of this Act and the complainant has suffered prejudice; –FSP Willfully or negligently rendered a financial service which has caused prejudice –Has treated the complainant unfairly

6 “Financial Product” – “Financial Product” – –Securities and instruments –Participatory interest in one or more collective investment schemes –A long-term or a short-term insurance contract or policy –A benefit provided by a pension fund organisation –A foreign currency investment –A deposit as defined in the Banks Act –A health service benefit provided by a medical scheme –Any other product similar in nature to any financial product referred to above, declared a financial product by the registrar –Any financial product marketed in the Republic similar to a financial product referred to above

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

8 “Intermediary service” – any act other than the furnishing of advice, performed on behalf of a client or product supplier – “Intermediary service” – any act other than the furnishing of advice, performed on behalf of a client or product supplier – –The results of which is that a client may enter into any transaction in respect of a financial product with a product supplier; or –With a view to- »Dealing in a financial product purchased by a client from a product supplier or in which the client has invested: Collecting or accounting for premiums payable by the client to a product supplier; or Collecting or accounting for premiums payable by the client to a product supplier; or Processing the claims of a client against a product supplier Processing the claims of a client against a product supplier

9 “Key individual” – in relation to an authorised FSP carrying on business as “Key individual” – in relation to an authorised FSP carrying on business as –i.r.o.a Trust, Corporate Body:- »Any natural person responsible for managing or overseeing the activities of the body –One natural person as member, director, shareholder or trustee means any such natural person ‘Person” – natural person, partnership or trust and includes: ‘Person” – natural person, partnership or trust and includes: –Any organ of state –Any company incorporated or registered –Any body of persons

10 “Product supplier” – any person who lawfully issues a financial product “Product supplier” – any person who lawfully issues a financial product “Representative” – any person who renders a financial service to a client for or on behalf of a FSP, in terms of conditions of employment or agreement, excluding clerical, administrative persons, where the service- “Representative” – any person who renders a financial service to a client for or on behalf of a FSP, in terms of conditions of employment or agreement, excluding clerical, administrative persons, where the service- –Does not require judgement –Does not lead a client to any specific transaction in respect of a financial product

11 For the purposes of this Act- For the purposes of this Act- –Advice does not include- »Factual advice given merely: On the procedure On the procedure In relation to the description of a financial product In relation to the description of a financial product In answer to routine administrative queries In answer to routine administrative queries Objective information about a particular financial product Objective information about a particular financial product Display of promotional material Display of promotional material »An analysis without any express or implied recommendation

12 Chapter 1.Administration of the Act Powers of Registrar Powers of Registrar –Will act to ensure compliance with the Act –Can compel FSP to furnish information re registrar’s concerns –May prevent publication of advertising material –Can “subpoena” FSP to appear –Can bring urgent application to court to restrain FSP –Aim is to prevent prejudice or damage to clients –FSP has right to be heard and to make submissions

13 Chapter 2.Authorisation of FSP (S7) From specified date a person may not act as a FSP unless issued with a license (S7) From specified date a person may not act as a FSP unless issued with a license (If after specified date services are rendered without the license,and transactions concluded between product supplier aqnd client - this does not make it unenforceable) (If after specified date services are rendered without the license,and transactions concluded between product supplier aqnd client - this does not make it unenforceable) Application for authorisation procedure – dealt with below Application for authorisation procedure – dealt with below Registrar, if applicant complies with Act’s requirements, must grant the license Registrar, if applicant complies with Act’s requirements, must grant the license Registrar may impose conditions to be included in license Registrar may impose conditions to be included in license

14 If license granted same issued to applicant along with certified copies as requested If license granted same issued to applicant along with certified copies as requested Registrar has power to withdraw or amend the license, and may impose new conditions. This only after licensee has had the chance to make submissions Registrar has power to withdraw or amend the license, and may impose new conditions. This only after licensee has had the chance to make submissions If application refused – Registrar must notify applicant and give reasons If application refused – Registrar must notify applicant and give reasons Authorisation of FSP continued

15 A licensee must: A licensee must: –Display certified copy of license in every business premises –Ensure reference to license contained in all business documentation, advertisements and promotional material –Ensure the license is available to any person requesting proof of license Authorisation of FSP continued

16 Suspension of Authorisation Registrar may suspend any license if licensee fails to meet requirements Registrar may suspend any license if licensee fails to meet requirements Before suspending, Registrar must inform licensee of: Before suspending, Registrar must inform licensee of: –Intention to suspend –Grounds therefore –Intended period of suspension –Whether licensee prohibited from concluding new business Licensee has right to be heard Licensee has right to be heard Registrar may under urgent circumstances provisionally suspend the license Registrar may under urgent circumstances provisionally suspend the license Publication of suspension published in Government Gazette Publication of suspension published in Government Gazette

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

18 Lapsing of License A license lapses where licensee: A license lapses where licensee: –Is permanently incapable of carrying on business –Is sequestrated/liquidated –Dies (!!!) –Voluntary surrenders license

19 Exemptions in respect of Product Suppliers Registrar may exempt a product supplier who applies for exemption, from submitting some/all information required from an applicant Registrar may exempt a product supplier who applies for exemption, from submitting some/all information required from an applicant

20 Chapter 3.Representatives of Authorised FSP’s Qualifications of representatives and duties of FSP Qualifications of representatives and duties of FSP –Representative cannot: » render financial services to clients on behalf of an unauthorised FSP »Act on behalf of FSP unless FSP provides: A service contract, and A service contract, and The FSP accepts responsibility for the representative The FSP accepts responsibility for the representative –The authorised FSP must: »Be satisfied the representative – and its key individuals – are competent (see “application”) »Ensure representative complies with Code of Conduct and Legislation »Maintain a register of representatives and key individuals of such representatives – the register to contain full details of the representative and the categories in which the representative are competent (to render financial services!)

21 Debarment of Representatives FSP to prohibit representative who no longer complies – no longer “competent” FSP to prohibit representative who no longer complies – no longer “competent” FSP must immediately take steps to prevent prejudice to the client and to conclude unconcluded business FSP must immediately take steps to prevent prejudice to the client and to conclude unconcluded business

22 Chapter 5.DUTIES OF FSP: Compliance Officer Compliance officers: Compliance officers: –An FSP with more than one key individual must appoint one or more compliance officers who will: »Monitor FSP and representatives compliance with this Act »Liaise with the Registrar –Compliance officer to: »Be independent – must function objectively and, if an employee, must ensure no conflicts of interest arise »Be competent and diligent »Have authority to act »The personality to challenge anyone »A sound understanding of the business

23 –Must have: »Sufficient knowledge of the Act and duties of the FSP »Adequate resources to ensure compliance monitoring »Direct access to and support from senior management –They must: »Report non-compliance to the FSP »Make recommendations re compliance or monitoring »Keep written records »Ensure FSP assists with the resolution of non-compliance Compliance Officer continued

24 Compliance Report Is in a standard format Is in a standard format Sets out: Sets out: – the list of key individuals –Licensing and display of license –List of representatives and their compliance with the Act –A declaration that regulations have been maintained and records and directives complied with –That FSP not involved in civil, criminal or ombud proceedings and no contraventions of the Act or General Code –If contravention, what steps have been taken to remedy same

25 Compliance Officer’s Qualifications A director, member, trustee etc A 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 years experience or more in financial services –Has passed compliance relating courses recognised by the Registrar –See Schedule relating to section 17.1.b

26 DUTIES OF FSP cont. Maintenance of Records FSP must: FSP must: –Maintain record for minimum of five years regarding: »Premature cancellation of transactions »Complaints received/resolved »Continued compliance with “application” requirements »Cases of non-compliance with the Act »Continued compliance of representatives

27 Accounting Requirements (S19) FSP must maintain full and proper accounting records (S19) FSP must maintain full and proper accounting records Prepare Annual Financial Statements reflecting financial position of business, including balance sheet, income statement etc Prepare Annual Financial Statements reflecting financial position of business, including balance sheet, income statement etc Audited? Depends on the nature of your business Audited? Depends on the nature of your business

28 Financial Statements Must: Must: –Fairly represent the affairs of the business –Refer to material likely to affect the financial affairs of the business The FSP must keep separate all clients money from the business accounts The FSP must keep separate all clients money from the business accounts See s19 for further records See s19 for further records

29 Chapter 6.Enforcement Office of the Ombud Office of the Ombud –Objective is dispose of complaints in fair, informal, economical and expeditious manner Complaints, prescription and jurisdiction Complaints, prescription and jurisdiction –Receipt of complaint suspends prescription –Ombud must decline any complaint older than three years from date complainant aware of occurrence –Ombud must decline complaint where court proceedings instituted The Ombud must follow the following procedure when investigating a complaint: The Ombud must follow the following procedure when investigating a complaint: –Inform all parties –Provide all particulars to all parties –Give parties opportunity to submit and respond

30 Ombud may: Ombud may: – implement any procedure – including mediation –allow legal representation –explore a conciliated settlement –Make a recommendation re settlement – if accepted and settled, it is final Enforcement continued

31 Determinations by Ombud (S28) The Ombud may: (S28) The Ombud may: –Dismiss a complaint –Uphold a complaint –Award compensation –May make any other order a court may make The Ombud must reduce the determination to writing along with reasons The Ombud must reduce the determination to writing along with reasons The decision is regarded as a civil judgement of a court The decision is regarded as a civil judgement of a court The writ of execution may be issued The writ of execution may be issued

32 Other Enforcement Measures Civil remedies: Civil remedies: –The Registrar may apply to court to restrain an FSP contravening the Act Undesirable practices: Undesirable practices: –The Registrar may by notice in the Gazette declare a particular business practice undesirable and will consider: »Harm to clients »Prejudice to client »Deceiving of client and »The objectives of the Act

33 Offences and Penalties Any person who contravenes: Any person who contravenes: –Any material provision of the Act (see Section 36) or –Deliberately makes a misleading, false or deceptive statement, is guilty of an offence and on conviction liable to a fine of up to R1m or imprisonment not exceeding 10 years or BOTH!

34 Voluntary Sequestration - Closure No application by FSP will have legal force unless a copy or notice is lodged with the Registrar and the Registrar has declared the arrangements satisfactory No application by FSP will have legal force unless a copy or notice is lodged with the Registrar and the Registrar has declared the arrangements satisfactory