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The Act

The Act. Key impact areas. 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

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The Act

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  1. The Act

  2. Key impact areas • 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 scrutiny of media • Increasingly aggressive regulator • Increasingly active consumer • Decreasing small independents • Increased opportunities

  4. “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 • “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: • 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” – • 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- • 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 – • 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 • Processing the claims of a client against a product supplier

  9. “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: • Any organ of state • Any company incorporated or registered • Any body of persons

  10. “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- • 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- • Advice does not include- • Factual advice given merely: • On the procedure • In relation to the description of a financial product • In answer to routine administrative queries • Objective information about a particular financial product • Display of promotional material • An analysis without any express or implied recommendation

  12. Chapter 1.Administration of the Act • 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 • (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 • Registrar, if applicant complies with Act’s requirements, must grant the license • Registrar may impose conditions to be included in license

  14. Authorisation of FSP continued • 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 • If application refused – Registrar must notify applicant and give reasons

  15. Authorisation of FSP continued • 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

  16. Suspension of Authorisation • Registrar may suspend any license if licensee fails to meet requirements • 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 • Registrar may under urgent circumstances provisionally suspend the license • Publication of suspension published in Government Gazette

  17. Withdrawal of Authorisation • (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: • 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

  20. Chapter 3.Representatives of Authorised FSP’s • 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 • 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 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: • 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. Compliance Officer continued • 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

  24. Compliance Report • Is in a standard format • 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 • 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: • 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 • Prepare Annual Financial Statements reflecting financial position of business, including balance sheet, income statement etc • Audited? Depends on the nature of your business

  28. Financial Statements • 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 • See s19 for further records

  29. Chapter 6.Enforcement • Office of the Ombud • Objective is dispose of complaints in fair, informal, economical and expeditious manner • 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: • Inform all parties • Provide all particulars to all parties • Give parties opportunity to submit and respond

  30. Enforcement continued • 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

  31. Determinations by Ombud • (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 decision is regarded as a civil judgement of a court • The writ of execution may be issued

  32. Other Enforcement Measures • Civil remedies: • The Registrar may apply to court to restrain an FSP contravening the Act • 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 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

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