Termination of business

The Disclosure of Fees and other potential Conflict of Interests on Third Party Collective Investment Scheme Portfolios

Amendment of financial soundness requirements (BN 202 of 2012)

Financial Services Providers who operate Cash Management System Accounts

Bulk client transfers and re-signing of mandates

The exemption regarding audited financial statement requirements

Debarments and the late notifications of Section 14 (1) Debarments

The requirement to obtain suitable guarantees, Professional Indemnity Cover and/or Fidelity Insurance as per the requirements of the Notice on Requirements for Professional Indemnity and Fidelity Insurance Cover for Providers, published in Board Notice 123 of 2009

The appointment of a Compliance Officer

The application of “living annuities” in relation to “Long-term Insurance Category C” and “Retail Pension Benefits” as defined in the FAIS Act

2

Profile changes: – Contact details

– Add/ amend/ remove representatives

– Directors/ members/ shareholder details

– Approval/ removal of key individuals

Online submissions – Handover reports

– Compliance reports

– Financial statements

– Irregularity reports

– Representative registers

3

Client ends

Look at contracts

Immediate termination/

transfer

FSP ends

Notify clients & product suppliers

Complete business/

transfer to other FSP

Representative ends: FSP

must

Notify clients & product

supplier

Transfer business to

new representative

4

3rd Party CIS

Fee structures:

– Initial fees

– Advisory fees

– Management fees

– Performance fees

– LISP administration fees

– Rebates

5

Levying these fees:

– Original fee structure

– All-in-fee structure

Non-disclosures of:

– fees & costs

– remuneration arrangements & rebates

– Conflicts of interest

Disclosure requirements in CIS

6

Actions to be taken by FSPs

– Understand, manage & disclose all CoI

– Comply with section 3A(1)(a)(iii) of GCoC

– Provide adequate info to client

– Compile & retain info on appropriateness of advice on 3rd Party portfolio for client

– Disclose & confirm ranking of 3rd party portfolio over relevant time periods

– Adequate & transparent disclosure of fees

7

“annual expenditure”, means the expenditure set out in-

(a) the latest financial statements of the FSP; or

(b) the budgeted expenditure as expressed in the budget or financial accounts in the case of an applicant commencing with business,

less-

(i) staff bonuses;

(ii) employees' and directors', partners' or members' share in profits;

(iii) emoluments of directors, members, partners or a sole proprietor;

(iv) other appropriation of profits to directors, members and partners;

(v) fifty percent of the commissions or fees paid to representatives for the rendering of services that did not form part of their remuneration;

(vi) depreciation;

(vii) bad debts; and

(vii) any loss resulting from the sale of assets;

[Definition of “annual expenditure” substituted by BN 202/2012]

8

“liquid assets”, means cash and other assets equivalent to cash that can be liquidated without realising a loss on liquidation provided that-

(a) 25% of such assets must be capable of being liquidated in 7 days;

(b) a further 25% of such assets must be capable of being liquidated in 30 days; and

(c) the remaining 50% of such assets must be capable of being liquidated in 60 days;

[Definition of “liquid assets” substituted by BN 202/2012]

“management accounts”, means a set of financial statements which-

(a) is prepared from the accounting records contemplated in section 19(1)(a) of the Act;

(b) reflects the financial position of the FSP at month end;

(c) is prepared in accordance with the accounting policies as contemplated in section 19(1)(b)(iv) of the Act;

(d) fairly represents the financial performance and position of the FSP; and

(e) reflects any material matter which has affected or is likely to affect the financial affairs of the FSP;

[Definition of “management accounts” inserted by BN 202/2012]

9

PART IX: FINANCIAL SOUNDNESS

The assets (excluding goodwill, intangible assets, investments in and loans to related parties and investments with or loans to persons to whom the FSP renders financial services) of a Category I FSP who does not hold client assets or receive premiums or money must exceed such FSP’s liabilities (excluding loans subordinated in favour of other creditors).

10

CCM and CSS accounts are online banking administration systems and are currently offered by banks to the following types of businesses:

Attorneys

Estate Agents

Accountants and Auditors

Independent Financial Advisors

Investment Managers

11

CCM and CSS Accounts can take two forms which are:

Segregated Accounts

Umbrella Account

12

Segregated Accounts:

Opened & registered in the name of the client

Clients are required to sign an agreement (referred to as power of attorney) with their agent authorising the agent to perform the following activities:

Open a CCM & CSS account on behalf of the client,

Transact on this account on behalf of the client,

Perform inter-bank transfers (electronic fund transfers), and

Report to the client the interest earned on this investment.

After the agent and its clients have signed and agreed on the terms and conditions of the agreement, the agent opens the CCM or CSS account in the client’s name and each client is allocated a bank account number.

Umbrella Account

Is one account similar to a trust account which is designated for holding agents’ clients funds. All clients’ funds are invested in this one account and the funds are distinguished through reference numbers or sub-accounts.

Agents who are mostly Category II FSPs operate the CCM and CSS account in an umbrella format.

Rather than opening separate accounts and allocating separate account numbers for each client, the agent opens one umbrella account.

After opening this account the agent also opens sub accounts linked to the main account.

Each sub account is opened in the client’s name; and

Each sub account is allocated a separate account number as well.

On Instruction only

Cat I Discretionary powers

Cat II

17

Agents must be licensed as required in terms of section 7 of the FAIS Act.

Agents operating the CCM and CSS account are rendering a financial service on the following financial products: – Deposits as defined in the Bank Act – exceeding 12

months; and/or

– Deposits as defined in the Bank Act – 12 months or less.

Submission of Section 19(3) report

Section 19(3) requires FSPs who hold clients funds to submit an audited report.

Agents operating Umbrella CCM or CSS accounts must maintain records in respect of money held on behalf of clients in the CCM or CSS umbrella account, and

simultaneously with audited financial statements, submit a Section 19(3) report which has been audited by the independent auditor.

Section 5(1) of the Code of Conduct for Administrative and Discretionary FSPs

a FSP must obtain a signed mandate from a client before rendering any intermediary service to that client.

20

• Terminate existing agreement

• New FSP - Sign new mandates

FSP sells business/ transfer clients

• Apply for new FAIS license

• Different contractual relationship

• Sign new mandates

Sole Prop changes to CC or Pty

Ltd

21

Cession clauses

– Original mandate has a cession clause:

– New mandate not needed to transfer contractual obligations to new FSP

22

• All FSPs

• Audited financial statements

S19 of Act

•Exempt some Cat I FSPs

•No premiums/ funds of clients

BN 193 of 2011

• Register for exemption

• Faisfins4@fsb.co.za

• Must submit financial statements

FSPs

23

Category Type of entity Receive client funds / premiums?

Type of financials

I Sole proprietor No Income statement & Balance sheet only

I Sole proprietor Yes Audited financials

I CC No Financials prepared by an accounting officer

I CC Yes Audited financials

I Company No Same requirements as Companies Act

I Company Yes Audited financials

II All N/a Audited financials

IIA All N/a Audited financials

III All N/a Audited financials

IV All N/a Audited financials

• Online via website

• Faisfins2@fsb.co.za or Faisfins3@fsb.co.za

• At least 2 weeks before due date

Submit

• Maximum 2 months granted

• Properly motivated

• No other outstanding reports Timeframe

25

S 14(1) of FAIS Act

Representative Not comply

S 13(2) of FAIS

Any provision of Act in material manner

S13(3)

Remove from representative register

Debar

Not prejudice clients

S 14(3)(a)

Notify FSB in 15 days

Removal of names

Reasons for debarment

26

27

Reasons for debarment

Honesty & integrity

Competence

Operational ability

Late notification = fine of R300 per day

1. FSP’s that do not receive premiums or hold assets on behalf of clients:

2. FSP’s that receive premiums or hold assets on behalf of clients:

Category Choose one of the requirements below

Suitable guarantees PI Cover.

I or IV Minimum of R1 million Minimum of R1 million

II Minimum of R1 million Minimum of R1 million

IIA Minimum of R5 million Minimum of R5 million

Category Choose one of the requirements below

Suitable guarantees PI Cover.

I or IV Minimum of R1 million Minimum of R1 million

II, IIA or III Minimum of R5 million Minimum of R5 million respectively

Suitable Guarantees

PI Cover

Fidelity Insurance

29

Reason for requirement being published: To ensure that when a client has a claim against the provider, the provider will not default. i.e. consumer protection.

Complaints received: Some complaints have been received from FSP’s regarding PI insurance claims that have been repudiated as well as insurers unilaterally cancelling the PI contract. Repudiation of claim: In this instance the FSP is the client, the intermediary who sold the PI cover to the FSP is the advisor and the insurance company is the product supplier in terms of the FAIS Act. An FSP has the following recourse if the claim is repudiated: 1. The FSP can approach the ombudsman for long-term insurance, if the claim

relates to the long-term insurance Act, and institute a claim against the insurer.

2. The FSP can approach the FAIS ombudsman, if the claim relates to advisory and/or intermediary services, and institute a claim against the FSP who sold the PI insurance cover.

3. Legal recourse in a court of law

Must appoint

FSP more than 1 KI or

REP

Internal or external

May appoint

Sole proprietor no

reps

FSP 1 KI, no reps

31

Ex-retirement fund i.e. the Fund provides the annuity. – option 1

When the member of the fund retires, the fund in which the member’s benefits accrued uses the assets that have accumulated for that member to provide the member with a pension.

If the member chooses a living annuity, then the member chooses the underlying investments that are made available to him by the fund for his choice, as well as an income level within the parameters set by the Income Tax Act.

iii. The member remains a member of the fund and accordingly the fund trustees retain their responsibilities towards the member.

iv. The member has all of the protections (and any restrictions such as s37C in respect of dependants having preference over death benefits) under the Pension Funds Act.

v. The living annuity will operate within the ambit of the Income Tax Act, the Pension Funds Act and the Fund rules.

32

Option 2:

Exactly the same as above except that the trustees of the Fund decide for whatever reason, that they will outsource pension provision to one or more Long-term Insurers.

The Fund takes out the policy of the member’s choice, and although the member pensioner makes all the investment decisions around investment choice and income levels, the ownership of the policies vests with the Fund, and the policies are assets of the Fund.

All of the legal consequences are the same as the first option above. This tends to be called a “purchased” annuity.

Implications for a FSP, Key Individual and Representatives that gives advice and/or renders an intermediary service in either of these two scenarios:

As the advice relates to the Pension Fund’s activities you must be authorised (as the FSP), approved (as the Key individual) and/or be appointed (as the representative) for the subcategory Retail Pension Benefits.

33

The Pension Fund divests itself of responsibility for provision of pensions – these are sometimes referred to as “GN 18” annuities (originally structured in terms of SARS’s General Note 18 – now superseded by regulations under the Income Tax Act).

There are three possible scenarios that apply here:

1. It may be compulsory, under the rules of the specific Pension Fund, for the Fund to divest itself of the responsibility of providing pensions.

2. The member of the Pension Fund may be given this as an option to exercise.

3. The Pension Fund decides to convert from a structure as described in section 2 above, to this type of structure.

34

What happens in this scenario is that the assets that have accumulated in the Pension Fund to provide the member’s pension are transferred out of the Pension Fund to a Long-term insurer.

The insurer issues a policy in the name of the member – not in the Fund’s name as in (2)(b) above.

The Fund’s rules provide that the fund has no further obligations towards the member.

The member is now on his own, with no trustees with any responsibilities to look out for his interests.

The Pension Funds Act no longer applies – only the Long-term Insurance Act.

The advantage for some members is that they can elect to appoint whoever they like as beneficiary when they die –because s37C of the Pension Funds Act that requires the trustees to ensure that dependants are catered for before non-dependant nominees are considered, does not apply.

35

Implications for a FSP, Key Individual and Representatives that gives advice and/or renders an intermediary service in this scenario:

If the Fund rules give the member no choice but to go into a living annuity policy, and the member has no choices to make, then you must be authorised (as the FSP), approved (as the Key individual) and/or be appointed (as the representative) for the subcategory Long-term Insurance Category C.

ii. If the member has a choice in the matter, and is weighing up his options whether to remain in the Fund as a living annuitant pensioner member or whether to relinquish Fund membership and take out a living annuity policy, then you must also be authorised/ appointed for the subcategory Retail Pension Benefits.

36

Tea Break

15 minutes

37