July 2020 Legislative Update

CONTINUOUS PROFESSIONAL DEVELOPMENT

An important reminder that the FAIS CPD requirements are due to be completed by 31 August.

Remember that the totals required are:

• Multiple categories: 18 hours
• One category and multiple sub-categories: 12 hours
• One category and sub-category: 6 hours

If you need assistance in finding those last few hours, let us know.

FINANCIAL SECTOR CONDUCT AUTHORITY

Amendment to the FAIS General Code of Conduct

On 26 June, Government Notice 706 was published by the Financial Sector Conduct Authority (FSCA), resulting in the Financial Advisory and Intermediary Services Act’s (FAIS) General Code of Conduct being amended once again.

Let’s look at the changes in definitions:

• “Advertisement” has been amended to include any medium that’s in the public domain. This includes social media and internet based campaigns, as well as the ‘old school’ print, radio, and broadcast formats.
• “Direct marketing” has also been updated to include digital media.
• “FSC” the inclusion of the Financial Sector Code as envisaged in section 9(1) of the Broad Based Black Economic Empowerment Act.
• “Loyalty benefit” has been added and includes cash or premium back bonuses, but generally is any benefit provided the client: a) keeps the policy; b) maintains the relationship with the product provider; c) increases benefits under the policy; or d)
  enters into another product or service with the provider.
• “No claim bonus” has been included.
• “Significant owner” has been.

A section has been inserted which makes it clear when FSPs can refer to themselves as “independent”. For an FSP to label itself as independent, there can be no significant ownership between the FSP and the product provider, nor can the FSP receive financial interest (other than commission) from a product supplier, and there can be no potential conflict of interest between the FSP and product provider. Any fee, outsource or binder arrangement with providers will mean FSPs are not independent. Note that this is in force.

‘Broker fees’ will have to meet the requirements of minimum service standards, produce fair customer outcomes, be commensurate to the work done, and measure the quality of the Representatives’ compliance with the Act and, in case there was any doubt, must be
encapsulated in an agreement with the client. The deadline for any changes is 26 December 2020.

Numerous changes have been made to the activities of direct marketers, and the deadline to make changes is 26 December 2020. Direct marketers will have to:

• Provide the same information about the services rendered and in the same manner as ‘normal’ FSPs;
• Perform a suitable needs analysis;
• Provide clients with a copy of the record of advice in writing;
• Provide documents at the earliest opportunity rather than within 30 days. (It’s prudent to interpret this as sooner rather than longer than 30 days); and
• Provide copies of telephone recordings at the clients’ request.

A section has been added in support of the changed advertising regulations that better defines and manages the inclusion of forecasts and projected benefits: requiring that they are unambiguous, easily understood, that the underlying assumptions and assets are disclosed, that the projections are illustrative, and to warn clients of the risk of buying based on projections.

The analysis and advice components of financial services have been expanded to clarify the requirements on intermediaries, particularly when involved in group schemes. A section has been added stating that intermediaries should decline to recommend a product if they cannot find a suitable one.

The allowances for limited specific advice and limited provision of information by clients have been clarified and expanded to meet a more practical situation when interacting with clients.

The Registrar has also been given the authority to determine format and matters to be addressed in the record of advice. There are no details included in this notice, but it is likely we will have to deal with this in the next few months.

Advertising: This section has been replaced with a completely new and more intricate set of rules regarding advertising, which align to the Policyholder Protection Rules (PPR). The deadline for completion is 26 December 2020.

As previously, there must be a documented procedure that allows for proper development and review of the advertising content.

The advertising material must be factually correct and clear when presenting information regarding product performance, escalations, risks of the product, fees, any limitations, and how additional information can be obtained.

The regulations take great pains to instruct anyone releasing an advert to ensure it is in simple and suitable language for the target consumer, and that various aspects of fair and necessary disclosure have been undertaken.

More stringent requirements on the provision of details of the product provider are now included.

“Negative option” marketing is now specifically prohibited. Note that this will require client approval for any ‘add on’ products.

Similarly, and in line with the POPIA requirements, “unwanted direct advertising” must now allow the recipient the opportunity to be removed from the contact list.

Stringent rules in terms of comparative advertising have been included. We rarely see this type of advertising in the South African financial industry, so this may be the start of a new type of advertising, given that there is now some legal certainty.

There are also rules specific to customer testimonials included as part of any advertising.

An important new section is the addition of rules regarding loyalty benefits and no claim bonuses, which will govern not only the actual marketing of the benefits, but to some degree their actual development and application. Note that where a benefit comprises
less than 10% of the total premium or investment amount, it will be deemed “negligible”, and the conditions will only apply if it is a significant feature of the financial product.

Those FSPs that have been advertising for a while will be aware of the concept of “prominence”, and the regulations provide some technical requirements which, with the application of some common sense, will make this exercise somewhat easier, despite
there being some room for interpretation.

Complaints: Another section that closely follows the PPR, and simply replaces the previous version.

The most important aspect is that the definition of complaint has been drastically altered to:

“An expression of dissatisfaction” in relation to a financial product or service which alleges that the FSP has failed to comply with an agreement, law, rule, or code of conduct to which the FSP is subject or subscribes (effectively turning your industry body code of
conduct into law – Ed.); that the FSP or its service supplier’s maladministration, wilful or negligent act causes prejudice, harm, distress, or substantial inconvenience; or the FSP or service supplier has treated the person unfairly.

Some significant work will need to be undertaken to manage this risk, not only in developing policies and procedures, but in changing staff and management’s understanding and methods of dealing with disgruntled clients.

The second most important issue is that FSPs must create a documented complaints management framework which meets the requirements of this new section in terms of fair treatment and practical steps to be followed in investigating and resolving complaints.

Part of this plan is the new concept of categorisation of complaints into the following:

• Product design, including fees, charges, and premiums;
• Information provided;
• Advice;
• Product performance;
• Client service, including premium collection or product lapsing;
• Product accessibility, including changes, switches, and redemptions;
• Complaints handling (Yes, you read that right Ed.);
• Claims handling and non payment; and
• Other complaints.

This will also include keeping a record of the various numbers and values relative to the categories.

The complaints management framework and categorisation must be completed by 26 June 2021, but the responsibility and appointment of responsible persons must be completed by 26 December 2020.

Well, this is what we’re here for! In the words of Douglas Adams in The Hitchhiker’s Guide to the Galaxy: “Don’t Panic!”. We’re already working on revised guidelines to assist in implementing the controls, as well as methods to monitor them.

The notice is included in this link.

Amendments to the Fit and Proper Regulations

On 26 June, Government Notice 707 was also published, and amends the FAIS Fit and Proper Regulations.

The definition of “CPD activity” has been amended to make it clear that the Professional Body confirming the CPD hours must ensure that they are verifiable.

A series of slight modifications to the definitions of licence categories to align them to Schedule 2 of the Insurance Act, 18 of 2017 have been made. This should have a negligible effect, other than to assist in standardising terminology.

The conditions governing the appointment of Representatives have been amended to more reasonably prevent registration of “unrehabilitated insolvent individuals” and to allow for the continued engagement of individuals sequestrated after being appointed, provided that mitigating measures are put in place.

The definition of “annual expenditure” and “remuneration” in specific relation to it has been amended to make allowances for FSPs commencing business and basing their calculations on their budget or financial accounts.

The notice is included in this link.

FINANCIAL INTELLIGENCE CENTRE

At the end of June, the Financial Intelligence Centre (FIC) released a request for comment on the proposed amendment to the list of entities falling under the scope of the FIC. This is in response to weaknesses noted in the Financial Action Task Force’s (FATF’s) evaluation of South Africa’s Anti Money Laundering and Combatting the Financing of Terrorism (AML/CFT) systems.

The proposed changes give the FIC oversight and enforcement jurisdiction in respect of non financial sector activities such as estate agents, casinos, and legal practitioners.

The list will be expanded to include additional businesses such as crypto asset providers, as well as to move motor dealers and Krugerrand dealers onto schedule 1. This will change motor dealers and Krugerrand dealers from Reporting Institutions to Accountable
Institutions (AIs). They will then have to comply with the much more onerous Customer Due Diligence, identification, record keeping, and reporting requirements of AIs.

In addition, the categories of life insurance may be reduced to Life Annuities, Individual Investments, and Income Drawdown. This means that Credit Life, Funeral Benefits, Risk Policies, and Fund Investments may be excluded from the AI responsibilities.

Comments are due by 31 August 2020.

For the consultation paper and draft amended list follow the links below:

Consultation Document: Schedules for Submission

Government Gazette No. 2043447

goAML Information Update

The FIC has also recently sent out notifications to AIs to update their details on the goAML system.

Remember that your FICA compliance officer should be an individual capable of performing a review of any suspicious transactions, and should have access to accounts and authority to report so make sure that your FSP uses the correct details.

You may need to replace a person (hence the request), which will require registering them from scratch. The FIC has instructed us not to perform these updates, but let us know if you need assistance.

FINANCIAL SERVICES TRIBUNAL

Debarments

Rache du Plessis v Stellenbosch Finansiële Adviesdienste

This case revolved around sections 8 and 9 of of the Determination of Fit and Proper Requirements, 2017, Board Notice 194 of 15 December 2017, and conflict of interests in the decision to debar the applicant.

The applicant sought reconsideration of the debarment, which was granted.

For the whole case click here.

Nkutu Takalo v Old Mutual Life Assurance Company

This is another example of how debarments should not be conducted. The applicant was not informed of his debarment after being dismissed in terms of a disciplinary hearing for dishonesty, in addition to not being an employee when debarred. In this case, the debarment in terms of section 14(1) of the FAIS Act was found to be unreasonable and procedurally flawed.

For the whole case click here.

Tebogo Maletsema M Molomo v Old Mutual Life Assurance Company

Another example of how not to conduct a debarment. In fact, it seems like a carbon copy of the previous case in terms of handling.

For the whole case click here.

FROM A-PROOFED

Last month, I wrote about how to sign off your correspondence. This month, I’m going to go into how to start it. A little backwards, I know, but you’ll forgive me in these crazy times!

Working out how to start an email especially when you’re writing to someone you don’t know very well can be a bit tricky. Have you ever ignored an email because it started with To Whom It May Concern? What about if the sender misspells your name? And, horror of all horrors, have you ever wondered if the sender was a person or a puppy because their greeting was too enthusiastic? If you’ve answered yes to any of these questions, then you’ll agree that getting your email salutation right is very important.

How you start an email sets the tone, and may shape the recipient’s perception of you It may also be the reason that they stop reading it.

Here are a few ways to start an email.

Hi [Name]

This is, in my opinion, the best one to use It’s simple, friendly, and direct A word of advice if you’re writing to a person who is in a position of respect (like the CEO of a company), rather don’t use this one.

Dear [Name]

Although dear can come across as old fashioned, it’s best for formal emails. Use it when you’re addressing a person in a position of respect (e g Dear Mr President) and in things like CV cover letters.

Hello, or Hello [Name]

If you want a slightly more formal tone, consider replacing Hi with Hello.

Hi everyone

If you’re addressing a group of people, this is your best bet.

It’s up to you whether you put a comma after the greeting. Some say that there should be one, but it’s become standard practice to leave it out.

Here are the openers that you should avoid at all costs.

Misspelled name

Don’t misspell your recipient’s name. Ever.
Double check the spelling of the person’s name and either get it right or leave it out and use a generic greeting like Hi there. Although a non specific greeting may come off as impersonal, a misspelled name is a red flag that says you don’t really care.

Dear Sir or Madam

I’m going to assume that you have never read and responded to an email with Dear Sir or Madam. Not only is it stiff and formal, but it shows that you couldn’t be bothered to look up the name and address of someone specific.

To Whom It May Concern

This is an exceptionally impersonal way to start an email Also, if you use To Whom It May Concern, your readers will probably assume that it doesn’t concern them, and move on to the next email.

Hey! or Hey [Name]!

Save this one for your friends It’s not professional, and should be kept out of the workplace – it can even come across as disrespectful Have you ever felt warmly greeted by someone saying,“Hey you!”?

Happy Friday! or Welcome to Monday!

If you’re a Golden Retriever, you might be able to get away with a greeting this exuberant. Otherwise, you’ll come across as trying too hard Forget the sugary greetings, or at least save them for the most informal correspondence between you and your mates.

Hi [Nickname]

If you’ve done your research and discovered that your recipient’s name is William McTavish, don’t assume familiarity and shorten his name to Bill. However, if he signs his reply with Bill, it’s fine to address him that way in the future.

Good morning / afternoon / evening

It may not be morning, afternoon, or evening by the time your email reaches the person – or if they’re in a different time zone – so it’s best to skip these.

First name!

This is way too informal and can be very abrupt. Then when you add the exclamation mark, it can be quite jarring. You don’t want to appear to be shouting at your recipient.

All / Gentlemen / Ladies

These are abrupt, and should be avoided at all costs.

Some things to think about when you’re using a mass mail programme (or a mail merge)

Be careful with mail merges and mass emails. Using first names only is usually your best bet. People (and possibly spam filters) are likely to identify emails with greetings like “Hi Kim Nicole Hatchuel” as spam.

I’m sure you’re familiar with the notion that “you never get a second chance to make a first impression. Keep this in mind when starting your next email it could be the difference between closing or losing the next deal.

If you need help with proofreading and document layout, call me – I’ll do my best to make you look good.

Kim Hatchuel
083 657 3377 | kim@a-proofed.co.za
www.a-proofed.co.za