NEWS:

REMINDER: LEGAL DUTY OF KEY INDIVIDUALS TO MANAGE AND OVERSEE FSP & REPRESENTATIVES
03/27/2017

As per a media release from the FSB, the FSB Appeal Board recently dismissed an appeal brought by a key individual (KI) against his debarment by the Registrar of Financial Services Providers (the Registrar). The Registrar debarred the KI because he no longer met the fit and proper requirements in terms of section 8 of the FAIS Act.

Various provisions of the FAIS General Code of Conduct and the Financial Institutions (Protection of Funds) Act were contravened. The debarment followed an inspection into the affairs of the FSP, where the FSB found among other things that one of their clients sustained substantial losses after the management of the client was entrusted to a representative of the FSP. The client experienced trading losses and substantial amounts of the client’s investment were transferred to another client over the years. The representative falsified investment reports to the client regarding the performance of the investment. The FSP also invested the client’s funds in unsecured loans. These investments were outside the parameters of the client’s mandate to the FSP. In short, the Registrar debarred the KI, not because she attributed the representative’s dishonesty to him, but rather because he had a legal duty in his capacity as KI to manage and oversee the activities of both the FSP and the representative. Further, that legal duty required him to act with due care skill and diligence in terms of the FAIS Act. It is the failure in that regard which contributed to the substantive losses sustained by the client.

The Appeal Board agreed with the Registrar’s reasoning and pronounced extensively on the need for KIs to be positioned internally in an FSP to oversee the activities of the FSP in accordance with the FAIS Act. The Appeal Board stated that the representative’s dishonest actions are not attributed to the KI. Rather, the KI must account for the representative’s dishonest actions by virtue of his legal duty. That is a requirement of the FAIS Act and the Code.

 

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