FSCA: Recent amendments to the general code of conduct for authorised financial services providers and representatives which are effective immediately

The Financial Sector Conduct Authority (FSCA) recently issued General Notice 706 of 2020 (GN706) which promulgated several substantial amendments to the General Code of Conduct for Financial Services Providers and Representatives, 2003 (Code). 

15 Jul 2020 6 min read Corporate & Commercial Alert Article

Certain of the amendments came into immediate effect on 26 June 2020, whilst other amendments will only become effective in the next 6 to 12 months.

What follows is a high level overview of certain key amendments to note which are currently effective, however financial services providers and representatives (providers) are encouraged to review the detailed provisions of GN706 in respect of all of the amendments to the Code. A copy of GN706 is accessible here. 

The following key amendments came into effect on 26 June 2020 –

  1. Specific duties of the provider

1.1   Section 3 of the Code has been amended to include that a provider may not indicate or imply that it is authorised, regulated or otherwise supervised by the FSCA in respect of business for which it is not so authorised, regulated or supervised, nor may it in any manner refer to its authorisation or name the FSCA as its regulator in any advertisement relating to products or services that are not financial products or financial services in respect of which it is authorised, in such a manner as to create the impression that its authorisation extends to such products and services or that its provision of such products or services is regulated by the FSCA.

1.2   In addition, a provider may not describe itself or the financial services it renders as being “Independent” if any relationship exists between the provider and any product supplier in respect of whose products the provider renders financial services that gives rise to a material conflict of interest (e.g. the provider or its associate is a significant owner of the product supplier, or vice versa, or receives or is eligible for any financial interest from a product supplier, subject to certain exceptions).

  1. Information on product suppliers

Section 4 of the Code provides that a provider, in dealing with a client may not compare different financial services, financial products, product suppliers, providers or representatives, unless the differing characteristics of each are made clear, and may not make inaccurate, unfair or unsubstantiated criticisms of any financial service, financial product, product supplier, provider or representative. Section 4 has been amended to provide that advertising requirements contained in the new section 14(10), relating to the use of comparisons in advertising, also apply to comparisons referred to in this paragraph. However, given that section 14(10) only becomes effective on 26 December 2020, it is unclear how this amendment, which is effective immediately, shall be implemented or enforced in practice.

  1. Information about financial service

3.1   A new section 7A has been included in the Code which provides that advertising requirements contained in the new section 14(15), relating to the use of forecasts, illustrations, hypothetical data or projected benefits and past performance data in advertisements, also apply to the use of such data or projections in the rendering of a financial service. However, given that section 14(15) only becomes effective on 26 December 2020, it is unclear how this amendment, which is effective immediately, shall be implemented or enforced in practice.

3.2   The new section 7A also provides that a provider may only make a statement regarding the past performance (including awards and rankings) of a financial product or financial service if: (a) the basis on which the performance is measured, is clearly stated and the presentation of the performance is accurate, fair and reasonable; (b) the statement is accompanied by a warning that past performance is not indicative of future performance; and (c) the past performance is relevant to the financial service being rendered.

3.3   In addition, a provider that uses forecasts, illustrations, hypothetical data or projections when rendering financial services must provide the client with certain specified information, disclosures and risk warnings in respect of such forecasts, illustrations, hypothetical data or projections.

  1. Suitability

4.1   Section 8 of the Code has been amended to place a positive obligation on the provider to obtain from the client such information regarding the client’s needs and objectives, financial situation, risk profile and financial product knowledge and experience as is necessary for the provider to provide the client with appropriate advice, which advice takes into account –

4.1.1    the client’s ability to financially bear any costs or risks associated with the financial product;

4.1.2    the extent to which the client has the necessary experience and knowledge in order to understand the risks involved in the transaction; and

4.1.3    in respect of pension funds, medical schemes, friendly societies, employers, and other entities aimed at providing benefits to underlying members, the reasonably identified collective needs and circumstances of members, employees or other natural persons.

4.2   Where as a result of regulatory or contractual limitations a provider is not able to identify a financial product or products that will be appropriate to the client’s needs and objectives, financial situation, risk profile and product knowledge and experience, the provider must make this clear to the client, decline to recommend a product or transaction and suggest to the client that they should seek advice from another appropriately authorised provider.

4.3   In certain specified circumstances, for example where the client has explicitly requested the provider to focus or not focus on specific objectives in its analysis of the client, there is also an obligation on a provider to alert a client that there may be limitations on the appropriateness of the advice provided in light of such circumstances, and that the client should take particular care to consider on its own whether the advice is appropriate considering the client’s objectives, financial situation and particular needs, particularly any aspects of such objectives, situation or needs that were not considered in light of such circumstances.

4.4   Where a client elects to conclude a transaction that differs from that recommended by the provider, or otherwise elects not to follow the advice furnished, or elects to receive more limited information or advice than the provider is able to provide, the provider must alert the client as soon as reasonably possible of the clear existence of any risk to the client, and must advise the client to take particular care to consider whether any product selected is appropriate to the client’s needs, objectives and circumstances.

  1. Record of advice

Section 9 of the Code has been amended to include that a provider must provide a client with a copy of the record of advice contemplated in section 9(1) of the Code in writing, and that the Registrar may determine the format of and the matters to be addressed in the record of advice.

  1. Definitions

6.1   GN706 also amends several existing definitions and provides for a number of new definitions to be included in the Code. A few notable amendments include the following –

6.1.1    “advertisement” has been substituted with a broader definition, in particular to include “any communication published through any medium and in any form, by itself or together with any other communication…”;

6.1.2    “direct marketing” has been expanded to include rendering of financial services by way of “digital application platform”;

6.1.3    “financial interest” has been expanded to include “a qualifying enterprise development contribution to a qualifying beneficiary entity by a provider that is a measured entity” (as those specific terms are defined in the Financial Sector Code published in terms of the Broad-Based Black Economic Empowerment Act, 2003);

6.2   Many of the new definitions included which are currently effective relate to amendments to the Code which are not yet in force and are therefore not currently used anywhere in the Code.  

While the above highlights the key amendments which are effective immediately, it is important to note that there are a number of other significant amendments which are pending and which will be coming into effect in the next 6 to 12 months, including substantial amendments to the Code in respect of the requirements relating to, inter alia, advertising, direct marketing, financial interests, conflict of interests policies, complaints management, reporting, and engagement with the Ombud. These pending amendments to the Code should also be carefully considered and prepared for by financial services providers and representatives.

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