Record-keeping requirements of an FSP - Part 1

We were recently approached by a client who acted as a representative for a Financial Services Provider(FSP).  The representative has since left the employ of the particular FSP and now, 8 years later, the representative was approached by a former client requesting information of the financial services rendered and more specifically the record of advice and fees the representative earned.  The representative wanted to know whether he as a representative had a responsibility to keep such records?

There are two aspects to the case study:

1. Is a representative of an FSP also bound by the recordkeeping duties imposed on the FSP; and

2. When do record-keeping duties expire?

   
   

As the results of the study are quite long, we will discuss the two aspects over two articles. This first part deals with the question:

Who is bound by client advice record-keeping duties?

To answer this question let start by having us have a look at the record-keeping requirements relevant in terms of the Financial Advisory and Intermediary Services Act (FAIS Act):

Section 37 of the Board notice 94 of 2017, the fit and proper determination states the governance framework of a Financial Services Provider must include effective and adequate systems of corporate governance, risk management and internal controls that  (subject to the nature, scale, risks and complexity of the business of the FSP) include the maintenance of records and to safeguard the security, integrity and confidentiality of information.  These systems should include:

• Electronic data security, internal and external cybersecurity;

• Physical security of assets and records;

• System application testing;

• Back-up and disaster recovery plans and procedures for the systems and electronic data.

  
  

Section 3(2) of the General Code of Conduct for Financial Services providers and representatives,2003 states that a Provider must have appropriate procedures and systems in place to-

• record such verbal and written communications relating to a financial service rendered to a client as are contemplated in the Act, this Code or any other Code drafted in terms of section 15 of the Act; 

• store and retrieve such records and any other material documentation relating to the client or financial service rendered to the client; and 

• keep such client records and documentation safe from destruction. 

  
  

The aforementioned are the basic requirements relating to the record-keeping of client advice records and requires a financial services provider, in short, to have and maintain systems and procedures to store and retrieve such records.

To return to the question posed to us, is a representative required to have and maintain systems and procedures as a Financial services provider to keep records such as a Record of Advice and fee disclosures? 

Firstly we shall have a look at the definition of financial services provider and provider as defined by the FAIS Act and the General Code of Conduct.

The FAIS Act Section 1 defines a financial services provider as any person, other than a representative, who as a regular feature of the business of such a person -

1. Furnishes advice; or

2. Furnishes advice and renders any intermediary service; or

3. Renders an intermediary service.

   
   

In terms of the General Code of Conduct  “Provider” is defined as an authorised financial services provider and includes a representative.

The aforementioned creates some confusion as the one definition excludes a representative whereas the other definition includes representative.  It appears that the answer to the question lies in Section 17(3) of the FAIS Act.  The last-mentioned section states that an authorised financial services provider must establish and maintain procedures to be followed by the provider and any representative concerned, in order to ensure compliance with the Act.

It is thus safe to say that the Financial Services provider is required to ensure that a proper record-keeping procedure and systems are in place and maintained.  A representative as an employee or a person mandated to act on behalf of the Financial Services Provider is required to follow the procedures or rules implemented by the FSP. So although it may have been the representative’s responsibility to complete and send the relevant disclosures and record of advice to the client and ensure that it was captured on the client file as per the FSP procedures, it is the responsibility of the FSP to keep such records safe from destruction for the relevant time period.

In part II of this article, we will investigate the question of when record-keeping duties expire.