Business continuity and key individuals of a financial services provider

"Can you tell us if the FSCA will allow a private company with one approved Key Individual a “grace period” for the appointment of a new Key Individual should the current Key Individual pass away or become disabled and no longer able to perform his / her duties?"

This is one of the most recent questions we received and we thought it pertinent to discuss in more detail and help to shed some light on the topic.

The role of the Key Individual is to manage and oversee the activities of the FSP in relation to the delivery of financial services.  The Key Individual may perform this function in conjunction with other responsible persons or managers in an organisation. The role of the Key Individual, however, should not be underestimated. In terms of the FAIS Act (Section 8), which deals with the application for the authorisation of an FSP. The appointment of a Key Individual is one of the deciding factors when it comes to the approval or refusal of a license to act as a licensed FSP.  The FSCA may further suspend or withdraw a licence if the FSP does not have an approved Key individual.

We hope that you agree that it is clear from the above that the appointment of the Key Individual is indispensable.

In the case of a natural person being the licensee, the natural person is responsible to manage and oversee the activities of the FSP, if the natural persons become permanently incapable of carrying on its business, or dies, the licence will ultimately lapse.

In terms of the fit and proper requirements, an FSP is required to adopt, document and implement a governance framework which should include a business continuity plan and succession plan. The business continuity plan aims to ensure that in the case of an interruption to the FSP systems and procedures any losses are limited, essential data and services are preserved, regulated activities are maintained so that the FSP can resume its activities with the least amount of disruption.  Succession planning forms part of this framework and should ensure that a business can continue once a key individual exists by identifying a suitable replacement to fill the position.

It is thus the FSP’s responsibility to plan and make arrangements for the situation where a key individual:

• Is temporarily absent due to an illness or an accident;

• Become unfit to perform functions ( for instance when a Key Individual no longer complies with the fit and proper requirements)

• Dies, become permanently disable or incapacitated.

Business continuity and succession plans may vary to suit the needs of the business and may also include the following:

• A responsible person to implement the procedures set out in the organisations business continuity plan and succession plan;

• Arrangements in relation to operations of the FSP;

• The finalisation of outstanding business;

• Specific instructions for the appointment of a key individual suggested as successors;

• In the case of a sole proprietor, a succession plan may include an arrangement to transfer or sell the “book” of the FSP to another FSP.

  
  

So to answer the question, the FSCA will not grant a “grace period” for the appointment of a Key Individual.  The FSCA may, in fact, proceed to initiate the process of suspension or withdrawal of the licence.

In a situation where a company or close corporation only has one key individual, and that person dies or becomes incapable of performing his or her duty as a key individual, the license will remain intact and the business will continue to exist. However, in order for the business to continue as an authorised FSP, a new key individual will have to be appointed and authorised as such by the FSCA. Until such time that the new key individual is formally approved by the FSCA, the FSP will not be permitted to conduct any regulated functions within the financial services industry.

Should this situation arise,  where there is just one key individual, reasonable steps must be taken to consult with the clients and service providers concerned in order to ensure that any outstanding business is promptly completed. Clients should furthermore be informed about the changes in the business.