SA financial services sector should heed £3M JP Morgan Chase fine

JP Morgan Chase’s £3.08 million fine from UK financial regulator, for failing to keep accurate records that proved sound advice was provided to clients.

June 26, 2013

The South African financial services industry must take heed of JP Morgan Chase’s £3.08 million fine from UK financial regulator, the Financial Conduct Authority (FCA), for failing to keep accurate records that proved sound advice was provided to clients.

This is according to Richard Buttle, Chief Financial Officer of JSE-listed Metrofile Holdings Limited, who says local financial services providers (FSPs) that fail to comply with the Financial Advisory and Intermediary Services Act (FAIS) could face similar punitive penalties. “All FSPs are required under FAIS to ensure that an accurate record of all services rendered or advice offered is securely stored for up to five years, or risk hefty fines or possible closure by the Financial Services Board (FSB).

“The FAIS Act stipulates that every FSP and financial intermediary must have the appropriate procedures in place to record and securely store all verbal and written communication regarding any financial services or advice provided to a client.”

“Keeping an accurate record of advice is critical for all FSPs and financial intermediaries in South Africa. Should a client decide in the future that the advice offered to them wasn’t appropriate or that they were not fully aware of the risks involved, the intermediary must be able to show through accurate record keeping that they explained all the options to the client.”

He says accurate record keeping is not just about compliance, however, but also enables the business to operate at optimum efficiency levels, whilst also protecting confidential and sensitive information.

Buttle says all records also need to be kept in a secure environment that ensures easy access for a client, or the Registrar, on request. “The Registrar has the right to review the records at any time. While the records do not need to be kept on site, they must be kept in a location where they are readily available for inspection within seven days of the Registrar’s request.”

According to the Act, a record is defined as: a register, file, electronic record or written comment of information about a transaction or event. Any communication must be reduced to written or printed format, therefore any telephonic communication must be recorded and kept in an appropriate electronic or voice-logged format which can, if required by the Registrar, be easily reduced to written or printed form.

Buttle says all FSPs and financial intermediaries must, unless exempted by the Registrar, manage and store the following records for a minimum period of five years: records of advice given to clients; premature cancellations of transactions or financial products; complaints received, as well as the status of complaint resolution; records of the continued compliance with the authorisation requirements of FAIS; cases of non-compliance and the related reasons; accounting records; financial statements showing the financial position of the business on the last day of the financial year; and the results of operations and cash flow information for that period.

“It is essential for all FSPs or financial intermediaries who do not have effective records management systems in place to consult a reputable records management business that can help identity the most suitable system for their business needs not only to ensure compliance with FAIS but to also make the management of the business more efficient and effective,” concludes Buttle.