What is meant by the term ‘good standing’?

Lee Rossini

When choosing to act as a financial services provider (an FSP) or key individual, you are required to apply to the Financial Sector Conduct Authority (FSCA) who grants you the authority to act as such. However, to maintain the right to act as an FSP or key individual, you are subject to a host of requirements. For as long as you comply with these requirements, you will keep all the rights and privileges associated with an FSP or key individual. The same applies to a representative except that the authority to act is granted through the FSP.

An important set of requirements that must be met are the fit and proper requirements which were updated in December 2017.[1] A new addition to the requirements of honesty and integrity is that of ‘good standing’ which must be met by FSPs, key individuals and representatives. In deciding whether these requirements are met, the Commissioner of the FSCA can refer to any information in their possession or which is brought to their attention.

Although section 9(1) of the fit and proper requirements lists the incidents which indicate when a person is not honest, or lacks integrity or good standing, it is worth unpacking what it means to be a person of good standing. According to the Oxford Living Dictionaries definition[2], a person or organisation ‘in good standing is regarded as having complied with all their explicit obligations, while not being subject to any form of sanction, suspension or disciplinary censure’. This means that you are required to ensure, on a continuous basis, that you are meeting the good standing requirements relevant to your capacity to act as an FSP, key individual or representative.

In order to belong to a professional body, or any other body for that matter, there are usually certain criteria that must be met such as the payment of fees and other dues. The failure to meet these criteria may result in the loss of good standing within the body or the loss of membership altogether. Payments to SARS of any sort that haven’t been paid may result in the loss of good standing, as will the failure to file periodic reports or to pay any amounts owing to the FSCA. These incidences may impact on whether you can be considered a person of good standing.

In deciding whether a person meets the requirements of honesty, integrity and good standing, the Commissioner must have regard to the three following factors: the seriousness of the conduct or behaviour, the relevance of the conduct or behaviour, and the passage of time since the occurrence of conduct or behaviour. Any information that relates to honesty, integrity and good standing must be disclosed to the Commissioner by an FSP and a key individual promptly and on their own initiative. Similar requirements apply to a representative who must disclose this information to the FSP.

The consequences of losing the status of good standing may result in you no longer meet the fit and proper requirements, which may result in the loss of a licence, debarment and/or the imposition of penalties, fines or imprisonment, depending on the severity of the failure. It can also result in reputational damage which in turn can result in a loss of clients, which will have a direct impact on the bottom line. To avoid these negative consequences, make sure that you have met the obligations that are required of you at all times.

CompliNEWS brief notes on BN 197 of 2017

Extract from a recent Fit and Proper presentation

Personal character and good standing

Requirements apply to ALL FSPs, key individuals and representatives with regards to honesty, integrity and good standing.
Personal character and good standing within corporate entities is demonstrated through the FSPs' corporate behaviour OR conduct and the personal behaviour of the persons who control or govern the entity including directors, members, trustees, partners or key individuals.
‘Good standing’ is not specifically defined in BN 197.

Honesty, integrity and good standing (personal character) comment from the Commissioner in Regulatory response document

A person’s licence could be suspended for failing to, for example, submit statutory returns. Such failure will impact on a person’s good standing and not necessarily on his/her honesty.
‘prima facie’ is taken to mean that on the face of it, at first glance or before further examination, the evidence is sufficient to establish a fact or raise a presumption unless disproved, refuted or rebutted.

There are now 23 questions posed in relation to incidents which could indicate when a person is not honest, or lacks integrity or good standing.

The following is a small sample of incidents which constitute prima facie evidence that a person does not qualify in terms of honesty, integrity and of good standing, if the person has been –

found guilty of theft, fraud, forgery, perjury or similar dishonest or dishonourable act;
removed from an office of trust for theft, forgery or dishonesty or similar action;
refused registration or membership of a professional body;
disciplined, reprimanded, disqualified in relation to honesty, integrity, incompetence or business conduct by a professional body or regulatory authority;
found unwilling to comply with legal, regulatory or professional requirements and standards;
found not fit and proper by the Commissioner previously;
found to have failed to disclose any information required to be disclosed by the Act; or
found to be not fit and proper by the Commissioner or ANY other regulatory authority, and the reasons have not been remedied.

Additional feedback from the Commissioner

An aggrieved person has the right of appeal to the FSCA Board of Appeal prior to approaching the courts. This right will be extended to representatives under the Financial Sector Regulation Act (FSR Act).
In respect of ’criminal proceedings ‘or ’civil proceedings ‘the right of appeal will apply where it relates to solvency.
These requirements do not apply retrospectively BUT section 6A(4) of the FAIS Act makes it clear that all FSPs, key individuals and representatives must comply with these new requirements.
The ordinary meaning of the word ‘significant’ would apply – Full meaning: 'highly expressive; inviting attention’.
Note the exemption process of the Act is available to a person who is not able, based on reasonable grounds, to comply with a particular requirement.
The commercial failure of a business does not necessarily render its bearers unfit. However, it may impact on their operational abilities, and depending on circumstances, on their integrity.

The section on good standing, inter alia, requires a representative to disclose to its FSP all information that might be relevant in determining compliance with the fit and proper requirements by that FSP. There is no requirement on the FSP to disclose that information to the Commissioner. The FSP remains responsible for its representatives as contemplated in sections 13 and 14 of the Act.

Reminder: The Commissioner does not intend to expand FSP5 as requested given the purpose of the form. However, nothing prohibits an FSP to design its own questionnaire that is based on FSP4 that prospective representatives must complete. It is the responsibility of the FSP to ensure that it appoints persons who are honest, have integrity and are of good standing.

[1] Board Notice 194 in GG 41321 of 15 December 2017.
[2] Oxford Living Dictionaries, Oxford University Press, accessed 20 June 2018.