The Key Individual's Role: What You Are Actually Responsible For

"Key individual" sounds like a title. In the FAIS Act it is a legal role with duties attached, and the RE1 is largely an examination of those duties.

The definition

A key individual is a natural person responsible for managing or overseeing the activities of an FSP, or of a juristic representative, that relate to rendering financial services.

Three consequences follow:

• Being a director or member does not by itself make you a key individual. In a close corporation with two members, the one who manages the advisers is a key individual. The one who only runs payroll is not.
• That second member is not ignored. The FSP must be satisfied that every director, member, trustee or partner who is not a key individual still meets the honesty and integrity requirements.
• A juristic representative (a company appointed as a representative) must itself have at least one key individual at all times.

Approval comes first

A person may not act as a key individual until the Authority has approved them. A licence application must include information showing that each key individual is fit and proper for the category applied for.

A replacement key individual who "starts on the first of the month while the paperwork is processed" is acting unlawfully. This is a favourite exam scenario.

One key individual per class of business

An FSP needs at least one key individual for each class of business it is licensed for, and a key individual may only oversee the classes they are approved for.

Suppose Ms A is approved for classes 1 and 2, Mr B for class 2 and Ms C for class 3. If Ms A resigns, nobody is approved for class 1. Having two key individuals left does not help. The FSP should not render class 1 services until someone is approved, and it must report her departure within 15 days.

What a key individual must be

The fit and proper requirements for a key individual are:

• Honesty, integrity and good standing
• Competence: a recognised qualification, the regulatory examination (RE1), experience in managing or overseeing the type of service, and class of business training
• Continuous professional development
• Operational ability

Two details worth learning:

• Class of business training must be completed before managing or overseeing those services. There is no grace period for key individuals.
• Product specific training does not apply to key individuals. It applies to representatives.

Meeting the minimums is not proof of competence. Board Notice 194 says plainly that the minimum requirements do not in themselves show that a person meets the general competence requirement.

What a key individual must do

The qualifying criteria describe the work in practical terms. A key individual must be able to:

• keep the FSP inside the conditions and categories of its licence;
• report changes to the Authority on time;
• make sure the FSP has the operational ability and financial resources it needs;
• see that the General Code of Conduct is followed in practice;
• oversee the compliance function and act on the compliance officer's findings;
• make sure records are kept and can be retrieved;
• see that accounting and audit duties are met;
• make sure the FSP meets its FICA duties, where it is an accountable institution;
• ensure complaints are handled properly;
• appoint, supervise and manage representatives, keep the register current, and debar where the law requires it.

A compliance officer monitors. A key individual manages. When a compliance report shows the same finding for the third period running, that is not a compliance officer's failure. It shows the key individual has not fixed it.

Serving more than one FSP

A person may be a key individual of several FSPs, but must be able to demonstrate to the Authority the operational ability to manage or oversee all of them effectively. Approval for one FSP does not carry over to another.

When things change

An FSP must notify the Authority immediately when it becomes aware, or has information that reasonably suggests, that a key individual no longer meets a requirement. Not within 15 days, and not in the next compliance report.

The exam angle

When a question asks what "the key individual should do", look for the answer that involves a control, a check or a correction. Answers that pass the problem to someone else, or wait for the next report, are nearly always wrong.