By Mathilda Meyer, Masthead Compliance Officer
Key Individuals play a crucial role in ensuring that Financial Service Providers (FSPs) operate within regulatory requirements. However, even the most experienced Key Individuals can make compliance mistakes that impact their business, their Representatives and ultimately, their clients. Understanding these common errors and knowing how to prevent them can help avoid regulatory challenges and strengthen the business.
Being a Key Individual is no small responsibility – they must oversee compliance, manage risks and Representatives, render advice and drive profitability in the business. Given the complexity of these responsibilities, mistakes can happen due to misinterpreting regulations, receiving incorrect advice or gaps in available guidance. These errors can lead to regulatory penalties, reputational damage and operational inefficiencies. Drawing from our experience working with FSPs, as well as insights obtained from the Financial Sector Conduct Authority (FSCA), this article explores 10 common mistakes made by Key Individuals and how to avoid them.
10 Common Mistakes Made by Key Individuals
1. Neglecting Day-to-Day Business Operations
Some Key Individuals rely too heavily on administrative staff and do not actively engage in their FSP’s daily operations. This hands-off approach can result in oversight failures, regulatory breaches and poor decision-making. Staying involved, understanding business processes and engaging with teams regularly helps mitigate these risks.
2. Overlooking the Importance of Proper Systems and Technology
Many Key Individuals underutilise essential tools such as customer relationship management (CRM) systems, complaint registers and commission tracking software, amongst others. These systems improve efficiency, compliance and data analysis, offering insights that can support strategic planning.
Recent advancements in fintech now automate administrative tasks and simplify data collection. Leveraging fintech – or at the very least, a system that efficiently collects, stores and analyses data – will become essential, particularly as the cross-sectoral Conduct of Business Return (Omni-CBR) reporting becomes a regulatory requirement.
3. Prioritising Business Growth Over Compliance
With limited time and competing priorities, Key Individuals often focus on expansion at the expense of compliance. For example, rapidly recruiting new Representatives without ensuring they meet Fit and Proper requirements can create significant risks.
While compliance may seem secondary to business growth, it strengthens long-term success. A well-structured compliance framework improves Treating Customers Fairly (TCF) outcomes, enhances client satisfaction and fosters trust. Satisfied clients are more likely to remain loyal and refer others.
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4. Failure to Submit Regulatory Returns on Time
Statutory returns – such as financial statements, BEE reports, audit reports or other reports required by regulators – are often delayed or not prioritised. In future, Omni-CBR reports will also be included.
Missing deadlines or submitting incomplete information can result in regulatory penalties, scrutiny and reputational damage. Some returns, such as those related to FICA and POPIA compliance, demonstrate an FSP’s commitment to regulations. Non-compliance can trigger audits, operational restrictions or enforcement action.
5. Not Keeping Up with Legislative Change
Ongoing regulatory changes can feel overwhelming, making it difficult to stay compliant. However, failing to keep up can expose an FSP to penalties and reputational risks.
Appointing a Compliance Officer can significantly aid those facing difficulties in staying informed, by ensuring that regulatory updates are accurately implemented.
Additionally, investing in structured training programmes and selecting Continuous Professional Development (CPD) courses that genuinely enhance the knowledge and skill set of Key Individuals – rather than merely opting for what is free or readily available – can also strengthen business resilience.
6. Ignoring Profile Updates
Changes to an FSP’s profile – such as adding or removing Representatives, updating contact details or amending licence categories – must be submitted to the FSCA within 15 days. However, this is often overlooked.
Failing to update profile information on time can lead to regulatory penalties, delays in licence processing and compliance inspections. For instance, failing to remove a debarred Representative could result in reputational damage and increased scrutiny from regulators.
7. Lack of Proper Staff Training, Oversight and Involvement
Key Individuals often underestimate the importance of general staff training and involvement, particularly in compliance matters. Employees, including Representatives and admin staff, are the first point of contact for clients and serve as the first line of defence in ensuring compliance.
In addition, the FSCA has observed that some Key Individuals do not adequately supervise and monitor Representatives. This includes failing to conduct performance reviews, verify Fit and Proper compliance or ensure Representatives meet CPD obligations. Regular check-ins and structured feedback processes help Representatives remain compliant with Financial Advisory and Intermediary Services (FAIS) requirements.
Beyond compliance, involving staff from different departments in business planning unlocks valuable insights. Employees interacting with clients daily can identify areas for improvement, enhance service delivery and contribute to business success.
8. Neglecting Succession and Business Continuity Planning
Many Key Individuals fail to plan for their eventual exit, whether due to retirement, illness or unforeseen circumstances. Succession planning can be complex and time-consuming, but it is essential for ensuring business continuity if a Key Individual unexpectedly steps down.
A proactive approach – such as identifying and training a successor early – ensures stability. Structured training programmes, like the Masthead Learning Centre’s Key Individual Programme, can help prepare future leaders and keep existing Key Individuals up to date with regulatory requirements and TCF outcomes.
9. Misunderstanding the Financial Soundness Requirement
Some Key Individuals still believe that subordinated loans can be excluded from the FSP’s liabilities when calculating financial soundness. However, since 2018, when Board Notice 194 of 2017 came into effect, these loans must be included. This misunderstanding is often due to bookkeepers and auditors who base their practices on standard accounting principles, which do not always align with regulatory requirements for FSPs. While these professionals may follow general accounting standards, the FSCA has specific financial reporting obligations that must be met to ensure compliance.
Relying on outdated accounting advice can result in an FSP falling below required financial thresholds, leading to regulatory intervention, sanctions or even licence suspension.
10. Delays in Submitting Annual Financial Statements (AFS)
FSPs are required to submit their AFS to the FSCA no later than four months after the financial year end. Should they suspect that they will not be able to meet this deadline, they can ask for an extension, and this request should be submitted at least 15 days before the end of the four-month deadline. This submission also includes a prescribed submission fee.
However, despite this 15-day guideline, the FSCA has noted that many FSPs frequently request extensions for submitting their AFS after the four-month submission deadline – this is not permitted. Late submissions, without a FSCA-approved extension, can lead to penalties, regulatory scrutiny and potential licensing issues.
Key Individuals must ensure financial reporting is prioritised and well-managed to avoid unnecessary risks.
Strengthening Your FSP for Long-Term Success
Avoiding these common mistakes requires a proactive approach to compliance, business planning and staff development. By staying informed, leveraging technology and prioritising ongoing training, Key Individuals can strengthen their FSP’s compliance framework and position their businesses for long-term success. Taking responsibility for these aspects ensures regulatory adherence while improving efficiency, reputation and client satisfaction.