Starting your own financial services provider (FSP) practice is an exciting venture that allows you to be your own boss, set your own hours and offer bespoke advice to your clients. However, opening your own business and applying for a FSP licence can be complex and time-consuming. This article will help you understand the steps, the common pitfalls and key requirements to successfully obtain a licence and start your own FSP business.
Establishing your own financial practice is a complex process with numerous hurdles and regulatory requirements, and before you can open your doors, you’ll need to obtain a FSP licence from the Financial Sector Conduct Authority (FSCA).
This process can take between two to six months and is much more complicated than simply filling out and submitting a couple forms. You’ll have to meet extensive prerequisites and compliance measures if you want your application to be successful.
This guide walks you through the pre-licensing steps, the licensing application process, common mistakes to avoid and top tips to ensure a successful application.
Pre-licensing Steps
To help the process go more smoothly, do the following:
Create a comprehensive business plan:
A detailed business plan for at least three years is one of several documents you’ll need to submit as part of the licence application process. It should include your business strategy, services, target market, marketing approach, financial projections, operational plan and business risks. This plan not only helps with your application, but also provides a roadmap for running your business once licensed.
Assess your finances:
For your FSP to be considered financially sound, you’ll have to ensure that you have enough capital to not only pay the fees associated with the licensing application process, but also sustain your business during the initial phase. And remember during this phase your efforts will predominately focus on setting up operations and securing product provider contracts rather earning income by signing clients.
Evaluate your operational ability:
Even if you plan to run your business from home, confirm that you have reliable communication lines such as email and telephone, printing facilities, a proper customer relationship management (CRM) tool and a suitable place to meet clients.
Complete your business setup:
Decide on your business’s legal structure (sole proprietorship, partnership, private company, etc.). Once decided, register your business name with the Companies and Intellectual Property Commission (CIPC), ensuring the name is unique. Register your business for tax with the South African Revenue Service (SARS) and open a business bank account to manage company finances separately from personal finances.
Understand the Key Individual (KI) requirements:
One of the primary requirements to start your own FSP is appointing a Key Individual (KI) – you won’t get a licence without one, and they must meet the Fit and Proper requirements set out in Board Notice 194 of 2017. During the application process, you’ll need to upload certified copies of the KI’s highest qualification, which should be on the FSCA’s list of approved qualifications; RE 1 certificate; a short CV and reference letters reflecting management experience and experience in the categories for which you want authorisation. You’ll also have to evidence that the KI has completed training for the required classes of business and maintains continuous professional development (CPD) hours. Additionally, you’ll need to describe the KI’s role in the business. The FSCA wants to avoid “rent a KI” situations, so you’ll have to evidence that your KI is actively involved in the management and oversight of the FSP.
Applying for your FSP licence
To apply for your licence, you’ll need to fill out several forms, and submit them, together with supporting documents, to the FSCA via email (fais.newlicense@fsca.co.za) or on their FAIS eLicensing System online. Completing these forms can be a complicated task, as many require detailed information, and you’ll have to submit several supporting policies and documents. However, there are steps you can take to improve your chances of getting a licence without delays:
Understand the licensing categories:
Identify the specific category of FSP licence required for your services, and ensure your KI is licensed for the same product subcategories that you wish your FSP to be authorised in.
Review the online application guide and forms:
Familiarise yourself with the FAIS Online New License Application Guide and forms on the FSCA’s website. This will give you a good indication of the type of information and additional documents you’ll need to submit. For example, Form FSP7 requires details on operational ability, including a business plan, risk management policy, governance structures and financial recovery plan. Form FSP3 requires information on the honesty, integrity and good standing of directors, members, trustees or partners. Form FSP8, which deals with financial soundness, requires new entities to submit projected financial statements for 12 months and confirmation from an auditor or accountant that the entity has not traded, whereas trading companies/CCs must submit their latest financial statements.
Prepare the necessary documentation:
There are 13 FSP forms that may be required for a new licence application. For example, for a Category I FSP, this includes, amongst others, registration details, proof of business address, details of the KI(s) and their qualifications and your compliance and risk management plans.
Register:
Register as a user on the FSCA portal if you’re applying online. You don’t need to register if you’re emailing your application, but you may need to follow up on the status of your application until it has been assigned to a FSCA analyst.
Submit your application:
Upload or email your application and supporting documents.
Pay for your application:
You’re required to pay a licensing application fee, and you’re required to upload or email your proof of payment to the FSCA. There is no single fee as the total amount depends on various factors. If you apply online, you’ll receive an email with an application reference number, plus the fee amount you’re required to pay. If you’ve emailed your application, you must request a reference number and fee breakdown once your application has been assigned to an analyst. Use this reference number when you make the payment and email the proof of payment to the FSCA.
Common Mistakes and Solutions
Many applicants underestimate the complexity of the forms, especially Form FSP7 which requires a detailed business plan and supporting governance policies. Mistakes often occur when there is no Compliance Officer (CO) involved or when the KI is unaware of their roles and responsibilities. Insufficient working capital and lack of an adequate CRM system are other common pitfalls.
Recommendations for a Successful Application:
Get a CO:
Even if it’s on a temporary basis and only to help with your application, a CO can help ensure your application meets all requirements and deadlines.
Market research and business planning:
Thorough market research and a well-structured business plan are critical for identifying your target market and developing effective business strategies.
Proofreading:
Carefully review your application and supporting documents to avoid errors. If the analyst picks up on a mistake, they may ask for clarification or additional information, which can result in significant delays.
Meet deadlines:
Adhering to FSCA timelines is crucial. For example, if the FSCA asks for additional data, they’ll attach a deadline to their request. Missing this deadline can lead to application rejection. You can reapply, but you’ll have to restart the process and pay the application fee again.
Qualified KI:
Having a KI who meets the Fit and Proper requirements and understands their responsibilities is essential to obtaining your licence.
Preparation is Key to Start your Own FSP
Launching your own FSP is a challenging endeavour that involves numerous steps even before you can apply for a licence. The process can be complex and demanding, but with careful planning and expert advice, you can successfully navigate it. Taking your time to understand and meet the regulatory requirements not only improves your chances of a successful application, but also sets a strong foundation for your business.
While this journey might initially be challenging, it ultimately leads to the rewarding opportunity of being your own boss, allowing you to offer tailored financial advice to your clients to help them achieve financial health. With thorough preparation and strategic planning, your dream of running your own FSP can become a reality.
