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Oran Hall Being fit and proper for the securities industry

Individual investment dealers and investment advisers and corporate investment dealers and investment advisers in the securities industry, their directors, and senior managers must meet fit-and-proper requirements to be able to operate in Jamaica legally.

The assessment, which is done by the Financial Services Commission, has an important place in determining if they are suitable to be registered or licensed by the FSC.

A fit and proper person is one who is financially sound, competent, reputable, and reliable. Applicants are required to complete a questionnaire. The answers provided help the regulator – which is now the FSC but will soon be the Bank of Jamaica – to assess the applicant’s competence and capability; honesty, integrity, fitness, and ethical behaviour; and financial soundness.

The competency test helps to determine if the applicant is competent to undertake the relevant regulated activities. It zeroes in on employment history, including any instance of termination, education, and professional qualification. It helps to establish if the candidates, from past experience and performance, have the appropriate set of skills and expertise to understand, operate and manage the regulated activities, as well as the technical knowledge and ability to carry out the roles.

Honesty, integrity, fairness, and ethical behaviour are essential to the trustworthiness and the good reputation of the individuals, the entities, and the securities industry overall.

The assessment focuses on whether the applicant has been convicted of fraud, money laundering, theft, and financial crimes. It also seeks to know if there has been a suit against the applicant in a personal capacity, as a corporate, partnership, or other business form to which the applicant has been connected as a shareholder, director, or manager. The assessment also includes questions about whether the applicant has been subject to investigation or disciplinary procedures, censured, disciplined, or publicly criticised by a professional body of which the applicant is a member.

The financial soundness and solvency assessment helps to establish if the applicant can maintain prudent financial control and solvency. Some considerations are whether the applicant is able to pay debts when they become due, whether the applicant has been subject to any judgement in relation to debt, or whether any award remains outstanding or has been satisfied in a reasonable time.

Also included are questions about whether the applicant has been adjudged a bankrupt, or whether a bankruptcy petition has been served on the applicant or an organisation of which the applicant is a shareholder, director, or manager. With regard to corporations, the assessment includes whether solvency requirements are being met.

In the case of businesses, among the information sought are whether their licences have ever been revoked, if they have been placed into receivership, or if they have failed to meet the solvency requirements prescribed by law or by the regulatory authorities.

Fit and proper assessments are not done for dealer representatives, who are generally the people who relate directly to the investment public the most. There are no financial requirements for them. Any peep into their character and integrity can come only from the police report, confidential reports from two previous employers in the last five years, and three character references.

Beyond the above, the focus is on the academic profile of the individual, the focus being training in financial and business subjects. Representatives who do not have the specified academic qualifications must meet the experience requirement.

Beyond the fit and proper requirements, investment dealers and advisers must meet several financial requirements. Individuals who are dealers or advisers must either maintain a net worth of $10 million or acquire indemnity insurance for a minimum of $10 million. Companies must meet solvency and liquidity requirements and maintain a minimum capital of $50 million. Investment advisers must maintain a minimum free asset value (that is, net assets held in the form of cash and readily convertible securities) of $1 million, and partnerships must conform with the requirements set for individuals.

Companies applying to be investment advisers must submit, among other documents, a credit report from a commercial bank, the most recent financial statement, and a TCC or tax compliance certificate. Individuals must also submit a credit report and a TCC.

Companies applying to be investment dealers must submit several documents and reports including a credit report from a commercial bank, the most recent audited financial statement and a TCC, and must have a minimum capital of $50 million, while individuals should submit a TCC and a credit report, among other documents, and have a net worth of at least $10 million.

In addition to the above requirements, the officers of a company applying for a dealer’s licence must be fit and proper meaning that among other requirements, they have had no convictions for offences involving dishonesty and are not undischarged bankrupts. Additionally, at least one of its directors must be a holder of an investment dealer’s or investment adviser’s licence.

Of the greatest importance is that corporate and individual investment dealers and advisers and their representatives maintain their good standing by being compliant with all relevant laws and the requirements of the regulator, which must use its powers to enforce compliance.

Oran A. Hall, author of Understanding Investments and principal author of The Handbook of Personal Financial Planning, offers personal financial planning advice and

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