RE5 Inseta-Material PDF
RE5 Inseta-Material PDF
RE5 Inseta-Material PDF
Section 4
TASKS v
GLOSSARY OF TERMS vi
TOPIC 1:
EXECUTE THE REQUIRED ACTIONS AS A REPRESENTATIVE IN TERMS
OF THE FAIS ACT 1
1.1 Introduction
1.2 The purpose of the Financial Advisory and Intermediary Services
Act No. 37 of 2002 2
1.3 The roles, responsibilities and requirements regarding represent-
atives in terms of FAIS 6
1.4 The requirements for licensing of the FSP for the role of the repre-
sentative 10
1.5 The fit and proper requirements that apply to representatives 13
1.6 The purpose of the register of representatives 33
1.7 Distinguish between “advice” and “intermediary services” in terms
of the FAIS Act 35
1.8 Explain when representatives can act under supervision 41
1.9 Supervisory requirements 45
1.10 Explain the record-keeping requirements in terms of Section 18
of the FAIS Act and the General Code of Conduct 48
1.11 The roles and responsibilities of the key individual in terms of
FAIS 54
Relevant Legislation 53
Summary 73
Self-Assessment Questions 74
TOPIC 2:
CONTRIBUTE TOWARDS MAINTAINING AN FSP LICENCE 77
2.1 Introduction 77
2.2 The requirements that an FSP must meet to maintain a licence 78
2.3 The processes that are required to remain updated with regard to
other legislation, amendments, updates and requirements published
that will affect the FSP 81
2.4 Undesirable business practices 81
TOPIC 3:
ADHERE TO THE SPECIFIC OBLIGATIONS IN TERMS OF THE RELEVANT
CODE OF CONDUCT AND OTHER SUBORDINATE LEGISLATION 115
3.1 Introduction 115
3.2 Safe custody of funds and premiums 118
3.3 Disclosures 119
3.4 Discuss how to ensure transparency and manage conflict
of interests 124
3.5 Ethical conduct in the financial services environment 127
3.6 Complaints 128
3.7 Steps when providing advice 130
3.8 Various provisions of the General Code of Conduct 133
Relevant Legislation 138
Summary 159
Self-Assessment Questions 162
TOPIC 4:
APPLY KNOWLEDGE OF FINANCIAL PRODUCTS 167
4.1 Introduction 167
4.2 The different types of financial services and financial products 168
4.3 Explain the relationship between different industry players with
regard to financial products 173
Relevant Legislation 176
Summary 180
Self-Assessment Questions 181
TOPIC 5:
AWARENESS OF CONSEQUENCES FOR REPRESENTATIVES THAT
HAVE BEEN FOUND TO ACT FRAUDULENTLY OR COMMITTED ANY
OTHER ACT THAT GIVES RISE TO DEBARMENT 185
5.1 Introduction 185
5.2 Debarment of representatives 186
Relevant Legislation 190
Summary 191
Self-Assessment Questions 192
TOPIC 7:
CARRY OUT THE PROPER RECORD-KEEPING ACTIVITIES 207
7.1 Introduction 207
7.2 Record-keeping 208
Relevant Legislation 212
Summary 214
Self-Assessment Questions 215
TOPIC 8:
ADHERE TO THE REQUIREMENTS OF FICA AND OTHER RELEVANT
ANTI-MONEY LAUNDERING LEGISLATION, AS IT APPLIES TO THE FSP 221
8.1 Introduction 221
8.2 The concepts of “money laundering” and “unlawful activities” 222
8.3 Background to anti-money laundering legislation 224
8.4 The money laundering legislation 225
8.5 The impact of FICA on FSPs 229
8.6 The consequences of non-compliance 241
Relevant Legislation 242
Summary 248
Self-Assessment Questions 249
ANNEXURES 284
Form FSP2 285
FSB Preparation Guide for representatives 286
FSB Preparation Guide: Appendix A 287
Note: Any reference to masculine gender may also imply the feminine. Singular
may also refer to plural and vice versa.
Advice
Credit system
Client
a) has contravened or failed to comply with the provision of the Act and
that as a result thereof the complainant has suffered or is likely to
suffer financial prejudice or damage;
b) has wilfully or negligently rendered a financial service to the
complainant which has caused prejudice or damage to the complainant
or which is likely to result in such prejudice or damage; or
c) has treated the complainant unfairly;
Compliance officer
For the purposes of FAIS, a financial product does not include any financial
product exempted from the provisions of the Act by the Registrar by notice in
the Gazette, taking into consideration the extent to which the rendering of
financial services in respect of the product is regulated by any other law.
- furnishes advice; or
- furnishes advice and renders any intermediary service; or
- renders an intermediary service.
Financial service
“Financial service” means any of the services contemplated above. The FAIS
Act regulates financial services in respect of deposits, up to and exceeding 12
months.
Financial services providers and their representatives need to be fit and proper.
Fit and proper refers to the experience, qualifications and knowledge of the
adviser, personal character qualities such as honesty and integrity as well as
the meeting of continuous professional development requirements.
Furthermore, the adviser needs to have the competence and operational ability
to fulfil the responsibilities imposed by the FAIS Act.
FAIS Act
The person appointed to resolve disputes between clients and financial service
providers; often referred to as the FAIS Ombud.
FICA
Intermediary services
any act, other than the furnishing of advice, performed by a person for or on
behalf of a client or product supplier –
a) The result of which is that the client may enter into, offers to enter into
or enters into any transaction in respect of a financial product with a
product supplier; or
b) With a view to –
i. Buying, selling or otherwise dealing in, managing,
administering, keeping in safe custody, maintaining or servicing
a financial product purchased by a client from a product
supplier in which the client has invested; or
ii. Collecting or accounting for premiums or other moneys payable
by the client to a product supplier in respect of a financial
product; or
iii. Receiving, submitting or processing the claims of a client
against a product supplier.
Natural persons responsible for the managing or overseeing of, either alone or
together with other people, the activities of a financial services provider and
the representative/s
“Official web site” means a web site, as defined in Section 1 of the Electronic
Communications and Transactions Act No. 25 of 2002, set up by the Board.
Product supplier
Person
“Person” means any natural person, partnership or trust, and includes any
state organ, any company and any body of persons, corporate or
unincorporated. The term „natural person‟ is used simply to distinguish a
natural person from a legal person such as a trust or a company.
POCA
POCDATARA
Registrar
The executive officer of the FSB is the Registrar of Financial Service Providers for
purposes of the FAIS Act.
Representative
1
Execute the required actions as a
representative in terms of the FAIS Act
1.1 INTRODUCTION
Before the introduction of FAIS, clients who received poor advice and service
from insurance agents/brokers could only try to resolve their issues by going to
court and in some instances there may have been relief through the Ombud.
Many people never went to court because they did not have the money to do so
or just simply because they did not want to go through the ordeal of a court
hearing.
This topic tells you about the measures introduced by FAIS that have changed
the financial services environment. Intermediaries and FSPs have to comply
with specific requirements and consumers now enjoy protection in their dealings
with financial services providers.
3. Explain the requirements for licensing by the FSB for the role of the
representative.
The following skills criteria are related to the knowledge criteria listed above:
2. Keep records in terms of the requirements of the Act and General Code
of Conduct.
“The era of properly regulated financial services has dawned, which should
banish the dark ages of non-disclosure, unreadable fine print, and mis-selling.”
Trevor Manuel, Minister of Finance at the launch of the Ombud for Financial Services Providers (FAIS
Ombud)
Before the introduction of the Financial Advisory and Intermediary Services Act
(FAIS Act), clients who felt that they received inappropriate/poor advice from
insurance agents/brokers had to seek recourse through the formal court
system. The basis of a claim of this nature was the concept of delictual liability.
The client had to prove on a balance of probabilities that the wrongful
intentional/negligent act or omission of the adviser caused damage to the
client. Very few clients had the financial means, the time and the knowledge to
effectively access the court system. A gap existed for a more expeditious and
cost-effective way of resolving consumer complaints.
These Acts regulate the institutions with regard to certain aspects, but their
main purpose was never the protection of the consumer as far as advice is
concerned. Where a financial services provider or one of its representatives
provided advice relating to a financial product to a client, the field was wide
open. Further confusion arose from the fact that many of these Acts created an
Ombudsman or Adjudicator to assist clients with complaints. It was not always
clear where a client should lodge a complaint against poor advice.
FAIS has addressed these problems with its definition of “financial services
provider”, which includes (see section below) almost the entire range of
financial services providers, such as insurers, agents, brokers, banks, etc. In
fact, any person who as a regular feature provides financial advice as covered
by the FAIS Act is included. With the introduction of a single Ombud for
Financial Services Providers (FAIS Ombud), the confusion is cleared, as the
consumer now knows who to complain to regarding financial advice issues.
With the introduction of the FAIS Act, the net was tightened around South
Africa‟s financial services providers, including financial advisers. Until the
introduction of the Act, anyone, even a person without any relevant skills,
knowledge or qualifications could enter the business of providing financial
advice. The introduction of the Act followed on a long list of financial scandals
such as the collapse of Masterbond. In the late 90s investors lost about
R600 million in the Masterbond scam and the collapse of the scheme had a
devastating effect on investors. The Nel Commission of Inquiry which followed
The FAIS Act was also promulgated with the aim of changing the concept of
financial broker to one of professional financial planner. To ensure that the
financial planner shows reasonable care and skill when imparting financial
advice to a client, the Act created the role of an Ombud to protect and advise
the individual client.
The FAIS Act states that the executive officer of the Financial Services Board is
the Registrar of Financial Services Providers and the deputy executive officer of
the board is the Deputy Registrar of Financial Services Providers. They have the
powers and duties provided for, by or under this Act, which includes the duty to
administer this Act. (Section 2) The Deputy Registrar acts under powers
delegated by the Registrar.
Retirement funds
Investment Market conduct and
Insurance and friendly
Institution consumer education
societies
Licensing
Capital Registration and FAIS
Markets Registration
Collective Registration
Investment Prudential Prudential
Schemes
Supervision
Surveillance
Directorate Compliance and
of Market Enforcement
Abuse
Compliance
Regulatory Research
Framework and Policy
Enforcement
Consumer
Education
Figure 1.1
(Source: www.fsb.co.za)
If the Registrar is of the opinion that any provision of any Act administered by
the FSB has been contravened, he may refer the case to the EC. However, if
the Registrar himself is by law empowered to impose a penalty; such case may
not be referred to the EC. In other words, the Registrar and the EC do not have
dual jurisdiction.
In simple cases of late submissions and returns, the Registrar retains his
authority to impose penalties. Every other case of non-compliance with FSB
legislation (and subordinate legislation), may be referred to the EC.
Board of Appeal
The Appeal Board first came into existence by virtue of Section 26 of the
Financial Services Board Act No. 97 of 1990 (the FSB Act) and was re-
established in expanded form and with amended procedures under the
Financial Services Laws General Amendment Act No 22 of 2008. The latter Act
introduced Sections 26A and 26B to the FSB Act which now deal with the
Appeal Board, its panels and appeal proceedings.
Example 1:
Example 2:
Persons who do not qualify as representatives in terms of FAIS are those that
provide clerical, technical, administrative, legal and accounting services in a
subordinate capacity, provided that their service either does not require
judgement, or does not lead a client to a specific transaction in respect of a
financial product in response to general enquiries.
Example 1:
Joan is a clerk in the admin department of Excel Life. She processes clients'
applications for policies.
Example 2:
Wilfred captures claims submitted by clients. He does not process the claims,
but merely captures them on the electronic system.
As such, the representative does not act for him/herself, but for the FSP – even
in the case of a sole proprietor FSP – the whole business may consist of only
one person, but the person fulfils various roles and in different legal and
regulatory 'persona'. Representatives are appointed by FSPs and the FSP takes
responsibility for the actions (and omissions) of the representatives.
It is therefore very important that the FSP ensures that the representatives,
who act on its behalf, meet all the regulatory requirements. Section 13 of the
FAIS Act stipulates that only lawfully appointed representatives that are fit and
proper are able to render financial services.
Section 16 of the FAIS Act requires that the Registrar must draft a Code of
Conduct for authorised financial services providers. This has been done and the
General Code of Conduct requires that financial service providers and their
representatives fulfil the following responsibilities:
They have to act honestly and fairly, and with due skill, care and
diligence, in the interests of clients and the integrity of the financial
services industry.
When representations are made or information provided to a client, it
must be factually correct; it must be provided in plain language; it
should not be misleading; it must be adequate and appropriate given the
level of knowledge of the client and it must be provided timeously so as
to afford the client reasonably sufficient time to make an informed
decision.
They must have and effectively employ the resources, procedures and
appropriate technological systems for the proper performance of
professional activities.
They should obtain appropriate and available information regarding
clients' financial situation, financial product experience and objectives in
connection with the financial service required.
They have to act with caution and treat clients fairly in a situation of
conflicting interests.
take reasonable steps to seek from the client appropriate and available
information regarding the client‟s situation.
conduct an analysis based on the information obtained.
identify the financial product(s) that will be appropriate to the client‟s
risk profile and needs.
make adequate disclosures when replacing one product with another
(fees, costs, consequences, special terms, etc.).
take reasonable steps to ensure that the client understand the advice
and that the client is in a position to make an informed decision.
keep a record of advice and provide the client with a copy.
Representatives act on behalf of the FSP and the FSP is responsible for the
actions of the representative insofar as the representative provides a financial
service in respect of financial products. As such, the FSP must maintain a
register of all the representatives and key individuals employed or mandated by
the FSP. This register must regularly be updated and be available to the
Registrar for reference or inspection purposes. The register must contain every
representative‟s or key individual‟s name, ID number and business address, as
well as:
The FAIS Registrar does not issue licences to representatives, nor does the
Registrar „approve‟ Representatives. The FSP appoints representatives and
carries all the responsibilities in relation to ensuring that the representatives
are fit and proper and comply with legislation and the FAIS subordinate
legislation in particular (like the General Code).
The FAIS Act currently provides for the following categories of licences for
FSPs:
Category I FSP
This category has 20 sub-categories; each has been categorised
based on the types of financial products that financial services
providers and their representatives may sell and deal with. Most
FSPs fall within this category.
Category II Discretionary FSP
This category of FSP provides intermediary services of a
discretionary nature, such as investment managers.
Category IIA Hedge fund FSP
This category of FSP provides intermediary services of a
discretionary nature with regard to hedge funds.
Category III Administrative FSP
This category of FSP renders intermediary services of a
discretionary nature through the method of bulking. The category
includes LISPs, for example.
Category IV Assistance Business FSP
This category FSP renders intermediary service in relation to the
administration of assistance policies (funeral policies) which
means work performed by a person relating to the offsetting of
claims, the processing of claims or the payment of fees or
commission in respect of an assistance policy.
Note
The categories of FSPs are then further subdivided into sub-categories, based
on products, for example:
Section 6A of the FAIS Act determines that the Registrar must determine fit
and proper requirements for the key individuals, representatives, key
individuals of representatives of providers and compliance officers for each
category of providers. Fit and proper requirements may relate to personal
character qualities of honesty and integrity; competence (experience,
qualifications and knowledge tested through examinations determined by the
Registrar); operational ability; financial soundness and continuous professional
development.
Different fit and proper requirements may be determined for natural persons
and for partnerships, trusts or corporate or unincorporated bodies. The
Registrar may amend the fit and proper requirements from time to time.
The table below provides a summary of the fit and proper requirements and
how they apply to the different role-players.
For the purpose of this module we shall only discuss those fit and proper
requirements that are applicable to representatives. These requirements can
be summarised as follows:
Factor 1:
If a person has, within a period of five years preceding the date of the
application, been found guilty in any criminal or civil proceedings by a court of
law (whether in the republic or elsewhere) of having acted fraudulently,
dishonestly (e.g. having stolen money from an employer), unprofessionally,
dishonourably or in breach of a fiduciary duty (breach of trust).
Factor 2:
If a person has, within a period of five years preceding the date of application,
been found guilty by any professional or financial services industry body
(whether in the Republic or elsewhere) recognised by the Board, of an act of
negligence, dishonesty, incompetence or mismanagement.
Factor 3:
If a person has, within a period of five years, preceding the date of application,
had a licence refused, suspended or withdrawn by any regulatory or
supervisory body (e.g. the FSB) on account of an act of dishonesty, negligence,
incompetence or mismanagement.
Factor 4:
If a person has, within a period of five years preceding the date of application,
been refused admission to a statutory professional or voluntary body on
account of dishonesty, negligence, incompetence or mismanagement
If a person has, within a period of five years preceding the date of application,
been found guilty by any regulatory or supervisory body (inside or outside the
country) of an act of dishonesty, negligence, incompetence or mismanagement
of sufficient importance
Factor 6:
If a person has at any time been disqualified or prohibited by any court of law
from taking part in the management of any company irrespective of whether
this disqualification has since been lifted or not.
What is the importance of being a person who is honest and has integrity?
Think of the key role that a representative fulfils in advising clients on their
financial matters. In the process the representative will also receive money
from clients and has to complete forms on behalf of clients. Clients rely on
representatives to guide them honestly in the process of providing appropriate
financial services advice.
The following example, taken from the “Guide on Fit and Proper Requirements
in Plain Language for Representatives" (downloaded from www.fsb.co.za on 20
October 2009) illustrates the importance of honesty and integrity.
Example:
The representative was found guilty of fraud and misrepresentation by the FSP.
The FSP dismissed the representative and debarred him under Section 14 of
the FAIS Act based on the fact that the representative did not comply with the
honesty and integrity requirements. A consequence of his debarment is that he
will, for at least 12 months from the date of debarment, not be able to be
reappointed as a representative of another FSP.
Even after the 12-month period has lapsed, he will have to provide evidence
that:
a) the defect of character that led to him being debarred no longer exists.
b) he has, inter alia, undergone a genuine, complete and permanent
reform.
c) if appointed as a representative, he will in future conduct himself
honourably and will be someone who can be trusted to carry out the
duties of a representative in a satisfactory manner as far as clients and
members of the public are concerned.
Except if:
The Registrar exempted a representative from any of the above while rendering
a financial service under supervision.
Note
When a person is a sole proprietor FSP he cannot work under supervision and
therefore has to meet all the above mentioned requirements before a licence
will be granted.
The Category II and IIA table was amended in Board Notice 135 of 2012 to
include 16 sub-categories with sub-category 2.1 being Long-term Insurance
Sub-category B1, sub-category 15 being Category II Hedge Fund FSPs and
sub-category 16 being Long-term Insurance Sub-category B2.
The representative must, on the date of appointment (by the FSP) meet the
minimum experience required in the different sub-categories (as described in the
relevant table).
1
Sections 4(1)(b), 4(2)(b), 4(3)(b), 4(4)(b), 4(5)(b) of BN 106
Example:
An individual can gain experience in different categories at the same time. The
experience period differs per category or sub-category. Such experience could
have been gained during intermittent periods but not more than five years prior
to the application.
Representatives that have not gained the required experience yet may work
under supervision until such time as they meet the requirements. Look at the
following example of how this principle is applied:
Example:
1.5.4 Qualifications
The qualifying criteria describe what a person must know (knowledge) and
what a person must be able to do (skill) in order to complete a specific task
relating to giving advice and/or rendering intermediary services successfully.
Types of qualifications
One of the competency requirements for fitness and propriety beyond 2010 is
that the representative must have an appropriate qualification.
It is not possible for all qualifications to meet all the qualification criteria, and
you will find that some qualifications‟ content meets 80% of specific criteria,
and others may meet 100% of the applicable criteria.
Table 1.2
If you Then
have a qualification and the content
meets the qualifying criteria only you have to complete a product-specific
partially, it is recognised as a Generic regulatory examination.
(G) qualification.
have a qualification and the content
meets the qualifying criteria 80%, it
is recognised as a Specific (S) you will be exempted from the
qualification. This status only relates applicable product-specific regulatory
to representatives and FSPs examination, as the transitional
appointed under the transitional arrangements are applicable to you.
requirements, i.e. prior to 1 January
2010.
Qualifications list
The Registrar will, from time to time publish an updated version of the
qualification list in the Government Gazette. If a particular qualification is not
on the list, application can be made to the FSB for recognition. (Download the
form from the FSB web site.)
In the example below we are looking at an extract from Board Notice 268 of
2013, List 1 for Category I FSPs.
Appointment dates
Transitional arrangements
Option 1:
Meet the “old” fit and proper requirements as per BN 91 of 2006 (Column 2 of
Table E) by 30 December 2011.
Option 2:
Meet the “new” fit and proper requirements, i.e. select a full qualification from
the list of recognised qualifications (Board Notice 105 of 2008, Annexure 2) by
31 December 2013.
Table 1.4
At the date of
Matric, Grade 12 or an equivalent
appointment/approval
Note
Only the new fit and proper requirements apply. This would mean that:
Category I and IV
Note
Board Notice 120 of 2013 granted a general exemption from the Second Level
Regulatory Examinations to FSPs, key individuals and representatives until a
date to be determined by the Registrar. In the FAIS Information Circular
8/2013 (25 October 2013) it was stated that it was anticipated that this
exemption will be in force for at least three years to allow for the development
and implementation of a new model.
Example 1:
Wilfred is a representative for a Category I FSP who is appointed only for the
Health Care Benefits sub-category. He will be required to write two regulatory
examinations:
Should Mandy have a qualification that has SP status for any of these
categories, she will be exempt from the second level Regulatory Examination
for the category where SP is indicated.
A representative must meet the CPD requirements specified for the various
product categories and sub-categories once they have met the experience,
qualifications and Regulatory Examination (Level 1 and Level 2) requirements.
The concept of notional hours involves time taken for an „average learner‟ to
achieve the desired outcome, taking into account contact time, time spent in
structured learning and individual learning.
The FSB must approve CPD activities and/or programmes and BN 103 of 2008
contains the conditions for approval.
Note
If a representative does not meet all the fit and proper requirements by the
relevant date, he will be debarred.
Table 1.5
The Registrar may also require other information from the FSP so as to enable
him to maintain and continuously update a central register of all
representatives and key individuals; such register must be published in
appropriate media.
Financial nature
Figure 1.1
Figure 1.2
The Registrar may also exempt any other advisory activity from the provisions of
this Act.
“any act, other than the furnishing of advice, performed by a person for or on
behalf of a client or product supplier:
c) the result of which is that the client may enter into, offers to enter into
or enters into any transaction in respect of a financial product with a
product supplier; or
d) with a view to –
i. Buying, selling or otherwise dealing in, managing
administering, keeping in safe custody, maintaining or servicing
a financial product purchased by a client from a product
supplier of in which the client has invested; or
ii. Collecting or accounting for premiums or other moneys payable
by the client to a product supplier in respect of a financial
product; or
iii. Receiving, submitting or processing the claims of a client
against a product supplier.”
For a client or
on behalf of a product supplier
or
With a view to
or With a view to
receiving;
submitting or
processing the claims of a client against a
product supplier.
Figure 1.3
Example 1:
Jack Daniels advises Andy Moloi on how to invest his inheritance. (Jack is
offering advice which will help Andy to make up his mind about an investment.)
Example 2:
Example 3:
(a) does not require judgment on the part of the latter person; or
(b) does not lead a client to any specific transaction in respect of a financial
product in response to general enquiries.”
2
Published in Board Notice 151 of 2008
The FSP must ensure that the normal working relationship between the
supervisee and the supervisor allows the supervisor oversight of the activities
performed by the supervisee as per agreement, and that there is regular contact
that enables the transfer of skills, which may include face-to-face and/or contact
via electronic means, between the supervisee and supervisor in the execution of
their duties.
Table 1.6
3
Section 4(1)(a) of BN 104
4
Board Notice 60 of 2010
Representatives can, on appointment, only be exempted from the fit and proper
requirements relating to full qualifications if the following criteria are met:
To qualify for the exemption from full qualifications for Category I and IV
representatives:
5
Section 3(b)(i) of BN 104
Representatives will only be allowed to work under supervision if their FSP can
satisfy the Registrar that they have the operational ability to do so.
The following are the requirements for FSPs for work under supervision as
stated in the FSB Board Notice 104 of 2008:
Supervisory activities
Supervisory responsibilities
ensuring the supervisee has a good understanding of, and exposure to,
the product category in which the financial service is rendered.
observation of selected meetings between the supervisee and clients.
being able to provide evidence of supervision actions undertaken,
which must be properly documented, including the method followed
and frequency of supervision.
keeping a record of evidence available for scrutiny by the Registrar of
Financial Services.
Table 1.7
Supervisee
Key individual/FSP Supervisor
(Representative)
Satisfy the Registrar that Sign-off on advice Adhere to the
the business has the given to clients requirements of the
operational ability to Pre-transaction sign-off supervision
provide services under by a supervisor where agreement.
supervision. intermediary services Provide the supervisor
Satisfy the Registrar that are rendered. upon request, where
there is a competent Attend meetings with applicable, with any
person to act as supervisee and clients records/documents
supervisor. where the purpose of regarding the advice
Identify the the meeting is to given and/or
representatives who act render financial intermediary services
under supervision and services. rendered.
differentiate between Do appropriate post- Disclose to clients that
Summary of specific supervisory requirements for Categories II, IIA and III (in
addition to the above)
(Remember that key individuals are responsible for managing and overseeing
that supervisors comply with the requirements.)
Section 18 of the FAIS Act requires that an authorised FSP must keep certain
records for five years (unless the Registrar granted an exemption in this
regard). These records include the following:
Table 1.8
Table 1.9
Let's first find out who exactly a key individual is. Once this is clear, it will be
easy to work out what the role of the key individual is.
From the definition we see that the Act requires a key individual to:
manage or oversee
alone or with another key individual
the activities of the FSP for which the key individual is appointed.
The key individual is the person responsible for managing and overseeing
(supervising) the activities of the financial services provider and its
representatives when they render financial services to clients with regard to
financial products.
Example:
Excel Life may appoint directors, provincial managers, and any other individual
who is engaged in overseeing the activities of a representative as key
individuals.
The activities of the FSP refer to the rendering of an intermediary service and/or
advice relating to the financial products for which the FSP is licensed (category
and sub-categories). The key individual is the person who the Registrar holds
responsible for compliance and non-adherence to the Act and subordinate
legislation, except if stated otherwise in the Act (for instance auditors and
compliance officers also have certain responsibilities and accountabilities in terms
of the Act).
We also see that it is possible for an FSP to have one natural person in the
business (sole proprietor), who can also be the key individual. The Act refers to
the FSP in this instance as "the applicant". In this instance, the FSP will also be
the key individual. Banks and insurance companies will normally have designated
key individuals and representatives.
A small business, like a sole proprietor called ABC Brokers, may have only one
individual giving advice and rendering intermediary services to clients, and also
managing and overseeing the business as a key individual.
When a key individual's function is only to manage and oversee the business or a
part of it, he will be regarded as only fulfilling the duties of a key individual.
When a key individual also gives advice or renders an intermediary service, he is
regarded as acting as a representative as well. In this regard he would need to
meet the fit and proper requirements as set for representatives as well.
We discussed above that the key individual has the responsibility of the
management and oversight of the FSP, which performs the activities relating to
the rendering of financial services, including the provision of advice and
intermediary services in respect of such licence.
The key individual also has to ensure that the FSP meets the operational
requirements as set by the Act. He needs to ensure that the FSP meets the
requirements set by Section 19 of the Act in this regard.
The key individual must have the required experience in management (one year)
before the Registrar will approve the appointment.
Such experience:
To regulate the rendering of certain financial advisory and intermediary services to clients;
to repeal or amend certain laws; and to provide for matters incidental thereto.
(c) on the conclusion of any other transaction, including a loan or cession, aimed at
the incurring of any liability or the acquisition of any right or benefit in respect
of any financial product; or
(d) on the variation of any term or condition applying to a financial product, on the
replacement of any such product, or on the termination of any purchase of or
investment in any such product, and irrespective of whether or not such advice -
(i) is furnished in the course of or incidental to financial planning in
connection with the affairs of the client; or
(ii) results in any such purchase, investment, transaction, variation,
replacement or termination, as the case may be, being effected;
(i) shares in a company other than a “share block company” as defined in the
Share Blocks Control Act, 1980 (Act No. 59 of 1980);
(v) any “securities” as defined in Section 1 of the Financial Markets Act, 2012
(Act No. 19 of 2012);
[Subpara. (v) substituted by Section 175 of Act 45/2013 w.e.f. 28 February 2014]
(ii) a friendly society referred to in the Friendly Societies Act, 1956 (Act No.
25 of 1956), to the members of the society by virtue of membership;
(f) a deposit as defined in Section 1(1) of the Banks Act, 1990 (Act No. 94 of
1990);
(g) a health service benefit provided by a medical scheme as defined in Section 1(1)
of the Medical Schemes Act, 1998 (Act No. 131 of 1998);
(h) any other product similar in nature to any financial product referred to in
paragraphs (a) to (g), inclusive, declared by the registrar by notice in the
Gazette to be a financial product for the purposes of this Act;
[Para. (h) substituted by Section 175 of Act 45/20113 w.e.f. 28 February 2014]
(i) any combined product containing one or more of the financial products referred
to in paragraphs (a) to (h), inclusive;
(j) any financial product issued by any foreign product supplier and marketed in the
Republic and which in nature and character is essentially similar or
corresponding to a financial product referred to in paragraphs (a) to (i),
inclusive;
“financial services provider” means any person, other than a representative, who as a
“fit and proper requirements” means the requirements published under Section 6A;
“intermediary service” means, subject to subsection (3)(b), any act other than the
furnishing of advice, performed by a person for or on behalf of a client or product
supplier-
(a) the result of which is that a client may enter into, offers to enter into or enters
into any transaction in respect of a financial product with a product supplier; or
(b) a corporate body or trust consisting of only one natural person as member,
director, shareholder or trustee, means any such natural person;
(a) does not require judgment on the part of the latter person; or
(b) does not lead a client to any specific transaction in respect of a financial product
in response to general enquiries;
Administration of Act
(1) The executive officer referred to in Section 1 of the Financial Services Board Act,
1990 (Act No. 97 of 1990), is the Registrar of financial services providers and
has the powers and duties provided for by or under this Act and any other law.
(2) The deputy executive officer referred to in Section 1 of the Financial Services
Board Act, 1990 (Act No. 97 of 1990), is the Deputy Registrar of financial
services providers.
(3) The Deputy Registrar of financial service providers exercises the powers and
duties of the Registrar of financial services providers to the extent that such
powers and duties have been delegated to the Deputy Registrar under Section
20 of the Financial Services Board Act, 1990 (Act No. 97 of 1990).
(1) The Registrar, for purposes of this Act, by notice in the Gazette-
(a) must-
(i) classify financial services providers into different categories;
(ii) determine it and proper requirements for each category of providers; and
(iii) in each category of providers determine it and proper requirements for-
(aa) key individuals of providers;
(bb) representatives of providers;
(cc) key individuals of representatives of providers; and
(dd) compliance officers; and
(b) may determine fit and proper requirements for providers, key individuals,
representatives, key individuals of representatives and compliance officers in
general.
(2) Fit and proper requirements may include, but are not limited to, appropriate standards
relating to-
(3) Different it and proper requirements may be determined for providers, representatives
and compliance officers that are natural persons and for those that are partnerships,
trusts or corporate or unincorporated bodies.
(4) The Registrar may, by notice in the Gazette, amend the fit and proper requirements
from time to time, and a provider, key individual, representative, key individual of a
representative and compliance officer must comply therewith within such period as
determined by the Registrar.
(3) An authorised financial services provider or representative may only conduct financial
services related business with a person rendering financial services if that person has,
where lawfully required, been issued with a licence for the rendering of such financial
services and the conditions and restrictions of that licence authorises the rendering of
those financial services, or is a representative as contemplated in this Act.
[Subs. (3) added by s. 47 of Act 22/2008]
(b) competence
to the extent required in order for such key individual to fulfil the responsibilities
imposed by this Act.
(a) continue to comply with the fit and proper requirements; and
(b) comply with the fit and proper requirements relating to continuous professional
development.
(a) at all times be satisfied that the provider's representatives, and the key
individuals of such representatives, are, when rendering a financial service on
behalf of the provider, competent to act, and comply with-
(i) the fit and proper requirements; and
(ii) any other requirements contemplated in subsection (1)(b)(ii);
(b) take such steps as may be reasonable in the circumstances to ensure that
representatives comply with any applicable code of conduct as well as with other
applicable laws on conduct of business.
(3) The authorised financial services provider must maintain a register of representatives,
and key individuals of such representatives, which must be regularly updated and be
available to the Registrar for reference or inspection purposes.
(a) contain every representative‟s or key individual‟s name and business address,
and state whether the representative acts for the provider as employee or as
mandatory; and
(b) specify the categories in which such representatives are competent to render
financial services.
(5) The Registrar may require information from the authorised financial services provider,
including the information referred to in subsection (4), so as to enable the Registrar to
maintain and continuously update a central register of all representatives and key
(6) A person who on the date contemplated in Section 7(1) complies with the
requirements of this Act for a representative and on such date acts as employee or
mandatory for any person who on or after such date becomes an authorised financial
services provider, is, for the purposes of this Act, but subject to the provisions of this
Act relating to representatives, regarded as a representative.
Debarment of representatives
Section 14
(1) An authorised financial services provider must ensure that any representative of the
provider who no longer complies with the requirements referred to in Section 13(2)(a)
or has contravened or failed to comply with any provision of this Act in a material
manner, is prohibited by such provider from rendering any new financial service by
withdrawing any authority to act on behalf of the provider, and that the
representative‟s name, and the names of the key individuals of the representative, are
removed from the register referred to in Section 13(3): Provided that any such
provider must immediately take steps to ensure that the debarment does not
prejudice the interest of clients of the representative, and that any unconcluded
business of the representative is properly concluded.
[Subs. (1) substituted by Section 53 of Act 22/2008]
(2) For the purposes of the imposition of a prohibition contemplated in subsection (1), the
authorised financial services provider must have regard to information regarding the
conduct of the representative as provided by the Registrar, the Ombud or any other
interested person.
[Subs. (2) substituted by Section 53 of Act 22/2008]
(3)
(a) The authorised financial services provider must within a period of 15 days after
the removal of the names of a representative and key individuals from the
register as contemplated in subsection (1), inform the Registrar in writing
thereof and provide the Registrar with the reasons for the debarment in such
format as the Registrar may require.
(b) The Registrar may make known any such debarment and the reasons therefor
by notice on the official web site or by means of any other appropriate public
media.
Codes of Conduct
Section 16
(1) A code of conduct must be drafted in such a manner as to ensure that the clients
being rendered financial services will be able to make informed decisions, that their
reasonable financial needs regarding financial products will be appropriately and
suitably satisfied and that for those purposes authorised financial services providers,
and their representatives, are obliged by the provisions of such code to -
(a) act honestly and fairly, and with due skill, care and diligence, in the interests of
clients and the integrity of the financial services industry;
(b) have and employ effectively the resources, procedures and appropriate
technological systems for the proper performance of professional activities;
(c) seek from clients appropriate and available information regarding their financial
situations, financial product experience and objectives in connection with the
financial service required;
(d) act with circumspection and treat clients fairly in a situation of conflicting
interests; and
(e) comply with all applicable statutory or common law requirements applicable to
the conduct of business.
(f) any other matter which is necessary or expedient to be regulated in such code
for the better achievement of the objects of this Act.
An authorised financial services provider must, except to the extent exempted by the
Registrar, maintain records for a minimum period of five years regarding -
(b) complaints received together with an indication whether or not any such
complaint has been resolved;
(d) cases of non-compliance with this Act, and the reasons for such non-
compliance; and
General Code of Conduct for Authorised Financial Services Providers and Representatives,
2003
Part II
General Provisions
Section 3
(b) *a provider and a representative must avoid and where this is not possible,
mitigate any conflict of interest between the provider and a client or the
representative and a client;
[Para (b) substituted by BN 58 of 19 April 2010.]
(d) the service must be rendered in accordance with the contractual relationship
and reasonable requests or instructions of the client, which must be executed as
soon as reasonably possible and with due regard to the interests of the client
which must be accorded appropriate priority over any interests of the provider;
(2)
(a) A provider must have appropriate procedures and systems in place to-
(i) record such verbal and written communications relating to a financial
service rendered to a client as are contemplated in the Act, this Code or
any other Code drafted in terms of Section 15 of the Act;
(ii) store and retrieve such records and any other material documentation
relating to the client or financial service rendered to the client; and
(iii) keep such client records and documentation safe from destruction.
(b) All such records must be kept for a period of five years after termination, to the
knowledge of the provider, of the product concerned or, in any other case, after
the rendering of the financial service concerned.
(c) Providers are not required to keep the records themselves but must ensure that
they are available for inspection within seven days of the Registrar‟s request.
(d) Records must be kept in an appropriate electronic or recorded format, which are
accessible and readily reducible to written or printed form.
(3) A provider may not disclose any confidential information acquired or obtained from a
client or, subject to Section 4(1), a product supplier in regard to such client or
supplier, unless the written consent of the client or product supplier, as the case may
be, has been obtained beforehand or disclosure of the information is required in the
public interest or under any law.
* Dates of commencement:
(a) the amendments to Section 3 of the General Code, take effect three months after the
date on which this Notice takes effect;
(b) the insertion of Section 3A(1)(a) and (c) and Section 3A(3) in the General Code takes
effect six months after the date on which this Notice takes effect; and
(c) the insertion of Section 3A(1)(b) and (c) and Section 3A(2) in the General Code takes
effect twelve months after the date on which this Notice takes effect.
(4) Until Section 3A(2) takes effect, Section 3(1)(c)(i)(aa) must be read as follows:
“(aa) the measures taken, to avoid or mitigate the conflict;”
“Paragraph 5(3) and (4) – BN 58 of 19 April 2010.”
* Dates of commencement:
(a) the amendments to Section 3 of the General Code, take effect three months after the
date on which this Notice takes effect;
(b) the insertion of Section 3A(1)(a) and (c) and Section 3A(3) in the General Code takes
effect six months after the date on which this Notice takes effect; and
(c) the insertion of Section 3A(1)(b) and Section 3A(2) in the General Code takes effect
twelve months after the date on which this Notice takes effect.
* Dates of commencement:
(a) the amendments to Section 3 of the General Code, take effect three months after the
date on which this Notice takes effect;
(b) the insertion of Section 3A(1)(a) and (c) and Section 3A(3) in the General Code takes
effect six months after the date on which this Notice takes effect; and
(c) the insertion of Section 3A(1)(b) and Section 3A(2) in the General Code takes effect
twelve months after the date on which this Notice takes effect.
(4) Until Section 3A(2) takes effect, Section 3(1)(c)(i)(aa) must be read as follows:
“(aa) the measures taken, to avoid or mitigate the conflict;”
“Paragraph 5(3) and (4) – BN 58 of 19 April 2010.”
Part X
Advertising and Direct Marketing
Section 14
14.
(a) not contain any statement, promise or forecast which is fraudulent, untrue or
misleading;
(b) if it contains-
(i) performance data (including awards and rankings), include references to
their source and date;
(ii) illustrations, forecasts or hypothetical data
(aa) contain support in the form of clearly stated basic assumptions
(including but not limited to any relevant assumptions in respect of
performance, returns, costs and charges) with a reasonable
prospect of being met under current circumstances;
(bb) make it clear that they are not guaranteed and are provided for
illustrative purposes only; and
(cc) also contain, where returns or benefits are dependent on the
performance of underlying assets or other variable market factors,
clear indications of such dependence;
(iii) a warning statement about risks involved in buying or selling a financial
product, prominently render or display such statement; and
(iv) information about past performances, also contain a warning that past
performances are not necessarily indicative of future performances; and
(b) a copy of all such records must be provided on request by the client or the
Registrar within seven days of the request;
(c) all the information required by Sections 4(1)(a) and (c) and 5(a) and (c) shall
not be required: Provided that the client is provided with basic details (such as
business name and telephone number or address) of the provider or relevant
product supplier, and of their relevant compliance departments: Provided
further that, if the promotion results in the rendering of a financial service, the
full details required by those sections are provided to the client in writing within
30 days of the relevant interaction with the client.
(3) Where a provider advertises a financial service by means of a public radio service, the
advertisement must include the business name of the provider.
Part l
Definitions
“Category I”, in relation to a financial services provider, means all persons, other than
persons referred to in Categories II, IIA, III and IV, who are authorised to render the
financial services (other than financial services mentioned in Categories II, IIA, III and IV)
as set out in the relevant application;
“Category II”, in relation to a financial services provider, means all persons who are
authorised as discretionary FSPs as set out in the relevant application;
“Category IIA”, in relation to a financial services provider, means all persons who are
authorised as hedge fund FSPs as set out in the relevant application;
“Category III”, in relation to a financial services provider, means all persons who are
authorised as administrative FSPs as set out in the relevant application;
“Category IV”, in relation to a financial services provider, means all persons who require
licences as Assistance Business FSP;
(a) investment policies as defined in Part 5B of the Regulations under the Long-term
Insurance Act, 1998, which guarantee a minimum return of any premium paid
at a specified future date or dates, and where such minimum is ascertainable in
Rand terms at inception;
(b) disability, health and life policies that provide risk benefits as contemplated in
the Regulations under the Long-term Insurance Act, 1998, and have a
guaranteed investment value or a materially equivalent value;
(c) annuities which guarantee a minimum annuity for the term of the policy which
annuity is ascertainable in Rand terms at inception; or
(d) any policy which combines the policy features included in paragraphs (a) to (c),
but excludes fund policies, fund member policies and policies referred to in the
definitions of Long-term Insurance sub categories A, B1 and C;
[Definition of “Long-term Insurance subcategory B” substituted by the definition of “Long-
term Insurance subcategory B2” by BN 60/2010]
Part III
Competency Requirements
(8) An FSP or any representative that renders financial services in respect of health
service benefits must be accredited as a broker, and a representative that renders
financial services under supervision in respect of health services benefits must be
accredited as an apprentice broker, in terms of the provisions of Regulation 28 B under
the Medical Schemes Act, 1998
Determination of Fit and Proper Requirements for Financial Services Providers, 2008
Published under Board Notice 106 in Government Gazette 31514 of 15 October 2008 and
amended
by
BN 151 GG 31755 29/12/2008
Part III
Competency Requirements
(9) An FSP, who is a sole proprietor, a key individual and a representative must, after
completion of all relevant qualification, experience and regulator examinations,
meet the requirements relating to CPD as set out in Part VII of this Determination.
Part lV
Experience Requirements
(a) Subject to the provisions of the Act, an FSP (who is a sole proprietor) in respect
of Category I must meet the minimum experience applicable to the
subcategories as described in either column two and/or three of Table A below.
The experience must be practical experience gained in the rendering of financial
services in respect of Category I and the subcategories concerned: Provided
that-
(i) such experience involved the active and ongoing gaining of knowledge,
skills and expertise required in terms of the Act;
(ii) such experience was obtained through the active involvement of in
rendering such financial services, irrespective of whether the experience
was gained in the course of rendering such services under supervision
(iii) such experience could have been gained either within or outside the
(a) Subject to the provisions of the Act, an FSP (who is a sole proprietor) in respect
of Category II must meet the minimum experience applicable to the
subcategories as described in column two of Table B below. The experience
must be practical experience gained in the rendering of financial services in
respect of Category II and the subcategories concerned: Provided that
(vi) may have been gained in a team environment where the person
participated in the process of making investment decisions whilst working
under supervision;
(vii) where a Category II FSP applies for the amendment of the restrictions on
its licence to allow such FSP to render the financial services referred to in
subparagraph (a) in additional subcategories, the FSP must comply with
the experience requirements applicable to the additional subcategories.
(a) Subject to the provisions of the Act, the key individual of a Category III FSP
must have 3 years‟ practical experience gained in the rendering of financial
services as referred to in the definition of “administrative FSP”: and must have
at least one (1) year‟s practical experience in the management and/or oversight
of services similar to or corresponding to the financial services rendered by the
FSP: Provided that such practical experience-
(i) involved the active and ongoing gaining of knowledge, skills and expertise
required in terms of the Act;
(ii) was obtained through the active involvement in the rendering of such
financial services
(iii) could have been gained either within or outside the Republic of South
Africa;
(iv) could have been gained during intermittent periods, not more than 5
years prior to the application and includes experience gained prior to the
date envisaged in Section 7(1) of the Act;
(v) may have been gained simultaneously in multiple subcategories provided
that proof of such experience can be provided and irrespective of whether
the experience was gained whilst rendering such services under
supervision.
A representative of a Category III FSP must, unless exempted, at the date of appointment
by the FSP comply with the same relevant experience requirement as referred to in
subparagraph 4(a), excluding the requirement to have at least one year‟s practical
experience in the management and/or oversight of services similar to or corresponding to
the financial services rendered by the FSP.
(a) Subject to the provisions of the Act, a Category IV FSP (who is a sole
proprietor), must have one (1) year‟s experience gained in the rendering of
financial services as referred to in the definition of “administration of assistance
policies”: Provided that such practical experience-
(i) involved the active and ongoing gaining of knowledge, skills and expertise
required in terms of the Act;
(ii) was obtained through the active involvement in the rendering of such
intermediary services and irrespective of whether the experience was
gained whilst rendering such services under supervision: provided that
proof of such experience can be provided;
(iii) could have been gained either within or outside the Republic of South
Africa;
(iv) could have been gained during intermittent periods, not more than 5
years prior to the application and includes experience gained prior to the
date envisaged in Section 7(1) of the Act;
Summary
The most important of these requirements are the fit and proper requirements,
which are:
Should a representative not comply with the fit and proper requirements of
experience, qualifications and examinations, He may be allowed to act under
supervision for a period of no longer than six years.
The key individual is the person responsible for managing and overseeing
(supervising) the activities of the financial services provider and its
representatives when they render financial services to clients with regard to
financial products. The key individual may fulfil two roles, namely that of being
a key individual as well as that of a representative.
Please note that the questions that follow are formative in nature. The
questions were not developed by the FSB‟s examination bodies and as such
cannot be used as an indication of the nature/structure/level of the questions
that you will encounter in the FSB‟s regulatory examination.
4. Which of the following items does not have to be contained in the FSP's
register for representatives?
a) Representatives' names and business addresses
b) An indication whether the representative is employed by the
FSP or works as a mandatory
c) Past experience of the representative in terms of financial
services
d) The categories in which the representatives are competent to
render financial services
6. Elise has been working as a long-term insurance broker for more than
eight years. She is well-loved by clients and colleagues due to her
professional and friendly attitude. Elise has just finished Financial
Planning on NQF Level 6; she has passed the Level 1 Regulatory
Examination and would now like to specialise in call-centre selling.
10. Charne (a representative) is faced with a difficult choice: the FAIS Code
of Conduct requires her to act in the interests of the customer and the
integrity of the financial services industry. If she tells her customer
about a certain feature of Product A, she may lose the sale, but her
company needs to boost sales of Product A in order to achieve their
strategic objectives.
2
Contribute towards maintaining an FSP licence
2.1 INTRODUCTION
In the previous topic we learnt that an FSP or representative may only provide
financial advice if licensed by the Registrar. The purpose of this topic is to inform
you about the prescribed licensing process that the Registrar follows when
considering an application. This topic also informs you of the consequences
relating to licensing if an FSP or representative no longer meets the fit and proper
requirements.
The following skills criteria are related to the knowledge criteria listed above:
3. Comply with any requirements the Ombud may have in the event of an
investigation.
The FAIS Act requires certain actions in respect of the licensing conditions. There
may be limitations in terms of the type of financial service which is allowed for a
specific financial products category or sub-category – for instance, the FSP may
be licensed to only provide intermediary service or only advice in respect of a
particular category of financial product.
FAIS licences issued to FSPs always carry a few conditions. There are standard
conditions and there are conditions specifically applicable to the FSP licence.
Specific conditions include reference to the categories for which the FSP is
authorised, as well as any other applicable conditions about the fit and proper
status of the key individuals who need to obtain certain qualifications within a
certain period of time from the date of licensing the FSP. The licensing conditions
may also include exemptions applicable to the FSP.
FSPs must adhere to the conditions and also ensure that there are adequate
systems and processes in the business to ensure compliance with the conditions.
Where representatives (and key individuals) work across various (sub)-products
and licence categories, there must be internal controls to ensure that the
financial service (or management and oversight) they provide correspond with
the specific licence conditions and restrictions.
The financial services of the FSP are limited to the specific sub-product category
for which a licence is issued. The FSP may have more than one licence because
the structure of the business may be such that products are grouped together,
which makes it logical to have a specific licence for that part of the business. All
the requirements of the FAIS Act must be met under each licence.
Table 2.1
The FSP must, therefore, ensure that there are procedures and systems in
place to identify and flag changes in legislation, and representatives should
actively seek information about changes. An example of such a process is
subscription to a service provider that specialises in updating business with
changes, alerts and updates.
There are prescribed principles that must be taken into account before the
Registrar can declare the practice undesirable, including:
The business practice harming the relations between FSPs or any FSP or
must have, category of FSPs, and clients or the general public;
or is likely to have, a unreasonable prejudice to clients;
direct or indirect deceiving any client;
effect resulting in: unfairly affecting any client; and
if allowed to continue, the practice will defeat one or
more objects of the FAIS Act.
If the Registrar is convinced that these “requirements” are met, the following
must happen:
If the FSP does not adhere to the Registrar's directive, a fine of not more than
R10 million or imprisonment of not more than ten years, or both, may be
imposed in terms of Section 36 of the FAIS Act.
2.5 LICENSING
Once a licence has been granted, the FAIS Act requires that the licence must
be displayed in a durable and prominent manner within each of the applicant‟s
business premises.
The diagram below indicates the steps before the Registrar may suspend or
withdraw a FAIS licence.
Once the requirements have been met (outlined in the diagram above), the
Registrar may suspend or withdraw any licence if he is satisfied on the basis of
available facts and information that the licensee:
no longer meets the fit and proper requirements of the FAIS Act.
didn't disclose all required information upon applying for a licence or
submitted false or misleading information.
failed to comply with any provision/s of the FAIS Act.
still owes levies, penalties or administrative sanctions to the FSB and
hasn't paid it.
does not have an approved key individual.
failed to comply with any directive issued under the FAIS Act.
failed to comply with any condition or restriction under the FAIS Act.
Notwithstanding the fact that the Registrar must follow certain procedures, as
outlined in Figure 2.1, before suspension or withdrawal, the Registrar may, on
2.5.4 Penalties
The Registrar must consider a response received from the licensee and may
decide to:
The licensee must be advised accordingly including the terms and reasons. The
notification must happen on the official web site and appropriate public media,
if necessary.
If a licence has been withdrawn in terms of Section 9 of the FAIS Act (which
deals with suspension and withdrawal of licences), the person is debarred for a
In the diagram in Section 2.5.2 we used the example of the FAIS Registrar
consulting the Registrar of Banks in the event of a possible suspension or
withdrawal of a bank-related FSP licence. It may be critical for the FAIS
Registrar to consult another applicable regulator because suspension or
withdrawal of an FSP licence may have dire consequences in the financial
services industry.
Note
With effect from February 2014, the FAIS Act provides for publication of the
suspension or withdrawal of a licence on the official web site instead of the
Gazette. The Registrar may also make known such information by means of
other appropriate public media.
Figure 2.2
The Registrar must be advised in writing by the licensee, any key individual of
the licensee, or another person in control of the affairs of the licensee, of the
lapsing of a licence and the reasons therefore and the Registrar may publish
the lapsing of a licence by notice on the official web site and, if necessary in
any other appropriate public media announcement.
The Act does not make specific provision for a withdrawn licence to be
reinstated, however, the Registrar has been reinstating a number of
withdrawn licences. If the licence was withdrawn, the entity will need
to start afresh after a period of time, and will need to apply for a new
licence. But this can only happen if that entity has not been
permanently debarred from receiving a licence for that product.
The Registrar can reinstate a suspended licence once all the conditions
have been met.
The Registrar may impose conditions if a suspension or withdrawal is
lifted. These conditions may include certain actions by the FSP in
relation to its business.
A suspended licence could be reinstated by the Registrar once all the conditions
attached to the suspension have been fulfilled. These conditions could be to:
The Registrar could vary the period of suspension on good cause shown.
The FAIS Act6 makes provision for the appointment of an Ombud for financial
services.
The FAIS Ombud is a statutorily created body. There are other voluntary
Ombudsmen created by the financial services industry who also deal with
financial disputes. There is therefore a great deal of confusion about which
Ombudsman does what.
6
Sections 20 to 32 of the FAIS Act
This means that the FAIS Ombud can deal with complaints where there is
uncertainty over jurisdiction and where the other voluntary Ombudsmen do not
have jurisdiction.
The following fundamental principles apply to the role of the FAIS Ombud:
The FAIS Act requires that when adjudicating a complaint, the FAIS Ombud must
consider the contractual or other legal relationship between the parties and
ultimately do what is equitable in the circumstances.
The complaint must not constitute a monetary claim in excess of R800 000, for a
particular kind of financial prejudice or damage, unless the respondent (the FSP)
has agreed in writing to this limitation being exceeded, or the complainant has
abandoned the amount in excess of R800 000.
The Ombud may, when accepting a complaint in terms of Section 27(5) of the
FAIS Act, require the respondent to pay a case fee to the Office of the Ombud
not exceeding R1 000. The case fee is non-refundable irrespective of the
outcome of the matter.
contravened or failed to comply with the provisions of the FAIS Act and
as a result thereof the complainant has suffered or is likely to suffer
financial prejudice or damage.
wilfully or negligently rendered a financial service to the complainant
which has caused prejudice or damage to the complainant or which is
likely to result in such damage.
treated the complainant unfairly.
In terms of the FAIS Act, the Ombud can also entertain a complaint relating to
any agreement with, or a financial service or product of a financial institution
where it is alleged that a client has suffered or potentially will suffer financial
prejudice of harm.
The Ombud may follow and implement any procedure (including mediation)
which the Ombud deems appropriate and may allow any party the right of legal
representation. He must, in the first instance, explore any reasonable prospect of
resolving a complaint by a conciliated settlement acceptable to all parties. He
may make recommendations to the parties in this regard, requiring them to
confirm whether or not they accept the recommendation. The Ombud may
decide how to use the different parties in his office to perform the investigation.
The key individual must ensure that there are adequate processes in place and
that staff are informed and trained with regard to the handling of complaints
submitted to the Ombud and any investigations by the Ombud's office.
(b) competence
to the extent required in order for such key individual to fulfil the responsibilities
imposed by this Act.
[Subs. (1A) inserted by Section 182 of Act 45/2013 w.e.f. 28 February 2014]
(b) take into consideration any other information regarding the applicant or
proposed key individual of the applicant, derived from whatever source,
including the Ombud and any other regulatory or supervisory authority, if such
information is disclosed to the applicant and the latter is given a reasonable
opportunity to respond thereto.
[Para. (b) substituted by Section 182 of Act 45/20113 w.e.f. 28 February 2014]
(4)
(a) Where an application is granted, the Registrar may impose such conditions and
restrictions on the exercise of the authority granted by the licence, and to be
included in the licence, as are necessary, having regard to -
(i) all facts and information available to the Registrar pertaining to the
applicant and any key individual of the applicant;
(ii) the category of financial services which the applicant could appropriately
render or wishes to render;
(iii) the category of financial services providers in which the applicant is
classified for the purposes of this Act; and
[Subpara. (iii) substituted by Section 182 of Act 45/2013 w.e.f. 28 February 2014]
(iv) the category or subcategory of financial products in respect of which the
applicant could appropriately render or wishes to render financial services.
[Subpara. (iv) substituted by Section 182 of Act 45/2013 w.e.f. 28 February 2014]
(5)
(a) Where an application for authorisation is granted, the Registrar must issue to
the applicant-
[Words preceding subpara. (i) substituted by Section 182 of Act 45/2013 w.e.f. 28
February 2014]
(i) a licence authorising the applicant to act as a financial services provider,
in the form determined by the Registrar by notice in the Gazette; and
(ii) such number of certified copies of the licence as may be requested by the
applicant.
(b) The Registrar may at any time after the issue of a licence -
(i) on application by the licensee or on own initiative withdraw or amend any
condition or restriction in respect of the licence, after having given the
licensee a reasonable opportunity to make submissions on the proposed
withdrawal or amendment and having considered those submissions, if
the Registrar is satisfied that any such withdrawal or amendment is
justified and will not prejudice the interests of clients of the licensee; or
(ii) pursuant to an evaluation of a new key individual, or a change in the
personal circumstances of a key individual, referred to in subsection
(4)(b), impose new conditions on the licensee after having given the
licensee a reasonable opportunity to be heard and having furnished the
licensee with reasons,
[Subpara. (ii) substituted by Section 182 of ACt 45/2013 w.e.f. 28 February 2014]
and must in every such case issue an appropriately amended licence to the
licensee, and such number of certified copies of the amended licence as may be
requested by the licensee.
(6) Where an application referred to in subsection (1) is refused, the Registrar must -
(7)
(a) Despite any other provision of this section, a person granted accreditation under
Section 65(3) of the Medical Schemes Act, 1998 (Act No. 131 of 1998), must,
subject to this subsection, be granted authority to render as a financial services
provider the specific financial service for which the person was accredited, and
must be issued with a licence in terms of subsection (5).
[Para. (a) substituted by Section 182 of Act 45/2013 w.e.f. 28 February 2014]
(d) If a licence -
(i) is refused in terms of this section;
(ii) is suspended in terms of Section 9;
(iii) is withdrawn in terms of Section 10; or
(iv) lapses in terms of Section 11,
the accreditation referred to in paragraph (a) is deemed to have lapsed in terms
of the Medical Schemes Act, 1998, or to have been suspended or withdrawn, as
the case may be.
(a) display a certified copy of the licence in a prominent and durable manner within
every business premises of the licensee;
(b) ensure that a reference to the fact that such a licence is held is contained in all
business documentation, advertisements and other promotional material; and
[Para. (b) amended by Section 182 of Act 45/2013 w.e.f. 28 February 2014]
(c) ensure that the licence is at all times immediately or within a reasonable time
available for production to any person requesting proof of licensed status under
authority of a law or for the purpose of entering into a business relationship with
the licensee.
(a) in any manner make use of any licence or copy thereof for business purposes
where the licence has lapsed, has been withdrawn or provisionally withdrawn or
during any time when the licensee is under provisional or final suspension;
(b) perform any act which indicates that the person renders or is authorised to
render financial services or is appointed as a representative to render financial
services, unless the person is so authorised or appointed; and
(c) perform any act, make or publish any statement, advertisement, brochure or
similar communication which-
(i) relates to the rendering of a financial service, the business of a provider
(10)
(a) Where a provider is a corporate or unincorporated body, a trust or a
partnership, the provider must-
(i) at all times be satisfied that every director, member, trustee or partner of
the provider, who is not a key individual in the provider's business,
complies with the requirements in respect of personal character qualities
of honesty and integrity as contemplated in paragraph (a) of subsection
(1A); and
[Subpara. (i) substituted by Section 182 of Act 45/2013 w.e.f. 28 February 2014]
(ii) within 15 days of the appointment of a new director, member, trustee or
partner, inform the Registrar of the appointment and furnish the Registrar
with such information on the matter as the Registrar may reasonably
require.
(b) If the Registrar is satisfied that a director, member, trustee or partner does not
comply with the requirements as contemplated in paragraph (a) of subsection (1A),
the Registrar may suspend or withdraw the licence of the provider as contemplated in
Section 9.
[Para. (b) substituted by Section 182 of Act 45/2013 w.e.f. 28 February 2014]
(a) continue to comply with the fit and proper requirements; and
(b) comply with the fit and proper requirements relating to continuous professional
development.
(1) The Registrar may, subject to subsection (2) and irrespective of whether the Registrar
has taken or followed, or is taking or following, any step or procedure referred to in
Section 4, at any time suspend or withdraw any licence (including the licence of a
licensee under provisional or final suspension) if satisfied, on the basis of available
facts and information, that the licensee-
(b) did not, when applying for the licence, make a full disclosure of all relevant
information to the Registrar, or furnished false or misleading information;
(c) has failed to comply with any other provision of this Act;
[Para. (c) substituted by Section 184 of Act 45/2013 w.e.f. 28 February 2014]
(d) is liable for payment of a levy under Section 15A of the Financial Services Board
Act, 1990 (Act No. 91 of 1990), a penalty under Section 41(2) and (3) or an
administrative sanction under Section 6D(2) of the Financial Institutions
(Protection of Funds) Act, 2001 (Act No. 28 of 2001), and has failed to pay the
said levy, penalty or administrative sanction and any interest in respect thereof;
[Para. (d) substituted by Section 184 of Act 45/2013 w.e.f. 28 February 2014]
(f) has failed to comply with any directive issued under this Act; or
[Para. (f) added by Section 184 of Act 45/2013 w.e.f. 28 February 2014]
(g) has failed to comply with any condition or restriction imposed under this Act.
[Para. (g) added by Section 184 of Act 45/2013 w.e.f. 28 February 2014]
(2)
(a) Before suspending or withdrawing any licence, the Registrar-
(i) may consult any regulatory authority; and
(ii) must inform the licensee of the intention to suspend or withdraw and the
grounds therefor and must give the licensee a reasonable opportunity to
make a submission in response thereto.
(b) Where the Registrar contemplates the suspension or withdrawal of any licence,
the Registrar must also inform the licensee of-
[Words preceding subpara. (i) substituted by Section 184 of Act 45/2013 w.e.f. 28
February 2014]
(i) the intended period of the suspension; and
(ii) any terms to be attached to the suspension or withdrawal, including-
(aa) a prohibition on concluding any new business by the licensee as
from the effective date of the suspension or withdrawal and, in
relation to unconcluded business, such measures as the Registrar
may determine for the protection of the interests of clients of the
licensee; and
(bb) terms designed to facilitate the lifting of the suspension.
[Subpara. (ii) substituted by Section 184 of Act 45/2013 w.e.f. 28 February
2014]
(d) Where the licence is suspended or withdrawn, the Registrar must make known
the reasons for the suspension or withdrawal and any terms attached thereto by
notice on the official web site and may make known such information by means
of any other appropriate public media.
[Para. (d) substituted by Section 184 of Act 45/2013 w.e.f. 28 February 2014]
(3) Notwithstanding the provisions of subsection (2), the Registrar may under urgent
circumstances, where the Registrar is satisfied on reasonable grounds that substantial
prejudice to clients or the general public may occur-
(a) provisionally suspend or withdraw a licence, and inform the licensee of the -
(i) grounds therefor; and
(ii) period and terms of suspension as referred to in subsection (2)(b), and
give the licensee a reasonable opportunity to respond thereto and to
provide reasons why the provisional suspension or withdrawal should be
lifted or why the period and terms should be changed; and
(b) make known such provisional suspension or withdrawal by notice on the official
web site and, if necessary, by means of any other appropriate public media.
[Para. (b) substituted by Section 184 of Act 45/2013 w.e.f. 28 February 2014]
(4)
(a) The Registrar must, within a reasonable time after receipt of any response
contemplated in subsection (3)(a) consider the response, and may thereafter
decide to-
(i) lift the provisional suspension or withdrawal; or
(ii) render the provisional suspension or withdrawal final,
[Subpara. (ii) substituted by Section 184 of Act 45/2013 w.e.f. 28 February 2014]
(b) The Registrar must make known the terms of and reasons for such final
suspension or withdrawal, or the lifting thereof, by notice on the official web site
and, if necessary, in any other appropriate public media.
[Para. (b) substituted by Section 184 of Act 45/2013 w.e.f. 28 February 2014]
(5) During any period of suspension, whether provisional or final, the licensee concerned
is for the purposes of this Act regarded as a person who is not authorised to act as a
financial services provider.
(6)
(a) A person whose licence has been withdrawn under this section is debarred for a
period specified by the Registrar from applying for a new licence.
(b) The Registrar may, on good cause shown, vary any such period.
[Section 9 substituted by Section 49 of Act 22/2008]
(b) where the licensee, being any other person, is finally liquidated or dissolved;
(c) where the business of the licensee has become dormant; and
(d) in any other case, where the licensee voluntarily and finally surrenders the
licence to the Registrar.
(2) The Registrar must be advised in writing by the licensee, any key individual of the
licensee, or another person in control of the affairs of the licensee, as the case may
be, of the lapsing of a licence and the reasons there for and the Registrar may make
known any such lapsing of a licence by notice on the official web site and, if necessary
by means of any other appropriate public media announcement.
[Subs. (2) substituted by Section 51 of Act 22/2008 and Section 185 of Act 45/2013 w.e.f. 28
February 2014]
(c) render financial services or contract in respect of financial services other than in
the name of the financial services provider of which such a person is a
representative; and
(a) at all times be satisfied that the provider's representatives, and the key
individuals of such representatives, are, when rendering a financial service on
behalf of the provider, competent to act, and comply with-
(i) the fit and proper requirements; and
(ii) any other requirements contemplated in subsection (1)(b)(ii);
[Para. (a) substituted by Section 52 of Act 22/2008 and by Section 186 of Act
45/2013 w.e.f. 28 February 2014]
(b) take such steps as may be reasonable in the circumstances to ensure that
representatives comply with any applicable code of conduct as well as with other
applicable laws on conduct of business.
(3) The authorised financial services provider must maintain a register of representatives,
and key individuals of such representatives, which must be regularly updated and be
available to the Registrar for reference or inspection purposes.
(a) contain every representative‟s or key individual‟s name and business address,
and state whether the representative acts for the provider as employee or as
mandatory; and
(5) The Registrar may require information from the authorised financial services provider,
including the information referred to in subsection (4), so as to enable the Registrar to
maintain and continuously update a central register of all representatives and key
individuals, which register must be published in any appropriate media.
[Subs. (5) substituted by Section 52 of Act 22/2008]
(6) A person who on the date contemplated in Section 7(1) complies with the
requirements of this Act for a representative and on such date acts as employee or
mandatory for any person who on or after such date becomes an authorised financial
services provider, is, for the purposes of this Act, but subject to the provisions of this
Act relating to representatives, regarded as a representative.
Enforcement
Section 20
(1) There is an office to be known as the Office of the Ombud for Financial Services
Providers.
(2) The functions of the Office are performed by the Ombud for Financial Services
Providers.
(3) The objective of the Ombud is to consider and dispose of complaints in a procedurally
fair, informal, economical and expeditious manner and by reference to what is
equitable in all the circumstances, with due regard to -
(4) When dealing with complaints in terms of Sections 27 and 28, the Ombud is
independent and must be impartial.
(Commencement date of Section 20: 8 March 2003)
Enforcement
Section 27
(b) in the case of any non-compliance, act in accordance with the rules made under
that Section; and
(2) Official receipt of a complaint by the Ombud suspends the running of prescription in
terms of the Prescription Act, 1969 (Act No. 68 of 1969), for the period after such
receipt of the complaint until the complaint has either been withdrawn, or determined
by the Ombud or the board of appeal, as the case may be.
(3) The following jurisdictional provisions apply to the Ombud in respect of the
investigation of complaints:
(a)
(i) The Ombud must decline to investigate any complaint which relates to an
act or omission which occurred on or after the date of commencement of
this Act but on a date more than three years before the date of receipt of
such complaint by the Office.
(ii) Where the complainant was unaware of the occurrence of the act or
omission contemplated in subparagraph (i), the period of three years
commences on the date on which the complainant became aware or ought
reasonably to have become aware of such occurrence, whichever occurs
first.
(b)
(i) The Ombud must decline to investigate any complaint if, before the date
of official receipt of the complaint, proceedings have been instituted by
the complainant in any Court in respect of a matter which would
constitute the subject of the investigation.
(ii) Where any proceedings contemplated in subparagraph (i) are instituted
during any investigation by the Ombud, such investigation must not be
proceeded with.
(4) The Ombud must not proceed to investigate a complaint officially received, unless the
Ombud –
(a) has in writing informed every other interested party to the complaint of the
receipt thereof;
(b) is satisfied that all interested parties have been provided with such particulars
as will enable the parties to respond thereto; and
(c) has provided all interested parties the opportunity to submit a response to the
complaint.
(b) must, in the first instance, explore any reasonable prospect of resolving a
complaint by a conciliated settlement acceptable to all parties;
(d) may, in a manner that the Ombud deems appropriate, delineate the functions of
investigation and determination between various functionaries of the Office;
(e) may, on terms specified by the Ombud, mandate any person or tribunal to
perform any of the functions referred to in paragraph (d).
(6) For the purposes of any investigation or determination by the Ombud, the provisions
of the Commissions Act, 1947 (Act No. 8 of 1947), regarding the summoning and
examination of persons and the administering of oaths or affirmations to them, the
calling for the production of books, documents and objects, and offences by witnesses,
apply with the necessary changes.
(Commencement date of Section 27: 8 March 2003)
Enforcement
Section 28
(1) The Ombud must in any case where a matter has not been settled or a
recommendation referred to in Section 27(5)(c) has not been accepted by all parties
concerned, make a final determination, which may include -
(2)
(a) A monetary award may provide for the amount payable to bear interest at a
rate and as from a date determined by the Ombud.
(3) Any award of interest by the Ombud in terms of subsection (2) may not exceed the
rate which a Court would have been entitled to award, had the matter been heard by a
Court.
(4)
(a) The Ombud must reduce a determination to writing, including all the reasons
therefor, sign the determination, and send copies thereof to the Registrar and
all parties concerned with the complaint and, if no notice of appeal to the board
of appeal has been lodged within the period required therefor, to the clerk or
(b) Where a notice of appeal has been lodged, the Ombud must send a copy of the
final decision of the board of appeal to any such clerk or Registrar.
(5) A determination -
(a) or a final decision of the board of appeal, as the case may be, is regarded as a
civil judgment of a Court, had the matter in question been heard by a Court,
and must be so noted by the clerk or Registrar, as the case may be, of that
Court;
(6)
(a) A writ of execution may, in the case of a determination or a final decision of the
board of appeal amounting to a monetary award, be issued by the clerk or the
Registrar referred to in subsection (3) and may be executed by the sheriff of
such Court after expiration of a period of two weeks after the date of the
determination or of the final decision of the board of appeal, as the case may
be.
(b) Any other determination must be given effect to in accordance with the
applicable procedures of a Court after expiration of a period of two weeks after
the date of the determination or of the final decision of the board of appeal.
(Commencement date of Section 28: 8 March 2003)
Enforcement
Section 31
31. Penalties
(a) commits any act in respect of the Ombud or an investigation by the Ombud
which, if committed in respect of a court of law, would have constituted
contempt of court, is guilty of an offence and liable on conviction to any penalty
which may be imposed on a conviction of contempt of court; or
Enforcement
Section 34
(1) Subject to subsections (2) and (3), the Registrar may by notice in the Gazette declare
a particular business practice to be undesirable for all or a category of authorised
financial services providers, or any such provider.
[Subs. (1) substituted by Section 196 of Act 45/2013 w.e.f. 28 February 2014]
(2) The following principles must guide the Registrar in considering whether or not a
declaration contemplated in subsection (1) should be made:
(a) That the practice concerned, directly or indirectly, has or is likely to have the
effect of -
(i) harming the relations between authorised financial services providers or
any category of such providers, or any such provider, and clients or the
general public;
(ii) unreasonably prejudicing any client;
(iii) deceiving any client; or
(iv) unfairly affecting any client; and
(b) that if the practice is allowed to continue, one or more objects of this Act will, or
is likely to, be defeated.
(3) The Registrar may not make such a declaration unless the Registrar has by notice in
the Gazette published an intention to make the declaration, giving reasons therefore,
and invited interested persons to make written representations there anent so as to
reach the Registrar within 21 days after the date of publication of that notice.
(4) An authorised financial services provider or representative may not, on or after the
date of the publication of a notice referred to in subsection (1), carry on the business
practice concerned.
[Subs. (4) substituted by Section 196 of Act 45/2013 w.e.f. 28 February 2014]
(5) The Registrar may direct an authorised financial services provider who, on or after the
date of the publication of a notice referred to in subsection (1), carries on the business
practice concerned in contravention of that notice, to rectify to the satisfaction of the
Registrar anything which was caused by or arose out of the carrying on of the
(6) An authorised financial services provider concerned who is under subsection (5)
directed to rectify anything, must do so within 60 days after such direction is issued.
[Subs. (6) substituted by Section 60 of Act 22/2008]
Section 39
Published under Board Notice 81 in Government Gazette 25299 of 8 August 2003 and
amended by:
- The complaint must not constitute a monetary claim in excess of R800 000,00
for a particular kind of financial prejudice or damage, unless the respondent has
agreed in writing to this limitation being exceeded, or the complainant has
abandoned the amount in excess of R800 000,00.
(b) The Ombud may dismiss a complaint without referral to any other party if on
the facts provided by the complainant it appears to the Ombud that -
12. Appeals
(a) A party against whom the Ombud has made a determination may apply to the
Ombud for leave to appeal against the determination.
(a) At least 12 (twelve) months since the debarment date must have elapsed,
unless the debarment was consequent on the applicant not having qualified as
contemplated in Section 13(2)(a) of the Act, and the applicant has within that
period qualified as so contemplated;
(b) all unconcluded business of the applicant as former representative, referred to
in the proviso to Section 14(1) of the Act, has been properly concluded;
(c) all-
(i) complaints or legal proceedings (if any) submitted by clients to the
applicant or the debarring provider, or the Ombud or any court of law; or
(ii) other administrative or legal procedures or proceedings in terms of the
Act or any other law, arising out of any acts or omissions in which the
applicant was directly or indirectly involved prior to the debarment date,
have been properly and lawfully resolved or concluded, as the case may
be, and that the applicant has fully complied with any decision,
determination or court order in connection therewith, given or issued in
respect of the applicant;
(d) all fit and proper requirements as contemplated in Section 8(1)(a) and (b), read
with Section 13(2), of the Act are complied with.
In this topic we studied everything related to the licensing process of FSPs and
representatives. The requirements for licensing were discussed as well as the
circumstances under which a licence may be suspended or withdrawn.
Once a licence has been approved, the FSP is obliged to adhere to the licensing
conditions. Licences must be displayed and appear in various documents used
by the FSP. The Registrar has the power to suspend or withdraw a licence
under certain circumstances. In these circumstances the FSP must be given an
opportunity to state his case. Licences may also lapse. The difference between
the suspension and withdrawal of a licence and lapsing is that lapsing is not
initiated by the Registrar, for example, when a person dies or decides to
surrender a licence. Suspension and withdrawal occurs as a result of enforced
actions by the Registrar. Licences may be reinstated under certain conditions.
The Ombud for Financial Services Providers (FAIS Ombud) is responsible for
handling complaints by clients against FSPs. The Ombud has the power to
uphold or dismiss a complaint. For information on rulings by the FAIS Ombud,
you can go to www.faisombud.co.za.
Self-Assessment Questions
Please note that the questions which follow are formative in nature. The
questions were not developed by the FSB‟s examination bodies and as such
cannot be used as an indication of the nature/structure/level of the questions
that you will encounter in the FSB‟s regulatory examination.
3. Which statement reflects all the actions with regard to complaints that
are within the power of the Ombud for Financial Services Providers
(FAIS Ombud)?
a) The Ombud may dismiss a complaint or uphold it.
b) The Ombud may dismiss a complaint, uphold it or refer it to a
court if more suitable to be heard by the court.
c) The Ombud may dismiss a complaint, uphold it, decline it if it is
received three years after the date of the issue of the complaint
or refer it to a court of law if more suitable to be heard by the
court.
d) The Ombud may uphold a complaint or decline it if it is
received three years after the date of the issue of the
complaint.
3
Adhere to the specific obligations in terms of
the relevant Code of Conduct and other
subordinate legislation
3.1 INTRODUCTION
Section 15 of the FAIS Act requires that the Registrar should, after consultation
with representative bodies of the financial services industry as well as client
and consumer bodies, draft and publish a code of conduct for financial services
providers. Section 16 of the Act states that the purpose of such a code of
conduct is to ensure that clients who receive financial services will be able to
make informed decisions. It also prescribes the following principles on which
the code of conduct should be based:
• act honestly and fairly, and with due skill, care and diligence (i.e. legal
carefulness), in the interests of clients and the integrity of the financial
services industry.
• have and employ effectively the resources, procedures and appropriate
technological systems for the proper performance of professional
activities
• obtain from clients appropriate and available information regarding
their financial situations, financial product experience and objectives in
connection with the financial service required.
• take into consideration all possible circumstances and consequences
before acting and treat clients fairly in a situation of conflicting
interests.
Section 16 of the Act also determines that the code of conduct should contain
particular provisions with obligations imposed on financial services provider and
their representatives, such as the following:
11. Explain the steps that must be taken by an FSP/ representatives when
providing advice.
custody
complaints
risk management
insurance
advertising
termination.
The following skills criteria are related to the knowledge criteria listed above:
1. Use disclosures that are adequate to enable the client‟s ability to make
an informed decision.
The FAIS Act tells you about many requirements that an FSP and/or its
representatives should adhere to if they want to be FAIS compliant. However,
these requirements are usually not only determined in an Act, but also in what
is called "subordinate legislation". Subordinate legislation refers to additional
In terms of FAIS, the subordinate legislation includes the FAIS General Code of
Conduct and any other related Acts and/or regulations that were introduced at
a later stage to supplement or make changes to provisions of the original Act.
It is absolutely essential that you understand what you have to do to adhere to
the specific obligations in terms of the FAIS General Code of Conduct and other
subordinate legislation.
The purpose of this topic is to inform you about these FAIS requirement so that
you can obey them and remain FAIS compliant.
3.2.1 Explain the obligations and requirements when client funds or premiums
are received
The General Code of the FAIS Act applies to the provision of financial services
and includes the procedures to be followed when an FSP receives financial
products, funds or premiums from clients and holds it in custody before paying it
over into a bank account. These provisions are subject to any other legislation
which may be more prescriptive with regard to the custody of financial products
and funds.
Representatives must ensure that they adhere to the prescribed procedures. The
following must be done:
Table 3.1
3.3 DISCLOSURES
FAIS requires FSPs and product suppliers to make certain disclosures. Disclosure
of sufficient and accurate information to clients at the earliest possible time is
important because it enables them to make informed decisions. If the
information is supplied verbally, it must be confirmed in writing within 30 days.
3.3.2 Discuss the requirements regarding the disclosure rules on the FSP
and/or representatives as well as the impact it has on them.
Disclosures that must be made regarding FSPs are given in Part IV of the Code.
Section 5 determines that the following general information on FSPs has to be
disclosed:
Joe Soap is a broker who provides financial advice and who sells long-term
insurance. He works alone and is licensed as an FSP. On meeting a new client for
the first time, he has to supply the following information about himself:
The impact of this disclosure on FSPs is that they have to draft and provide
documents containing all the relevant disclosures to be used by themselves and
their representatives. In addition, they have to ensure that their
representatives use these disclosures when rendering financial services to their
clients.
The FSP must give clients information on product suppliers as soon as possible,
where appropriate. Oral information must be confirmed in writing within 30
days.
Note
A product supplier who is also an FSP and who has an intermediary or similar
contract with another provider must ensure that when asked by the other
provider, it provides all the required information about itself (product supplier)
and the product, so that the provider can comply with the disclosure
requirements.
Not only must FSPs ensure that there is adequate disclosure on product
suppliers, FSPs and commission, they also need to ensure that there is
adequate disclosure with regard to the products being offered to clients. This is
to ensure that clients get adequate information on financial products.
That the client is responsible for the accuracy and completeness of all
answers, statements and other information provided
That if the provider completes the application form on behalf of the
client, the client is still responsible for the accuracy and completeness of
the details completed
The possible consequences should the client non-disclose or
misrepresent information on the application form
The client must on request be supplied with a written copy of the
completed application form.
Representatives are not allowed to request any client to sign a blank application
form and must provide the client with a written statement of account should the
client have requested this.
When an FSP renders a financial service, he must avoid, and where not possible
mitigate any conflict of interest between a provider and a client or the
representative and a client. The FSP/representative therefore has to disclose all
amounts, sums, values, charges, fees, remuneration or monetary obligations.
These must be reflected in specific monetary terms. The FSP must also disclose
the nature, extent and frequency of any incentive, remuneration, consideration,
commission or fee which will become payable to the provider, including non-cash
incentives or benefits.
(i) Commission authorised under the Long-term Insurance Act, 1998 (Act
No. 52 of 1998) or the Short-term Insurance Act, 1998 (Act No. 53 of
1998)
(ii) Commission authorised under the Medical Schemes Act, 1998 (Act No.
131 of 1998)
(iii) Fees authorised under the Long-term Insurance Act, 1998 (Act No. 52 of
1998), the Short-term Insurance Act, 1998 (Act No. 53 of 1998) or the
Medical Schemes Act, 1998 (Act No. 131 of 1998), if those fees are
reasonably commensurate to a service being rendered
(iv) Fees for the rendering of a financial service in respect of which
commission or fees referred to in subparagraph (i), (ii) or (iii) is not
paid, if those fees -
(aa) are specifically agreed to by a client in writing
(bb) may be stopped at the discretion of that client
(v) Fees or remuneration for the rendering of a service to a third party,
which fees or remuneration are reasonably commensurate to the service
being rendered
(vi) Subject to any other law, an immaterial financial interest; and
(vii) A financial interest, not referred to under subparagraph (i) to (vi), for
which a consideration, fair value or remuneration that is reasonably
commensurate to the value of the financial interest, is paid by that
provider or representative at the time of receipt thereof.
Disclosures required for forex investment business must include the following:
The effect of this disclosure is that clients are informed of the amounts that are
paid to the adviser and which will consequently decrease the investment amount.
In addition to the above, the General Code was amended in Board Notice 58 of
2010 to include more stringent measures relating to managing conflict of
interest.
Some important terms were introduced and defined in this Board Notice:
FSPs have to disclose whether they hold more than a 10% share in a product
supplier and where the FSP has received more than 30% of its total
remuneration from a product supplier. The reason is that if an FSP has a share
in a product supplier, the FSP may be inclined to recommend its own products
to a client despite the fact that it may not best serve the needs of the client.
In the financial services industry, the FAIS General Code of Conduct provides a
framework for ethical behaviour by the role-players. It gives guidance on issues
of right and wrong with regard to different aspects of the behaviour of the role-
players, especially when faced with difficult ethical choices. One could therefore
say that ethical conduct in the financial services environment is conduct which
is aligned with the General Code of Conduct and which complies with all other
relevant pieces of legislation.
3.5.2 Discuss your role in terms of ethical conduct in the financial services
environment
Trust
Confidentiality
Adequate disclosure
Respect for the client
A representative who is able to make the correct ethical decisions will ensure
an excellent reputation in the industry and be able to provide a sustainable
service to clients.
3.6 COMPLAINTS
In this section we are going to investigate the manner in which complaints are
to be handled by the industry with reference to the FAIS General Code of
Conduct.
The General Code prescribes the requirements for complaints handling and
representatives must be aware of the requirements so that they can advise
clients accordingly and also so that they know what is expected from them
when they are involved with complaints. The Ombud may, when accepting a
claim, require the respondent to pay a case fee to the office not exceeding
R1 000.
Table 3.3
The General Code prescribes the steps to be taken and the action to be taken
when representatives give advice to clients.
Key individuals must ensure that these requirements are met and that
representatives are aware of and follow these principles.
We look at suitability first. The information below gives a high level overview of
the required steps in giving advice:
3.7.1 Suitability
A provider other than a direct marketer must, prior to providing a client with
advice:
5. If the client did not provide the information required in Step 1 above,
or the provider did not do an analysis because there was not enough
time, the provider must inform the client that it was not done and
must make sure the client understands that:
a) a full analysis in respect of the client was not done.
b) there may be limitations on the appropriateness of the advice
provided.
c) the client should take particular care to consider whether the
advice is appropriate considering his objectives, financial
situation and particular needs.
In this section we are going to study the provisions of the General Code relating
to risk management, insurance, advertising and termination of a relationship.
The provider is required to have effective risk control measures at all times.
The provider must use technology and effective systems to minimise the risk.
Poor risk management may result in financial loss for clients, product providers
and representatives due to theft, fraud, poor administration, negligence and
professional misconduct. The specific control objectives include that the internal
control procedures of a business must be structured to provide assurance that:
3.8.2 Insurance
The General Code states that the Registrar may require providers to have
suitable guarantees, professional indemnity or fidelity insurance cover in place.
The General Code was amended in September 2009 to require (for providers
Table 3.4
New FSPs (authorised after 21 September 2009) must comply within six weeks
of authorisation depending on the category the FSP is registered for.
The General Code requires that FSPs or representatives must adhere to certain
advertising principles. These principles are discussed below:
The advertisement must include the business name of the provider as well as
the fact that the provider is an authorised/licensed FSP, where applicable.
The General Code addresses the requirements when clients want to terminate
contractual agreements as well as when the FSP or representative terminates
their business operations and/or services.
The provider must take reasonable steps to ensure that the client understands
the implications of the request for termination.
A provider (other than Representative) who stops operating as such must notify
all affected clients immediately.
Codes of Conduct
Section 16
(1) A code of conduct must be drafted in such a manner as to ensure that the clients
being rendered financial services will be able to make informed decisions, that their
reasonable financial needs regarding financial products will be appropriately and
suitably satisfied and that for those purposes authorised financial services providers,
and their representatives, are obliged by the provisions of such code to -
(a) act honestly and fairly, and with due skill, care and diligence, in the interests of
clients and the integrity of the financial services industry;
(b) have and employ effectively the resources, procedures and appropriate
technological systems for the proper performance of professional activities;
(c) seek from clients appropriate and available information regarding their financial
situations, financial product experience and objectives in connection with the
financial service required;
(d) act with circumspection and treat clients fairly in a situation of conflicting
interests; and
(e) comply with all applicable statutory or common law requirements applicable to
the conduct of business.
(f) any other matter which is necessary or expedient to be regulated in such code
for the better achievement of the objects of this Act.
Part II
General Provisions
Section 3
(b) a provider and a representative must avoid and where this is not possible
mitigate, any conflict of interest between the provider and a client or the
representative and a client;
[Para. (b) substituted by BN 58/2010 w.e.f. 19 July 2010]
Part III
Information on Product Suppliers
Section 4
4.
(1) A provider other than a direct marketer must at the earliest reasonable opportunity,
and only where appropriate, furnish the client with full particulars of the following
information about the relevant product supplier and, where such information is
provided orally, must confirm such information within 30 days in writing:
(a) Name, physical location, and postal and telephone contact details of the product
supplier;
(b)
(i) the contractual relationship with the product supplier (if any), and
whether the provider has contractual relationships with other product
suppliers;
(ii) names and contact details of the relevant compliance and complaints
departments of the product supplier.
(c) the existence of any conditions or restrictions imposed by the product supplier
with regard to the types of financial products or services that may be provided
or rendered by the provider; and
(2) A product supplier which is an authorised financial services provider, and which has
entered into an intermediary contract or similar contractual relationship with another
provider (not being a representative) for the purpose of rendering a financial service in
respect of its financial products, must within a reasonable time after being requested
to do so by such other provider, provide such other provider with sufficient particulars
to enable the provider to comply with the disclosure requirements of this Code relating
to the furnishing of details of the product supplier and the product in question.
(3) A provider must, where the relevant licence, terms of employment or mandate enables
such provider to provide clients with financial services in respect of a choice of product
suppliers, exercise judgment objectively in the interest of the client concerned.
Information on Providers
Section 5
5. Where a provider other than a direct marketer renders a financial service to a client,
the provider must at the earliest reasonable opportunity furnish the client with full
particulars of the following information and, where such information is provided orally,
must confirm such information within 30 days in writing:
(a) Full business and trade names, registration number (if any), postal and physical
addresses, telephone and, where applicable, cellular phone number, and
internet and e-mail addresses, in respect of the relevant business carried on, as
well as the names and contact details of appropriate contact persons or offices;
(b) concise details of the legal and contractual status of the provider, including
details as regards the relevant product supplier (or, in the case of a
representative, as regards the relevant provider and product supplier), to be
provided in a manner which can reasonably be expected to make it clear to the
client which entity accepts responsibility for the actions of the provider or
representative in the rendering of the financial service involved and the extent
to which the client will have to accept such responsibility;
(c) names and contact details of the relevant compliance department or, in the case
of a representative, such detail concerning the provider to which the
representative is contracted;
(d) details of the financial services which the provider is authorised to provide in
terms of the relevant licence and of any conditions or restrictions applicable
thereto;
(g) the existence of a specific exemption that the Registrar may have granted to the
provider with regard to any matter covered by the Act.
Part VI
Information about Financial Services
Section 7
(1) Subject to the provisions of this Code, a provider other than a direct marketer, must-
(a) provide a reasonable and appropriate general explanation of the nature and
material terms of the relevant contract or transaction to a client, and generally
make full and frank disclosure of any information that would reasonably be
expected to enable the client to make an informed decision;
(b) whenever reasonable and appropriate, provide to the client any material
contractual information and any material illustrations, projections or forecasts in
the possession of the provider;
(d) fully inform a client in regard to the completion or submission of any transaction
requirement-
(i) that all material facts must be accurately and properly disclosed, and that
the accuracy and completeness of all answers, statements or other
information provided by or on behalf of the client, are the client‟s own
responsibility;
(ii) that if the provider completes or submits any transaction requirement on
behalf of the client, the client should be satisfied as to the accuracy and
completeness of the details;
(iii) of the possible consequences of the misrepresentation or non-disclosure
of a material fact or the inclusion of incorrect information; and
(iv) that the client must on request be supplied with a copy or written or
printed record of any transaction requirement within a reasonable time.
(2) No provider may in the course of the rendering of a financial service request any client
to sign any written or printed form or document unless all details required to be
inserted thereon by the client or on behalf of the client have already been inserted.
(3) A provider must, where applicable, at the request of a client, provide the client with a
statement of account in connection with any financial service rendered to the client.
(a) any ongoing monetary obligations of the client in respect of such products;
Provided that such a statement need not be provided where the client is aware, or ought
reasonably to be aware, that the provider concerned does not render or has ceased
rendering ongoing financial services in respect of the client or the products concerned.
[Subsec. (4) inserted by BN 43/2008 with effect from 14 August 2008]
Part VII
Furnishing of Advice
Section 8
8. Suitability
(1) A provider other than a direct marketer, must, prior to providing a client with advice-
(a) take reasonable steps to seek from the client appropriate and available
information regarding the client‟s financial situation, financial product
experience and objectives to enable the provider to provide the client with
appropriate advice;
(b) conduct an analysis, for purposes of the advice, based on the information
obtained;
(c) identify the financial product or products that will be appropriate to the client‟s
risk profile and financial needs, subject to the limitations imposed on the
provider under the Act or any contractual arrangement; and
(d) where the financial product (“the replacement product”) is to replace an existing
financial product wholly or partially (“the terminated product”) held by the
(e) take reasonable steps to establish whether the financial product identified is
wholly or partially a replacement for an existing financial product of the client
and if it is such a replacement, the provider must comply with subparagraph
(d).
[Para (e) added by BN 43/2008 with effect from 14 May 2008]
(2) The provider must take reasonable steps to ensure that the client understands the
advice and that the client is in a position to make an informed decision.
(a) has not provided all information requested by a provider furnishing advice, as
part of the analysis referred to in subsection (1)(b), or where the provider has
been unable to conduct such an analysis because in the light of the
circumstances surrounding the case, there was not reasonably sufficient time to
do so, the provider must fully inform the client thereof and ensure that the
client clearly understands that-
(i) a full analysis in respect of the client referred to in subsection (1)(b) could
not be undertaken;
(ii) there may be limitations on the appropriateness of the advice provided;
and
(iii) the client should take particular care to consider on its own whether the
advice is appropriate considering the client‟s objectives, financial situation
and particular needs; or
(b) elects to conclude a transaction that differs from that recommended by the
provider, or otherwise elects not to follow the advice furnished, or elects to
receive more limited information or advice than the provider is able to provide,
the provider must alert the client as soon as reasonably possible of the clear
existence of any risk to the client, and must advise the client to take particular
care to consider whether any product selected is appropriate to the client‟s
needs, objectives and circumstances.
Part VII
Furnishing of Advice
Section 9
9. Record of advice
(1) A provider must, subject to and in addition to the duties imposed by Section 18 of the
Act and Section 3(2) of this Code, maintain a record of the advice furnished to a client
as contemplated in Section 8, which record must reflect the basis on which the advice
was given, and in particular-
(a) a brief summary of the information and material on which the advice was
based;
(c) the financial product or products recommended with an explanation of why the
product or products selected, is or are likely to satisfy the client‟s identified
needs and objectives; and
[Para (c) substituted by BN 43/2008 with effect from 14 May 2008]
(2) A provider, other than a direct marketer, must provide a client with a copy of the
record contemplated in 9(1) in writing.
Part VIII
Custody of Financial Products and Funds
Section 10
(1) Subject to the provisions of any other applicable Act, a provider who receives or holds
financial products or funds of or on behalf of a client must account for such products
or funds properly and promptly and-
(a) when documents of title are lodged with the provider on behalf of the client, the
provider must immediately provide written confirmation of receipt thereof which
contains a description of the documents that is sufficient to identify them;
(b) when a provider receives funds into safe custody without the mediation of a
bank, the provider must on receipt of the money, issue a written confirmation of
receipt thereof;
(c) where the provider, or a third party on behalf of either of them, is in control of
such financial products or funds, take reasonable steps to ensure that they are
adequately safeguarded;
(d) open and maintain a separate account, designated for client funds, at a bank
and-
(i) must within one business day of receipt pay into the account all funds
held on behalf of clients;
(ii) ensure that the separate account only contains funds of clients and not
those of the provider;
(iii) pay all bank charges in respect of the separate account except that bank
(2) Where a transaction or agreement has been recorded in writing, the provider who
dealt with the client must ensure that the original agreement is delivered to the client
for safe custody.
(3) Section 10(1)(d) is not applicable to a provider-
(a) who receives, holds or in any other matter deals with premiums payable under a
short-term reinsurance policy; or
(b) who is subject to Section 45 of the Short-term Insurance Act, 1998 (Act No. 53
of 1998), if the provider complies with the requirements contemplated in that
section.
Risk Management
Section 12
(a) the relevant business can be carried on in an orderly and efficient manner;
(b) financial and other information used or provided by the provider will be reliable;
and
Part lX
Risk Management
Section 13
13. Insurance
A provider, excluding a representative, must, if, and to the extent, required by the
Registrar maintain in force suitable guarantees or professional indemnity or fidelity
insurance cover.
Part X
Advertising and Direct Marketing
Section 14
(a) not contain any statement, promise or forecast which is fraudulent, untrue or
misleading;
(b) if it contains-
(i) performance data (including awards and rankings), include references to
their source and date;
(ii) illustrations, forecasts or hypothetical data
(aa) contain support in the form of clearly stated basic assumptions
(including but not limited to any relevant assumptions in respect of
performance, returns, costs and charges) with a reasonable
prospect of being met under current circumstances;
(bb) make it clear that they are not guaranteed and are provided for
illustrative purposes only; and
(cc) also contain, where returns or benefits are dependent on the
performance of underlying assets or other variable market factors,
clear indications of such dependence;
(iii) a warning statement about risks involved in buying or selling a financial
product, prominently render or display such statement; and
(iv) information about past performances, also contain a warning that past
performances are not necessarily indicative of future performances; and
(b) a copy of all such records must be provided on request by the client or the
Registrar within seven days of the request;
(c) all the information required by Sections 4(1)(a) and (c) and 5(a) and (c) shall
not be required: Provided that the client is provided with basic details (such as
business name and telephone number or address) of the provider or relevant
product supplier, and of their relevant compliance departments: Provided
further that, if the promotion results in the rendering of a financial service, the
full details required by those sections are provided to the client in writing within
30 days of the relevant interaction with the client.
(3) Where a provider advertises a financial service by means of a public radio service, the
advertisement must include the business name of the provider.
Part Xl
Complaints
Section 16
16. General
(a) request that any client who has a complaint against the provider must lodge
such complaint in writing;
(d) take steps to investigate and respond promptly to such complaints; and
(e) where such a complaint is not resolved to the client‟s satisfaction, advise the
client of any further steps which may be available to the client in terms of the
Act or any other law.
Part Xl
Complaints
Section 18
18. The internal complaint resolution system and procedures of the provider excluding a
representative must be designed to ensure the existence and maintenance of at least
the following for purposes of effective and fair resolution of complaints:
(b) adequate training of all relevant staff, including imparting and ensuring full
knowledge of the provisions of the Act, the Rules and this Code with regard to
resolution of complaints;
(c) ensure that responsibilities and mandates are delegated to facilitate complaints
resolution of a routine nature;
(d) ensure that there is provision for the escalation of non-routine serious
complaints and the handling thereof by staff with adequate expertise;
Part Xl
Complaints
Section 19
(1) Subject to the other provisions of this Part, the internal complaint resolution system
and procedures of a provider excluding a representative must contain arrangements
which-
(a) must -
(i) reduce the details of the internal complaint resolution system and
procedures of the provider, including all subsequent updating or
upgrading thereof, to writing;
(ii) provide that access to the procedures is at all times available to clients at
(b) must stipulate that complaints must, if possible, be submitted in writing and
must contain all relevant information, and that copies of all relevant
documentation must be attached thereto;
(c) must provide that the receipt of complaints is promptly acknowledged in writing
to the client, with communication particulars of contact staff to be involved in
the resolution of the complaint, and are properly internally recorded by the
relevant staff for purposes of compliance with Section 18(b) and (d) of the Act;
(d) must make provision that after the receipt and recording of a particular
complaint, the complaint will as soon as practically possible be forwarded to the
relevant staff appointed to consider its resolution, and that-
(i) the complaint receives proper consideration;
(ii) appropriate management controls are available to exercise effective
control and supervision of the consideration process;
(iii) the client is informed of the results of the consideration within the time
referred to in Rule 6(b) of the Rules: Provided that if the outcome is not
favourable to the client, full written reasons must be furnished to the
client within the time referred to in Rule 6(b) of the Rules, and the client
must be advised that the complaint may within six months be pursued
with the Ombud whose name, address and other contact particulars must
simultaneously be provided to the client.
(2) In any case where a complaint is resolved in favour of a client, the provider must
ensure that a full and appropriate level of redress is offered to the client without any
delay.
Part Xll
Termination of Agreement or Business
Section 20
20. Subject to the Act, and Sections 3(2) and (3) of this Code-
(a)
(i) a provider must, subject to any contractual obligations, give immediate
effect to a request of a client who voluntarily seeks to terminate any
agreement with the provider or relating to a financial product or advice;
(ii) where the client makes the request on the advice of the provider, the
provider must take reasonable steps to ensure that the client fully
understands all the implications of the termination;
(b) a provider, other than a representative who ceases to operate as such, must
immediately notify all affected clients accordingly and take, where reasonably
necessary or appropriate in consultation with the clients and product suppliers
concerned, reasonable steps to ensure that any outstanding business is
completed promptly or transferred to another provider; and
Part II
General Prohibitions and Duties applying to Forex Investment Intermediaries
Section 3
(h) avoid any conflict between own interests and the interests of a client and where
a conflict of interest does arise, the forex investment intermediary must-
(i) adequately disclose details of such conflict to the client while maintaining
the confidentiality of other clients; or
(ii) decline to act for that client;
Part III
Special Provisions applying to Forex Investment Intermediaries
Section 5
(1) A forex investment intermediary must enter into a written mandate with a client
irrespective of whether the client invests in a managed forex account or in a self-
directed forex account. The intermediary and the client may agree to enter into an
electronic mandate, provided that appropriate controls and personal identification
procedures have been put in place. The mandate records the arrangements made
between the parties, and must-
Part III
Operational Requirements
Section 5
5. Mandates
5.1 A discretionary FSP must obtain a signed mandate from a client, before rendering any
intermediary service to that client: Provided that the parties may agree to complete an
electronic mandate in respect of which appropriate controls and personal identification
procedures have been put in place that ensures security of information, and that the
mandate records the arrangements made between the parties, and must -
(h) state whether the discretionary FSP receives commission, incentives, fee
reductions or rebates from an administrative FSP or product supplier for placing
a client‟s funds with them;
Amendment of the General Code of Conduct for Authorised Financial Services Providers and
Representatives
Section 3 (amended)
(1) A provider or its representatives may only receive or offer the following financial
interest from or to a third party -
(i) commission authorised under the Long-term Insurance Act, 1998 (Act No.
52 of 1998) or the Short-term Insurance Act, 1998 (Act No. 53 of 1998);
(ii) commission authorised under the Medical Schemes Act, 1998 (Act No.
131 of 1998);
(iii) fees authorised under the Long-term Insurance Act, 1998 (Act No. 52 of
1998), the Short-term Insurance Act, 1998 (Act No. 53 of 1998) or the
Medical Schemes Act, 1998 (Act No. 131 of 1998), if those fees are
reasonably commensurate to a service being rendered;
(iv) fees for the rendering of a financial service in respect of which
commission or fees referred to in subparagraph (i), (ii) or (iii) is not paid,
if those fees
(aa) are specifically agreed to by a client in writing; and
(bb) may be stopped at the discretion of that client;
(v) fees or remuneration for the rendering of a service to a third party, which
fees or remuneration are reasonably commensurate to the service being
rendered;
(vi) subject to any other law, an immaterial financial interest; and
(vii) a financial interest, not referred to under subparagraph (i) to (vi), for
which a consideration, fair value or remuneration that is reasonably
commensurate to the value of the financial interest, is paid by that
provider or representative at the time of receipt thereof.
[Para. (a) inserted by BN 58/2010 w.e.f. 19 October 2010]
(b) A provider may not offer any financial interest to a representative of that
provider for
(i) giving preference to the quantity of business secured for the provider to
the exclusion of the quality of the service rendered to clients; or
(ii) giving preference to a specific product supplier, where a representative
may recommend more than one product supplier to a client; or
(iii) giving preference to a specific product of a product supplier, where a
representative may recommend more than one product of that product
supplier to a client.
[Para. (b) inserted by BN 58/2010 w.e.f. 19 April 2011]
(2)
(a) Every provider, other than a representative, must adopt, maintain and
implement a conflict of interest management policy that complies with the
provisions of the Act.
(c) A conflict of interest management policy must be adopted by the sole proprietor
of a provider, the board of directors of a provider or, in the case where a
provider is not a company, the governing body of the provider.
(d) A provider must ensure that its employees, representatives and, where
appropriate, associates are aware of the contents of its conflict of interest
management policy and provide for appropriate training and educational
material in this regard.
(e) A provider must continuously monitor compliance with its conflict of interest
management policy and annually conduct a review of the policy.
(f) A provider must publish its conflict of interest management policy in appropriate
(3) A provider or representative may not avoid, limit or circumvent or attempt to avoid,
limit or circumvent compliance with this section through an associate or an
arrangement involving an associate.
[Subs. (3) inserted by BN 58/2010 w.e.f. 19 October 2010]
(4)
(a) A compliance officer or, where the provider need not, in terms of the Act, have a
compliance officer, the provider, must include a report on the provider‟s conflict
of interest management policy in compliance reports submitted to the Registrar
under the Act.
(b) The report referred to in paragraph (a) must report on at least the
implementation, monitoring and compliance with, and the accessibility of the
conflict of interest management policy.
Notice 58 of 2010
Financial Services Board
Financial Advisory and Intermediary Services Act, 2002
Amendment of the General Code of Conduct for Authorised Financial Services Providers and
Representatives
Section 1
Associate includes
Financial interest includes Cash, Cash equivalent, Voucher, Gift, Service, Advantage, Benefit,
Discount, Domestic/foreign travel, Hospitality, Accommodation, Sponsorship, Other
incentive, Valuable consideration (Some defined benefit, such as money or performance,
that is promised as part of an agreement.).
Financial interest excludes an ownership interest, training (as long as it is not exclusive) on
products, legal matters relating to products, general financial & industry info, 3rd party
systems which you need but excluding travel & accommodation in relation to the training.
Third Party includes product suppliers, another provider, associate of a product supplier or
provider, distribution channel, anyone who has an agreement with the above to provide
financial interest to a provider or its representatives.
Summary
In this topic you studied the requirements imposed by the FAIS General Code
of Conduct on FSPs and their representatives.
When client funds or premiums are received FSPs have to comply with certain
obligations and requirements. These include that client funds should be kept in
a separate account.
A client who has a complaint about a financial service rendered to him should
lodge such complaint with the FSP. The nature of complaints lodged with the
Ombud is usually either when a client has suffered or is likely to suffer a
financial loss or if the client has been treated unfairly (but may not have lost
money).
The FSP must try and find a solution to the problem within six weeks. If the
FSP is unable to settle the matter, the client should be informed that he can
approach the Ombud for Financial Services Providers (FAIS Ombud).
Self-Assessment Questions
Please note that the questions which follow are formative in nature. The
questions were not developed by the FSB‟s examination bodies and as such
cannot be used as an indication of the nature/structure/level of the questions
that you will encounter in the FSB‟s regulatory examination.
Choose the option that reflects the FAIS perspective on this interaction:
a) Claude has acted in the best interest of his customer and the
FSP by providing a well-matched financial solution to the client.
b) Claude has acted without integrity by not being completely
honest with his client, and he could face disciplinary action or
debarment.
c) Claude has not breached any FAIS requirements, since the
client does not need to know the name of a product supplier to
make a decision.
d) Claude has breached a FAIS requirement in failing to provide
his client with the opportunity to make a fully informed
decision.
4
Apply knowledge of financial products
4.1 INTRODUCTION
It is therefore very important that you have a good knowledge of the different
types of financial services and financial products that an FSP or representative
may deal with. In addition, you need to have an understanding of the
relationships between the role-players that are involved in the development
and provision of financial products and the rendering of financial advice.
Once you have gained the knowledge and insights that will be discussed in this
topic, you will see where your role and function fit into the bigger picture. It
will become clear to you how you contribute to FAIS-compliant processes with
regard to financial products and advice in your organisation.
The following skills criteria are related to the knowledge criteria listed above:
1. Apply knowledge of the financial products and role players within the
financial services environment.
Reminder
The above definition is valid regardless of whether or not advice given was
incidental to the financial planning of the affairs of a client or whether it results
in any transaction, purchase, investment, variation, replacement or termination
being affected.
An “intermediary service” occurs when a person performs any act, other than
giving advice, for or on behalf of a client or product supplier. One could also
say that an intermediary service means the facilitation of a financial transaction
where the service is not a recommendation or guidance or proposal regarding
financial products.
Let's now have a look at the situations where different types of advice are
given:
This is where advice is based on a full needs analysis of the client's financial
circumstances. In this and any other situation where an FSP (not a direct
marketer) provides a client with advice, the following steps have to be taken:
Where a client has not provided all the information requested or there was not
reasonably enough time to do so, the provider must fully inform the client
thereof and ensure that the client understand that:
In the process of giving advice, the provider must give written motivation as to
why a specific financial product is recommended to the client, he must ensure
In the event of a replacement, the provider must disclose to the client the
financial implications, costs and consequences, including:
FSPs may have various licences in respect of different product categories. The
product category may also have different products falling in the main category
and these are called product sub-categories.
The category descriptions (for FSPs) in the FAIS Act are as follows:
Category 1: Sub-categories
1.1 Long-term Insurance Sub-category A
1.2 Short-term Insurance Personal Lines
1.3 Long-term Insurance Sub-category B1
1.4 Long-term Insurance Sub-category C
1.5 Retail Pension Benefits
1.6 Short-term Insurance Commercial Lines
1.7 Pension Fund Benefits
1.8 Securities and instruments: Shares
1.9 Securities and Instruments: Money market instruments
1.10 Securities and Instruments: Debentures and securitised debt
1.11 Securities and Instruments: Warrants, certificates and other instruments
acknowledging debt
1.12 Securities and Instruments: Bonds
1.13 Securities and Instruments: Derivative instruments excluding warrants
1.14 Participatory Interests in one or more collective investment schemes
1.15 Forex Investment Business
1.16 Health Service Benefits
1.17 Long-term Deposits
1.18 Short-term Deposits
1.19 Friendly Society Benefits
1.20 Long-term Insurance Sub-category B2
Before we can consider the relationship between the different industry players
regarding financial products, we have to identify these role-players and
investigate their functions.
Product supplier
FAIS defines a product supplier as any person who issues a financial product. The
requirement that the product must have been issued by virtue of an authority,
approval or right granted to such person under any law, was removed from the
FAIS Act with effect 28 February 2014.
In practice one may find that product suppliers may act as FSPs. These product
suppliers may be exempt by the Registrar from having to submit all the
information required for authorisation in terms of FAIS. Authorisation will be
granted in addition to, but separate from, the product supplier's authorisation to
act as a financial institution.
Representative
In Topic 1 we discussed the role of representatives and said that they provide
financial services on behalf of an FSP.
Key individual
The key individual manages and oversees the activities of the FSP.
Compliance officer
Compliance officers monitor and report on compliance of the FSP with the FAIS
Act.
The admin staff of an FSP deals with the processing of applications for financial
products.
Clients
Example:
John is advised to take out a whole life policy to provide cash for his family
should he die. John is the owner of the policy and he nominates his wife, Susan,
as beneficiary of the policy.
In this example John is the client to whom a financial service is rendered. Mandy
is the client to whom a financial service is to be rendered in future. Susan, as the
beneficiary on John's policy, is also regarded as a client.
John, who will be nominated as the "successor in title" of Mandy's funeral policy,
is another example of a client.
Let's now look at the relationship between these role-players. The following
diagram illustrates these relationships.
FSP
KI (Manages & oversees)
Compliance officer (Monitor
& reports) Product
provider
Gives advice
Issues the
Representative
product
Renders intermediary
service
Makes
disclosures
Figure 4.1
The key individual manages and oversees all the processes described above to
ensure that every activity complies with FAIS.
Relevant Legislation
Section 1
"long-term policy" means an assistance policy, a disability policy, fund policy, health policy,
life policy or sinking fund policy, or a contract comprising a combination of any of those
policies; and includes a contract whereby any such contract is varied;
Introductory Provisions
Section 1
(c) on the conclusion of any other transaction, including a loan or cession, aimed at
the incurring of any liability or the acquisition of any right or benefit in respect
(d) on the variation of any term or condition applying to a financial product, on the
replacement of any such product, or on the termination of any purchase of or
investment in any such product, and irrespective of whether or not such advice -
(i) is furnished in the course of or incidental to financial planning in
connection with the affairs of the client; or
(ii) results in any such purchase, investment, transaction, variation,
replacement or termination, as the case may be, being effected;
(a) does not require judgment on the part of the latter person; or
(b) does not lead a client to any specific transaction in respect of a financial product
in response to general enquiries;
“financial service” means any service contemplated in paragraph (a), (b) or (c) of the
definition of “financial services provider”, including any category of such services;
“financial services provider” means any person, other than a representative, who as a
regular feature of the business of such person -
“intermediary service” means, subject to subsection (3)(b), any act other than the
furnishing of advice, performed by a person for or on behalf of a client or product
supplier -
(a) the result of which is that a client may enter into, offers to enter into or enters
into any transaction in respect of a financial product with a product supplier; or
(b) a corporate body or trust consisting of only one natural person as member,
director, shareholder or trustee, means any such natural person;
“client” means a specific person or group of persons, excluding the general public, who
is or may become the subject to whom a financial service is rendered intentionally, or
is the successor in title of such person or the beneficiary of such service;
General Code of Conduct for Authorised Financial Services Providers and Representatives,
2003
Part VII
Furnishing of Advice
Section 8
8. Suitability
(1) A provider other than a direct marketer, must, prior to providing a client with advice-
(a) take reasonable steps to seek from the client appropriate and available
information regarding the client‟s financial situation, financial product
experience and objectives to enable the provider to provide the client with
appropriate advice;
(b) conduct an analysis, for purposes of the advice, based on the information
obtained;
(c) identify the financial product or products that will be appropriate to the client‟s
risk profile and financial needs, subject to the limitations imposed on the
provider under the Act or any contractual arrangement; and
(d) where the financial product (“the replacement product”) is to replace an existing
financial product wholly or partially (“the terminated product”) held by the
client, fully disclose to the client the actual and potential financial implications,
costs and consequences of such a replacement, including, where applicable, full
details of-
(e) take reasonable steps to establish whether the financial product identified is
wholly or partially a replacement for an existing financial product of the client
and if it is such a replacement, the provider must comply with subparagraph
(d).
[Para (e) added by BN 43/2008 with effect from 14 May 2008]
(2) The provider must take reasonable steps to ensure that the client understands the
advice and that the client is in a position to make an informed decision.
(a) has not provided all information requested by a provider furnishing advice, as
(b) elects to conclude a transaction that differs from that recommended by the
provider, or otherwise elects not to follow the advice furnished, or elects to
receive more limited information or advice than the provider is able to provide,
the provider must alert the client as soon as reasonably possible of the clear
existence of any risk to the client, and must advise the client to take particular
care to consider whether any product selected is appropriate to the client‟s
needs, objectives and circumstances.
Summary
This topic deals with the skills needed to be able to apply knowledge of products.
This includes knowledge of financial services as well as the relationships between
role-players in terms of financial products and advice.
Please note that the questions which follow are formative in nature. The
questions were not developed by the FSB‟s examination bodies and as such
cannot be used as an indication of the nature/structure/level of the questions
that you will encounter in the FSB‟s regulatory examination.
3. Which one of the following is not included in the steps that an FSP has
to follow when providing advice?
a) Obtain appropriate and available information from the client
b) Conduct an analysis based on the information obtained as a
basis for advice
c) Inform the client who the product supplier is and by whom the
recommended product was developed
d) Identify the financial products that are suitable to the needs of
the client
8. Which of the following persons are not included in the FAIS definition of
a "client"?
a) Specific person or group of persons to whom a financial service
is rendered
b) The beneficiary of a financial service
c) The successor in title of a person to whom a financial service is
rendered
d) Members of the general public
11. Which one of the following statements is correct with reference to the
relationship between FAIS role-players?
a) A product supplier will always act as a financial services
provider.
b) A representative will always be an employee or someone
mandated by a financial services provider.
c) The compliance officer of a financial services provider will
always be an employee.
d) A representative is always part of the administrative staff of a
financial services provider.
12. Select the statement that correctly describes the involvement of all the
relationships between industry players with regard to financial
products, as defined in FAIS:
a) The FSP requests a product supplier to design a product which
can be sold to clients, and the compliance officer oversees this
process to ensure compliance with FAIS.
b) The product supplier designs products, tests their suitability
with representatives of an FSP and markets the products once
they have been approved by the FSP's compliance officer.
c) The FSP designs its own products, asks a product provider to
test the product for compliance with the FAIS Act and then the
FSP's representatives may sell the product to their clients.
d) The FSP/product supplier provides the product, which the
representative sells to a client, the admin staff will process the
application and the compliance officer oversees the process to
ensure compliance with FAIS.
5
Awareness of consequences for
representatives that have been found to act
fraudulently or committed any other act that
gives rise to debarment
5.1 INTRODUCTION
5. Explain the process and timeframe in which the FSP should notify the
Registrar that a representative has been debarred.
Representatives, who no longer comply with the fit and proper requirements,
have to be excluded by their FSP from providing financial services. This means
that they should be debarred by the FSP.
take immediate steps to ensure that the debarment does not prejudice
the interests of the clients of the representative; and
ensure that unconcluded business of the representative is properly
concluded.
Reasons for debarment will be non-compliance with any of the relevant fit and
proper requirements, or if the representative has contravened or failed to
The FAIS Registrar can also debar a person, including a representative, in terms
of Section 14A of the Act.
The Registrar can debar a person from providing financial services for a specific
period of time if the person:
does not meet the fit and proper requirement of honesty and integrity; or
contravened or did not comply with a provision of the Act.
The Registrar may publish the debarment or the lifting of the debarment.
When the Registrar wants to debar a representative, the Registrar must inform
the representative of the following:
The grounds for the intention to debarment and give the representative a
reasonable opportunity to make a submission in response thereto;
Any terms to be attached to the intended period of suspension,
including:
– a prohibition on concluding any new business by the
representative as from the effective date of the debarment and,
in relation to unconcluded business, such measures as the
Registrar may determine for the protection of the interests of
clients of the licensee; and
– terms designed to facilitate the lifting of the debarment.
The Registrar must consider any response received. He may thereafter decide to
debar or not to debar the representative and must notify the representative of
the decision.
An FSP must, within a period of five days after being informed by the Registrar of
the debarment, remove the names of that representative and key individuals
from the register.
This process begins when the FSP removes the representative's name from its
register of representatives. When debarring a representative the FSP must
ensure that he/she/it complies with the applicable labour laws. The
representative should be informed in writing of the debarment and should be
told the reasons for the debarment as well as the conditions for lifting it, if that
process is adopted within the organisation.
The FSP must then, within 15 days of the removal of the representative's name
from the register, inform the Registrar of the removal in writing. This
notification must include the details of the reasons for the debarment and must
be in the prescribed format. Remember that the Registrar does not (ordinarily)
debar representatives, but only updates the central register after having been
notified by FSPs of the debarment of representatives.
The Registrar may make known any debarment as well as the reasons for it on
the official web site or in any appropriate public media. This is to ensure that
the public is informed of representatives who are unfit to render a financial
service and are no longer authorised to do so.
Twelve months must have elapsed since the debarment date. However,
if debarment results from lack of competence and personal character
qualities then the debarment can be lifted as soon as full competence
is achieved, even if it is before 12 months have elapsed. However it is
difficult to see how a person who has been debarred for not being
honest of having integrity would be able to be reappointed after 12
months only. This is due to the nature of the honesty and integrity
requirements, as discussed earlier.
All unconcluded business of the debarred representative must have
been properly concluded.
All complaints or legal proceedings (if any) submitted by clients to the
applicant or the debarring provider, or the Ombud or any court of law;
or other administrative or legal procedures or proceedings in terms of
the FAIS Act or any other law, arising out of any acts or omissions in
which the applicant was directly or indirectly involved prior to the
debarment date, have been properly and lawfully resolved or
concluded, as the case may be, and that the applicant has fully
complied with any decision, determination or court order in connection
therewith, given or issued in respect of the applicant.
All fit and proper requirements must be met.
(1) An authorised financial services provider must ensure that any representative of the
provider who no longer complies with the requirements referred to in Section 13(2)(a)
or has contravened or failed to comply with any provision of this Act in a material
manner, is prohibited by such provider from rendering any new financial service by
withdrawing any authority to act on behalf of the provider, and that the
representative‟s name, and the names of the key individuals of the representative, are
removed from the register referred to in Section 13(3): Provided that any such
provider must immediately take steps to ensure that the debarment does not
prejudice the interest of clients of the representative, and that any unconcluded
business of the representative is properly concluded.
[Subs. (1) substituted by Section 53 of Act 22/2008]
(2) For the purposes of the imposition of a prohibition contemplated in subsection (1), the
authorised financial services provider must have regard to information regarding the
conduct of the representative as provided by the Registrar, the Ombud or any other
interested person.
[Subs. (2) substituted by Section 53 of Act 22/2008]
(3)
(a) The authorised financial services provider must within a period of 15 days after
the removal of the names of a representative and key individuals from the
register as contemplated in subsection (1), inform the Registrar in writing
thereof and provide the Registrar with the reasons for the debarment in such
format as the Registrar may require.
(b) The Registrar may make known any such debarment and the reasons therefor
by notice on the official web site or by means of any other appropriate public
media.
[Para. (b) substituted by Section 187 of Act 45/2013 w.e.f. 28 February 2014]
[Subs. (3) substituted by Section 53 of Act 22/2008]
(1) The Registrar may, subject to subsection (2), at any time debar a person, including a
representative, for a specified period from rendering financial services if satisfied on
the basis of available facts and information that the person-
(a) does not meet, or no longer meets, the requirements contemplated in Section
(b) has contravened or failed to comply with any provision of this Act.
(2) The provisions of Section 9(2), regarding a decision to suspend a licence, apply with
the necessary changes to the debarment of a person contemplated in subsection (1).
(3) An authorised financial services provider must within a period of five days after being
informed by the Registrar of the debarment of a representative or key individual,
remove the names of that representative and key individuals from the register as
contemplated in Section 13(3).
(4) The Registrar may make known any such debarment and the reasons therefor, or the
lifting thereof, by notice on the official web site or by means of any other appropriate
public media.
[Subs. (4) substituted by Section 188 of Act 45/2013 w.e.f. 28 February 2014]
[Section 14A inserted by Section 54 of Act 22/2008]
Summary
Please note that the questions which follow are formative in nature. The
questions were not developed by the FSB‟s examination bodies and as such
cannot be used as an indication of the nature/structure/level of the questions
that you will encounter in the FSB‟s regulatory examination.
6. When an FSP removes a representative's name from its register for the
purpose of debarment, the FSP has to inform:
a) the representative in writing of the debarment only.
b) the representative in writing of the debarment, inform him of
the reasons for the debarment as well as the conditions for
lifting it.
c) him of the reasons for the debarment only.
d) him of the conditions for lifting it only.
11. Mia, an employee of Excel Life, did not make the necessary disclosures
in a very lucrative deal, and realised that her actions warranted
dismissal. She immediately handed in her resignation, which was
accepted, and started working for Prudent Bank Ltd. When the client
suffered huge losses and complained to Excel Life, they could have
responded as follows:
a) They are unable to proceed with debarment, as Mia is no longer
in their employ, but they could inform the Registrar.
b) They could have collected and submitted evidence to the FSB,
recommending that Mia be debarred.
c) They could have advised the client to lodge their complaint with
the Ombud for Financial Services Providers (FAIS Ombud) as
Mia was no longer in their employment.
d) They could have provided Prudent Bank Ltd with the evidence,
recommending that they proceed with her debarment.
13. Mary, a representative, was debarred in 2010 when her FSP discovered
that she had not disclosed the fact that she was found guilty on two
counts of fraudulent behaviour in 2008. What was the basis for Mary's
debarment in terms of FAIS?
a) She did not meet the fit and proper requirement of
competence.
b) She did not meet the requirements of reporting money-
laundering activities.
c) She did not meet the fit and proper requirement of honesty and
integrity.
d) She was guilty of non-disclosure of information in terms of the
FAIS Act.
6
Align execution of duties and actions with the
compliance requirements
6.1 INTRODUCTION
The accountability for compliance with FAIS rests with the FSP. However, the
FSP may (and in some cases must) appoint a compliance officer to align
execution of duties and actions with compliance requirements. The purpose of
this topic is to inform you of how the compliance officer ensures that the FSP‟s
organisation remains FAIS compliant.
The following skills criteria are related to the knowledge criteria listed above:
1. Confirm that where the compliance officer found any instances of non-
compliance that this is addressed and rectified.
In the case of a sole proprietor FSP where there is only one person who will at all
times know whether his own actions are compliant, the compliance function may
also be carried out by the sole proprietor if no compliance officer is appointed to
supervise the compliance function.
It is possible for the FSP to outsource the compliance function – in other words,
not having to appoint a full-time employee to act as compliance officer. Care
must be taken to ensure that the outsourced compliance practice has adequate
staff, resources, skills, etc. and that the approval requirements are met.
As with key individuals, the FSP appoints compliance officers and the Registrar
approves the appointments – in accordance with the criteria and guidelines
determined by him. The FSP and compliance officer must apply for approval on
the relevant application forms to the Registrar.
6.2.1 Approval
Board Notice 127 of 2010 contains the criteria for Phase I and Phase II
approval by the Registrar as well as the required fit and proper requirements
6.2.2 Withdrawal
The Registrar may at any time withdraw the approval of the compliance officer if
he has evidence that the compliance officer:
The Registrar may make known any approval or withdrawal of approval and the
reasons therefor by notice on the official web site or by means of any other
appropriate public media.
6.2.3 Role
Oversee
The FAIS Act requires the compliance officer to „oversee‟ the compliance
function. In essence, this means that the FSP is responsible for the
establishment of the compliance function, including all the control requirements
and the compliance officer is responsible for all the related compliance functions.
The compliance officer must in effect only ensure that the requirements of the
Act are met through the procedures which the FSP (key individual) must
establish – hence the requirement for the compliance officer to „oversee‟.
Monitor
The monitoring duties of the compliance officer must be performed within the
scope and application of the categories and sub-categories for which the FSP is
licensed.
The compliance officer will submit written reports to the FSP on compliance
issues relating to the business and make recommendations as required. This
should enable both FSP (key individual) and compliance officer to assess
compliance with the FAIS Act and to identify and implement remedial steps
where required.
A compliance officer (or in the absence of a compliance officer, the FSP) must
submit reports to the Registrar as determined by the Registrar. The compliance
officer‟s report on the FSP must also include reporting any irregularity or
suspected irregularity in the conduct of the FSP business to the Registrar, of
which the compliance officer is aware and that the compliance officer regards as
material. This must also be done if the services of the compliance officer have
been terminated by the FSP.
The reporting duties of a compliance officer in terms of the FAIS Act go wider
than just compliance with the FAIS Act and include reporting on the FICA as well.
Relevant Legislation
FAIS Regulations
(1) Subject to the provisions of the Act, an authorised financial services provider shall
ensure that a compliance function exists or is established as part of the risk
management framework of the business, supervised by an approved compliance
officer (where required in terms of the Act), or otherwise managed under control and
responsibility of the provider alone.
(3) An approved compliance officer (where required by the Act) must provide a provider
with written reports on the course of, and progress achieved with, compliance
monitoring duties and make recommendations to the provider as regards any aspect
of the required compliance or monitoring functions.
(a) Any authorised financial services provider with more than one key individual or
one or more representatives must, subject to Section 35(1) (c) and subsections
(1)(b) and (2)(a)(i), appoint one or more compliance officers to oversee the
provider's compliance function and to monitor compliance with this Act by the
provider and such representative or representatives, particularly in accordance
with the procedures contemplated in subsection (3), and to take responsibility
(b) Such person must comply with the fit and proper requirements.
[Para. (b) substituted by Section 57 of Act 22/2008 and by Section 190 of Act 45/2013
w.e.f. 28 February 2014]
(bA) The provisions of Section 8A apply with the necessary changes to a compliance
officer.
[Para. (bA) inserted by Section 190 of Act 45/2013 w.e.f. 28 February 2014]
(c) The provisions of Section 19(4), (5) and (6), relating to an auditor of an
authorised financial services provider, apply with the necessary changes to a
compliance officer.
[Para. (c) substituted by Section 57 of Act 22/2008]
(2)
(a)
(i) A compliance officer must be approved by the Registrar in accordance
with the criteria and guidelines determined by the Registrar.
(ii) The Registrar may amend such criteria and guidelines, and an approved
compliance officer must comply with the amended criteria and guidelines
within such period as may be determined by the Registrar.
(b) The Registrar may at any time withdraw the approval if satisfied on the basis of
available facts and information that the compliance officer-
(i) has contravened or failed to comply with any provision of this Act;
(ii) does not meet or no longer meets the fit and proper requirements; or
(iii) does not comply or no longer complies with the criteria and guidelines
contemplated in paragraph (a).
(c) The provisions of Section 9(2) and (6) regarding a decision to withdraw an
authorisation (excluding such provisions relating to periods and terms) apply
with the necessary changes to a withdrawal of an approval contemplated in
paragraph (b).
(d) The Registrar may make known any withdrawal of approval under this
subsection and the reasons therefor by notice on the official web site or by
means of any other appropriate public media.
[Subs. (2) substituted by Section 57 of Act 22/2008 and Section 190 of Act 45/2013 w.e.f.
28 February 2014]
(3) An authorised financial services provider must establish and maintain procedures to be
followed by the provider and any representative concerned, in order to ensure
compliance with this Act.
(4)
(a) A compliance officer or, in the absence of such officer, the authorised financial
services provider concerned, must submit reports to the Registrar in the manner
(b) An authorised financial services provider must ensure that the reports referred
to in paragraph (a) are submitted in accordance with the provisions of that
paragraph.
[Subs. (4) substituted by Section 190 of Act 45/2013 w.e.f. 28 February 2014]
(5) The provisions of subsections (3) and (4) apply with the necessary changes to any
authorised financial services provider who carries on a business with only one key
individual or without any representative.
(1) Except to the extent exempted by the registrar, an authorised financial services
provider must, in respect of the business carried on by the provider as authorised
under the provider‟s licence -
(a) maintain full and proper accounting records on a continual basis, brought up to
date monthly; and
(b) annually prepare, in respect of the relevant financial year of the provider,
financial statements reflecting -
(i) the financial position of the entity at its financial year end;
(ii) the results of operations, the receipt and payment of cash and cash
equivalent balances;
(iii) all changes in equity for the period then ended, and any additional
components required in terms of South African Generally Accepted
Accounting Practices issued by the Accounting Practices Board or
International Financial Reporting Standards issued by the International
Accounting Standards Board or a successor body; and
(iv) a summary of significant accounting policies and explanatory notes on the
matters referred to in paragraphs (i) to (iii);
[Para. (b) substituted by Section 58 of Act 22/2008]
(3) The authorised financial services provider must maintain records in accordance with
subsection (1)(a) in respect of money and assets held on behalf of clients, and must,
in addition to and simultaneously with the financial statements referred to in
subsection (2), submit to the registrar a report, by the auditor who performed the
audit, which confirms, in the form and manner determined by the registrar by notice
on the official web site for different categories of financial services providers-
[Words preceding para. (a) substituted by Section 191 of Act 45/2013 w.e.f. 28 February 2014]
(b) that such money and financial products were throughout the financial year kept
separate from those of the business of the authorised financial services
provider, and report any instance of non-compliance identified in the course of
the audit and the extent thereof; and
(4) Despite anything to the contrary contained in any law, the auditor of an authorised
financial services provider must report to and inform the Registrar in writing of any
irregularity or suspected irregularity in the conduct or the affairs of the authorised
financial services provider concerned of which the auditor became aware in performing
functions as auditor and which, in the opinion of the auditor, is material.
Summary
The role of the compliance officer is to ensure compliance with the FAIS Act
within the business of the FSP. A compliance officer must:
A compliance officer may be appointed from internal staff or the function may
be outsourced to an external compliance officer.
Self-Assessment Questions
Please note that the questions which follow are formative in nature. The
questions were not developed by the FSB‟s examination bodies and as such
cannot be used as an indication of the nature/structure/level of the questions
that you will encounter in the FSB‟s regulatory examination.
4. Which one of the following tasks forms part of the monitoring function
of the compliance officer?
a) Submission of compliance reports and other compliance-
related reports to the Registrar and to the FSP
b) Performance evaluations of representatives
c) Drafting of job descriptions
d) Identifying training needs
7
Carry out the proper record-keeping activities
7.1 INTRODUCTION
The FAIS Act imposes various duties on FSPs and of course on representatives
as well. One of these duties is that of record-keeping. The continuity of your
business as either an FSP or a representative depends on whether you are
compliant with the FAIS legislation, and specifically with regard to record-
keeping. The purpose of this topic is to inform you of the knowledge and skills
needed to be compliant in this aspect of FAIS.
6. Explain what the security requirements for these records are in terms
of confidentiality and access to records.
7.2 RECORD-KEEPING
The requirements for record-keeping are discussed in detail in Section 1.9 and
will be briefly revisited below, before we discuss record keeping under FICA.
The FAIS General Code of Conduct determines that a provider must have
appropriate procedures and systems in place to:
Note
The records mentioned above may be kept in electronic form. Records that relate
to the establishment of a business relationship should be kept for five years from
the date on which the business relationship is terminated. Records which relate
to transactions should be kept for at least five years from conclusion of the
transaction.
FICA also allows for third parties to keep records on behalf of the accountable
institution, provided that the accountable institution has free and easy access to
the records. Should the third party fail to keep proper records, the accountable
institution is liable for that failure. If an accountable institution decides to make
use of a third party to keep records, the particulars of such third party needs to
be provided to the Financial Intelligence Centre. (Refer to Topic 8.)
Accessibility of information
Where such records are not available to the general public, a warrant issued by a
judge or magistrate of the region in which the accountable institution conducts
business is required by the representative of the FIC. Such a warrant will only be
issued if there are reasonable grounds to believe that the records will assist in
identifying the proceeds of unlawful activities. An accountable institution which
fails to provide this assistance, is guilty of an offence, punishable with
imprisonment for a period not exceeding 15 years, or a fine not exceeding R100
million.
Note
In terms of the FIC Act, the penalties increased as from 1 December 2010 to 15
years imprisonment or a fine not exceeding R100 million.
Let‟s assume that the authorities have been investigating Client X in terms of
unlawful activities.
The Financial Intelligence Centre can obtain a warrant to access records kept by
an accountable institution such as a long-term insurer, provided that there are
reasonable grounds to believe that the records will assist in identifying the
proceeds of unlawful activities. The insurer will be obliged to provide all
necessary assistance to FIC in this process.
Providers are not required to keep the records themselves but must ensure
that they are available for inspection within seven days of the Registrar‟s
request if record-keeping is outsourced.
General Code of Conduct for Authorised Financial Services Providers and Representatives,
2003
Part VII
Furnishing of Advice
Section 9
9. Record of advice
(1) A provider must, subject to and in addition to the duties imposed by Section 18 of the
Act and Section 3(2) of this Code, maintain a record of the advice furnished to a client
as contemplated in Section 8, which record must reflect the basis on which the advice
was given, and in particular-
(a) a brief summary of the information and material on which the advice was
based;
(c) the financial product or products recommended with an explanation of why the
product or products selected, is or are likely to satisfy the client‟s identified
needs and objectives; and
Para (c) substituted by BN 43/2008 with effect from 14 May 2008]
Provided that such record of advice is only required to be maintained where, to the
knowledge of the provider, a transaction or contract in respect of a financial product is
concluded by or on behalf of the client as a result of the advice furnished to the client
in accordance with Section 8.
(2) A provider, other than a direct marketer, must provide a client with a copy of the
record contemplated in 9(1) in writing.
An authorised financial services provider must, except to the extent exempted by the
Registrar, maintain records for a minimum period of five years regarding -
(b) complaints received together with an indication whether or not any such
complaint has been resolved;
(d) cases of non-compliance with this Act, and the reasons for such non-
compliance; and
General Code of Conduct for Authorised Financial Services Providers and Representatives,
2003
Part II
General Provisions
Section 3
(2)
(c) Providers are not required to keep the records themselves but must ensure that
they are available for inspection within seven days of the Registrar‟s request.
(d) Records may be kept in an appropriate electronic or recorded format, which are
accessible and readily reducible to written or printed form
(3) A provider may not disclose any confidential information acquired or obtained from a
client or, subject to Section 4(1), a product supplier in regard to such client or
supplier, unless the written consent of the client or product supplier, as the case may
be, has been obtained beforehand or disclosure of the information is required in the
public interest or under any law.
Section 20
1) If an accountable institution appoints a third party to keep on its behalf any records
which that institution must retain in terms of the Act, that institution must without
delay provide the Centre with –
c) the full name and contact particulars of the individual who exercises control over
access to those records;
e) the address from where the third party exercises control over the records; and
f) the full name and contact particulars of the individual who liaises with the third
party on behalf of the accountable institution concerning the retention of the
records.
Summary
Both FICA and FAIS allow providers to outsource the record-keeping function
but records must be accessible should any authorised person want to access
them at the third party's storage facility.
The industry standard for the storage and retrieval of records is an appropriate
electronic or recorded format which can easily be converted into a written or
printed format.
To conclude, one can see that very strict requirements are in place to ensure
safe but accessible record-keeping.
Self-Assessment Questions
Please note that the questions which follow are formative in nature. The
questions were not developed by the FSB‟s examination bodies and as such,
cannot be used as an indication of the nature/structure/level of the questions
that you will encounter in the FSB‟s regulatory examination.
3. The industry standard for the method of storing and retrieving records
is an:
a) appropriate electronic format which can easily be converted
into a written or printed format.
b) appropriate written format.
c) appropriate electronic or recorded format which can easily be
converted into a written or printed format.
d) electronic format only.
12. Charlie conducted a needs analysis for a client, after which the client
purchased an endowment policy. Charlie showed the client the
quotation as well as his report, which indicated that the client needs a
savings plan to provide for his children‟s studies. What information
should Charlie provide to the client in this instance?
a) The only information that Charlie has to give is that information
regarding the financial product(s) considered and
recommended, with a reason for why the endowment meets his
client's needs and objectives.
b) The only information that Charlie has to give is a summary of
his report, a copy of the quote and the FAIS disclosures.
c) A brief summary of his report and a quote on which his advice
was based, the financial product(s) considered and
recommended with a reason for why the endowment meets his
needs and objectives.
d) The only information that Charlie has to give is a brief
summary of his report and a copy of the quote and the
completed application form for the endowment.
8
Adhere to the requirements of FICA and other
relevant anti-money laundering legislation, as
it applies to the FSP
8.1 INTRODUCTION
The purpose of this topic is to provide you with insight and a good knowledge
of the implications of these Acts on your work in the financial services industry.
Most importantly, you need to know the requirements that these Acts impose
on FSPs and representatives so that you can comply with it on a daily basis.
Non-compliance may lead to harsh penalties.
In this topic you are going to learn how to comply with the requirements of
FICA and other relevant anti-money laundering legislation as it applies to the
FSP and yourself. There are two very important underlying concepts with
regard to FICA that you have to understand before you can continue with this
topic. These concepts are “money-laundering” and “unlawful activities”.
The following skills criteria are related to the knowledge criteria listed above:
A money laundering activity is any activity that has, or is likely to have, the
effect of concealing or disguising the nature, source, location, disposition or
movement of the proceeds of unlawful activities. By definition, any interest
which anyone has in such proceeds as listed above is also guilty of money
laundering and includes any activity which constitutes an offence in terms of
Section 64 of the Financial Intelligence Centre Act (FICA) No. 38 of 2001 or
Sections 4, 5 or 6 of the Prevention of Organised Crime Act, 1989 (known as
POCA).
This “dirty” money is therefore disguised and the illegal funds avoid
detection. A further aim is to convert the nature of the profits, usually
cash, into some other asset, such as property, or certain financial
instruments, such as life assurance investments or travellers‟ cheques.
Example: Mr Naidoo
A couple of months later he registers a bond over the property and withdraws
the maximum capital amount from the bond. He is now able to show a
legitimate source of funds, namely the bond registered on his property.
Any conduct that constitutes a crime or which contravenes any law, whether
the conduct occurred before or after the commencement of the South African
legislation, or in South Africa or elsewhere, constitutes unlawful activity.
Examples:
Governments of the world have therefore united in the fight against these
sources with an international agreement setting up the Financial Action Task
Force (FATF).
FATF was founded in 1989 by the countries with the world‟s largest economies,
known as the G7 countries (there were originally seven) to combat money
laundering. Its activities now cover combating money laundering for criminal
and terrorist purposes. Today FATF members represent most countries around
FATF has issued 40 recommendations for action against money laundering that
form the basis for legislation in many countries. These recommendations are
constantly being reviewed and updated, as is legislation worldwide to keep it
on track.
The first thing to understand about money laundering legislation is that it does
not act upon the crime itself that has brought about illegal money, for example
drug dealing. It deals with the proceeds of that crime.
The three main laws dealing with money laundering in South Africa, in
chronological order, are the Prevention of Organised Crime Act (POCA) No. 121
of 1998, the Financial Intelligence Centre Act (FICA) No. 38 of 2000, and the
Protection of Constitutional Democracy Against Terrorism and Related
Activities (POCDATARA) Act, 2004.
Objectives of POCA
The 2001 FICA Act creates the requirements to ensure that money laundering
is controlled. It is aimed at identifying suspicious transactions so that the
people who engage in money laundering activities can be charged under POCA.
Suspicious transactions must be reported under FICA, which now provides the
infrastructure to curb money-laundering activities.
The Act also requires “accountable institutions” that could serve as a conduit
for “dirty money” to comply with certain legal duties relating to combating
money laundering.
FICA provides for a Financial Intelligence Centre (FIC) [lending its name to the
Act] and a Money laundering Advisory Council to help combat money
laundering.
In simple terms, FICA requires the creation of a paper trail, with detailed
records of the origins of money placed with an accountable institution and the
people involved. Internationally, this paper trail makes it more difficult to
launder money.
Money laundering has also been used by terrorist organisations to fund their
activities. The original purely criminal focus of anti-money laundering measures
has been broadened in recent years to cover this as well. In South Africa, this
led to the 2004 Protection of Constitutional Democracy Against Terrorism and
Related Activities Act, known as POCDATARA.
It introduced a new Section 28A of FICA which requires the reporting of any
property associated with terrorist and related activity to the Financial
Intelligence Centre.
FICA added to POCA and repealed certain parts of POCA. This means that the
two Acts have to be read in conjunction with each other. The relationship
between FICA and POCA can best be described by looking at an example:
Example:
Example:
The FICA creates the following four money laundering control obligations for all
accountable institutions:
It is, therefore, imperative that FSPs have adequate staff training in place and
proper systems and procedures to assist them to comply with the FICA. Banks
and long-term insurance companies are regarded as accountable institutions in
terms of the FICA.
The impact of FICA on financial services providers and representatives (in their
role as accountable institutions) is determined by the additional duties that it
imposes on them. The main duties of accountable institutions, including those
that are FSPs and representatives, as described in FICA, include:
Let us look at each of these duties in depth so that you can understand what
FSPs and representatives have to do to be compliant with this legislation.
The two duties that FICA imposes on an FSP (as an accountable institution)
relating to its employees are the training of staff and the formulation and
implementation of internal rules. Let's investigate how these duties impact on
the FSP.
2. Formulating and implementing internal rules The Act requires that the
FSP formulate and implement internal rules relating to:
These internal rules must be made available to all employees and the FIC.
Some of the duties listed that FICA imposes on FSPs also become your duties
when you work for the FSP as a representative.
The term “client” can be regarded as anyone who uses the services of an
accountable institution. Client categories include natural persons, companies,
close corporations, trusts, partnerships and the like.
Table 8.1
Any long-term insurance policy which provides benefits only upon the
death, disability, sickness or injury of the life insured
Any long-term insurance policy which is a fund policy or a fund
member policy as defined in the Long-term Insurance Act, 1998 and
the regulations thereto and in respect of which the policyholder is a
pension fund, provident fund or retirement annuity fund approved in
terms of the Income Tax Act, 1962.
Example:
Financial adviser K does not have to verify and identify his client when he sells
a pure life-cover policy or a retirement annuity to the client.
Example:
Example:
Client Y invests R60 000 in a single-premium sinking fund with Company X. The
financial adviser will have to identify and verify the client in this scenario, as
the single premium is more than R50 000.
Any other long-term policy where the surrender value of the policy
does not exceed 20% of the value of the premiums paid in respect of
the policy within the first three years of the policy.
Any compulsory purchase annuity.
The records mentioned above may be kept in electronic form. Records which
relate to the establishment of a business relationship should be kept for five
years from the date on which the business relationship is terminated. Records
which relate to transactions should be kept for at least five years from
conclusion of the transaction.
FICA also allows for third parties to keep records on behalf of the accountable
institution, provided that the accountable institution has free and easy access to
the records. Should the third party fail to keep proper records, the accountable
institution is liable for that failure. If an accountable institution decides to make
use of a third party to keep records, the particulars (name or business name,
address, individual who exercises control) of such third party needs to be
provided to the Financial Intelligence Centre. The accountable institution also
has to provide details of the individual who liaises with the third party on behalf
of the accountable institution.
Accessibility of information
Where such records are not available to the general public, a warrant issued by
a judge or magistrate of the region in which the accountable institution
conducts business is required by the representative of the FIC. Such a warrant
will only be issued if there are reasonable grounds to believe that the records
will assist in identifying the proceeds of unlawful activities.
Let‟s assume that the authorities have been investigating Client X in terms of
unlawful activities.
The Financial Intelligence Centre can obtain a warrant to access records kept
by an accountable institution such as a long-term insurer, provided that there
are reasonable grounds to believe that the records will assist in identifying the
proceeds of unlawful activities. The insurer will be obliged to provide all
necessary assistance to FIC in this process.
A person liaising with a client on behalf of the business is required to report any
suspicion on his part of receiving proceeds of unlawful activities from a client. A
person who has reported a suspicious transaction may not inform the client
that such a report has been made (so-called “tipping off”). In practice, this
process is mostly handled by the money laundering reporting officer of an
institution.
A client appears to have bank accounts with several banks in the area.
A client makes cash deposits to a general account of a foreign
correspondent bank.
A client wishes to have credit and debit cards sent to destinations
other than his address.
A client has numerous accounts and makes or receives cash deposits in
each of them amounting to a large aggregated amount.
A client frequently exchanges currencies.
A client wishes to have unusual access to safe-deposit facilities.
A client‟s account shows virtually no normal business-related activities,
but is used to receive or disburse large sums.
A client has accounts that have a large volume of deposits in bank
cheques, postal orders or electronic funds transfers.
A client is reluctant to provide complete information regarding these
activities.
A client‟s financial statements differ noticeably from those of similar
businesses.
A client makes a large volume of cash deposits from a business that is
not normally cash intensive.
Section 34 (Intervention by Centre): The FIC, in terms of the above, can direct
an accountable or reportable institution not to proceed with a transaction for a
The following case studies were taken from the Financial Action Task Force
reports on money laundering typologies (www.fatf-gafi.org).
Case study 1
Funds were transferred from one account to another (several types of accounts
were involved, including both current and savings accounts). Through one of
these transfers, the funds were transferred to Country U from a current
account in order to make payments on life insurance policies. The investment
in these policies was the main mechanism in the scheme of laundering the
funds. The premiums paid for the life insurance policies in Country U amounted
to some $1.2 million and represented the last step in the laundering operation.
Case study 2
A person (later arrested for drug trafficking) made a financial investment (life
insurance) of R250 000 through an insurance broker. He acted as follows: he
contacted the broker and delivered an amount of R250 000 in three cash
instalments. The insurance broker did not report the delivery of that amount
and deposited the three instalments in the bank. These actions raised no
suspicion at the bank, since the broker was known to them as being connected
to the insurance branch. The broker delivered, afterwards, to the insurance
company responsible for making the investment, three cheques from a bank
account under his name, totalling R250 000, thus avoiding raising suspicion
with the insurance company.
Example:
Client Y wants to deposit R100 000 cash at Bank A. In terms of FICA, Bank A,
as an accountable institution, is obliged to report the transaction to the
Financial Intelligence Centre. The cashier will report it to Bank A‟s reporting
officer/department, who in turn will report it to the Financial Intelligence
Centre.
When cash transactions above the prescribed limit are reported, a report must
be sent to the FIC no later than two days after the person became aware of the
cash transaction, or series of cash transactions exceeding the prescribed limit.
In terms of FICA, penalties for offences range from five years‟ imprisonment or
a fine of R10 000 000, to 15 years‟ imprisonment or a fine of R100 000 000.
Offences subject to the penalties include, amongst others:
Relevant Legislation
1 Definitions
1.
"money laundering" or "money laundering activity"
means an activity which has or is likely to have the effect of concealing or disguising the
nature, source, location, disposition or movement of the proceeds of unlawful activities or
any interest which anyone has in such, proceeds, and includes any activity which constitutes
an offence in terms of Section 64 of this Act or Sections 4, 5 or 6 of the Prevention Act;
"unlawful activity"
has the meaning attributed to that term in Section 1 of the Prevention Act.
3) For the purposes of this Act a person ought reasonably to have known or suspected a
fact; if the conclusions that he or she ought to have reached, are those which would
have been reached by a reasonably diligent and vigilant person having both –
a) the general knowledge, skill, training and experience that may reasonably be
expected of a person in his or her position; and
Chapter 4
Offences and Penalties
Schedule 1
List of Accountable Institutions
The FIC Act requires “accountable institutions” to verify client details and report suspicious
transactions.
The following accountable institutions are included from Schedule 1 of the Act:
A practitioner who practices as defined in Section 1 of the Attorneys Act, 1979 (Act 53
of 1979)
A board of executors or a trust company or any other person that invests, keeps in
safe custody, controls or administers trust property within the meaning of the Trust
Property Control Act, 1998 (Act 57 of 1988)
An estate agent as defined in the Estate Agency Affairs Act, 1976 (Act 112 of 1976)
An authorised user of an exchange as defined in the Securities Service Act, 2004 (Act
36 of 2004)
A manager registered in terms of the Collective Investment Schemes Control Act,
2002 (Act 45 of 2002), but excludes managers who only conduct business in Part VI of
the Collective Investment Schemes Control Act, 2002 (Act 45 of 2002)
A person who carries on the „business of a bank‟ as defined in the Banks Act, 1990
(Act 94 of 1990)
A mutual bank as defined in the Mutual Banks Act, 1993 (Act 124 of 1993)
A person who carries on a „„long-term insurance business‟‟ as defined in the Long-
Term Insurance Act, 1998 (Act 52 of 1998).
A person who carries on the business of making available a gambling activity as
contemplated in Section 3 of the National Gambling Act, 2004 (Act 7 of 2004) in
respect of which a licence is required to be issued by the National Gambling Board or a
provincial licensing authority.
A person who carries on the business of dealing in foreign exchange
A person who carries on the business of lending money against the security of
securities
A person who carries on the business of a financial services provider requiring
Section 3
The principal objective of the Centre is to assist in the identification of the proceeds of
unlawful activities and the combating of money laundering activities.
c) to supervise and enforce compliance with this Act or any directive made in
terms of this Act and to facilitate effective supervision and enforcement by
supervisory bodies.
Section 22
d) the manner in which the identity of the persons referred to in paragraphs (a),
(b) and (c) was established;
Section 23
An accountable institution must keep the records referred to in Section 22 which relate to –
a) the establishment of a business relationship, for at least five years from the
date on which the business relationship is terminated;
b) a transaction which is concluded, for at least five years from the date on which
that transaction is concluded.
Section 24
2) If a third party referred to in subsection (1) fails to properly comply with the
requirements of Section 22 on behalf of the accountable institution concerned, the
accountable institution is liable for that failure.
Section 29
c) the business has been used or is about to be used in any way for money
laundering purposes, must, within the prescribed period after the knowledge
was acquired or the suspicion arose, report to the Centre the grounds for the
knowledge or suspicion and the prescribed particulars concerning the
transaction or series of transactions.
Section 43
Section 43A
1) The Centre may, by notice in the Gazette, issue a directive to all institutions to whom
the provisions of this Act apply, regarding the application of this Act.
2) The Centre or a supervisory body may, in writing, issue a directive to any category of
accountable institutions or category of reporting institutions or other category of
person to whom the provisions of this Act apply, regarding the application of this Act.
3) The Centre or a supervisory body may in writing, over and above any directive
contemplated in subsection (1) or (2), issue a directive to any accountable
institution, category of accountable institutions, reporting institution, category of
reporting institutions or other person to whom the provisions of this Act apply, to-
a) provide the Centre or that supervisory body, as the case may be-
i) with the information, reports or statistical returns specified in the notice,
at the time or at the intervals specified in the notice; and
ii) within the period specified in the notice, with any document in its
possession or custody or under its control;
5) The costs incurred in complying with a directive must be borne by the accountable
institution, reporting institution or person concerned.
6)
a) The Centre, in respect of any accountable institution or category of
accountable institutions regulated or supervised by a supervisory body in
terms of this Act or any other law, may issue a directive in accordance with
subsections (2) and (3) only if a supervisory body-
i) failed to issue a directive despite any recommendation of the Centre
made in terms of Section 44(b): or
ii) failed to issue a directive within the period specified by the Centre.
b) A supervisory body may issue a directive in terms of this section only after
consulting the Centre on that directive.
Section 62
Section 68
2) A person convicted of an offence mentioned in Sections 55, 61 62, 62A, 62B, 62C or
62D, is liable to imprisonment for a period not exceeding five years or to a fine not
exceeding R10 million.
Schedule 3
Section 7(1)(f)
(f) any long term insurance policy which provides benefits only upon the death,
disability, sickness or injury of the life insured under the policy;
Summary
FICA amended the Prevention of Organised Crime Act, 1998 and the Promotion
of Access to Information Act, 2000 to provide for matters connected therewith.
The original purely criminal focus of anti-money laundering measures has been
broadened in recent years to cover money laundering used by terrorist
organisations to fund their activities. In South Africa, this led to the 2004
Protection of Constitutional Democracy Against Terrorism and Related Activities
Act (POCDATARA). This Act requires the reporting to the Financial Intelligence
Centre of any property associated with terrorist and related activity.
The introduction of these Acts has gone a long way in aligning South African with
the rest of the international community in the fight against money-laundering.
Self-Assessment Questions
Please note that the questions which follow are formative in nature. The
questions were not developed by the FSB‟s examination bodies and as such
cannot be used as an indication of the nature/structure/level of the questions
that you will encounter in the FSB‟s regulatory examination.
4. The main laws dealing with money laundering in South Africa are:
a) FICA + POCA
b) FICA + POCDATARA
c) POCDATARA + POCA + FICA
d) POCDATARA + POCA
9. Which one of the following statements is true with regard to the record
keeping function of records regarding transactions?
a) Records may be kept in electronic form and should be kept for
at least five years from conclusion of the transaction.
b) Records may not be kept in electronic form as long as they are
kept for at least five years from conclusion of the transaction.
c) Records may not be kept in electronic form as long as they are
kept for at least ten years from conclusion of the transaction.
d) Records may be kept in electronic form and should be kept for
at least ten years from conclusion of the transaction.
4. Which of the following items does not have to be contained in the FSP's
register for representatives?
c) Past experience of the representative in terms of financial
services
6. Elise has been working as a long-term insurance broker for more than
eight years. She is well-loved by clients and colleagues due to her
professional and friendly attitude. Elise has just finished Financial
Planning on NQF Level 6; she has passed the Level 1 Regulatory
Examination and would now like to specialise in call centre selling.
What is Elise‟s current status regarding fit and proper requirements?
d) Regarded as fully fit and proper as she meets all the current
requirement in terms of FAIS
10. Charne (a representative) is faced with a difficult choice: the FAIS Code
of Conduct requires her to act in the interests of the customer and the
integrity of the financial services industry. If she tells her customer
about a certain feature of Product A, she may lose the sale, but her
company needs to boost sales of Product A in order to achieve their
strategic objectives. Which one of the following options presents the
most appropriate course of action?
c) Charne must encourage the customer to purchase the product
that suits his needs, even if her sales do not reflect the targets
provided.
3. Which statement reflects all the actions with regard to complaints that
are within the power of the Ombud for Financial Services Providers
(FAIS Ombud)?
c) The Ombud may dismiss a complaint, uphold it, decline it if it is
received three years after the date of the issue of the
complaint or refer it to a court of law if more suitable to be
heard by the court
12. Claude did not disclose the name of the product provider to his
customer, because the customer just informed him that she had a very
bad experience with that particular product provider. He knows that the
policy is the best match for the customer‟s need and trusts the integrity
of the product provider. Choose the option that reflects the FAIS
perspective on this interaction:
d) Claude has breached a FAIS requirement in failing to provide
his client with the opportunity to make a fully informed
decision.
3. Which one of the following is not included in the steps that an FSP has
to follow when providing advice?
c) Inform the client who the product supplier is and by whom the
recommended product was developed
8. Which of the following persons are not included in the FAIS definition of
a "client"?
d) Members of the general public
10. Which scenario is not applicable when advice is given but no analysis is
performed?
b) The adviser refused to do an analysis.
12. Select the statement that correctly describes the involvement of all the
relationships between industry players with regard to financial
products, as defined in FAIS.
d) The FSP/product supplier provides the product, which the
representative sells to a client, the admin staff will process the
application and the compliance officer oversees the process to
ensure compliance with FAIS
6. When an FSP removes a representative's name from its register for the
purpose of debarment, the FSP has to inform:
b) the representative in writing of the debarment, inform him of
the reasons for the debarment as well as the conditions for
lifting it.
11. Mia, an employee of Excel Life, did not make the necessary disclosures
in a very lucrative deal, and realised that her actions warranted
dismissal. She immediately handed in her resignation, which was
accepted, and started working for Prudent Bank Ltd. When the client
suffered huge losses and complained to Excel Life, they could have
responded as follows:
b) They could have collected and submitted evidence to the FSB,
recommending that Mia be debarred.
12. Jackie was debarred nine months ago due to incompetence, and has
applied for reappointment. You advise her that her debarment can be
lifted if:
a) full competence has been achieved and all other requirements
have been met.
13. Mary, a representative, was debarred in 2010 when her FSP discovered
that she had not disclosed the fact that she was found guilty on two
counts of fraudulent behaviour in 2008. What was the basis for Mary's
debarment in terms of FAIS?
c) She did not meet the fit and proper requirement of honesty and
integrity.
4. Which one of the following tasks forms part of the monitoring function
of the compliance officer?
a) Submission of compliance reports and other compliance-related
reports to the Registrar and to the FSP
5. Which one of the following tasks forms part of the oversight function of
the compliance officer?
d) Identification of training needs
3. The industry standard for the method of storing and retrieving records
is an:
c) appropriate electronic or recorded format which can easily be
converted into a written or printed format.
11. You have to advise a new financial services provider on the FAIS
requirements for the maintenance and accessibility of records. The
financial services provider has limited space in his office and cannot
store the hard copy records that have to be kept for five years. What
advice would you give him?
b) The financial services provider may outsource record-keeping,
but it has to be available for inspection within seven days of
the Registrar's request. The financial services provider may
also keep the records in appropriate electronic or recorded
format if they are accessible and readily reducible to written or
printed format.
12. Charlie conducted a needs analysis for a client, after which the client
purchased an endowment policy. Charlie showed the client the
quotation as well as his report, which indicated that the client needs a
savings plan to provide for his children‟s studies. What information
should Charlie provide to the client in this instance?
c) A brief summary of his report and a quote on which his advice
was based, the financial product(s) considered and
recommended with a reason for why the endowment meets his
needs and objectives.
13. An FSP must have appropriate procedures and systems in place to fulfil
its record-keeping obligations in terms of FAIS. Which one of the
following is not part of these record-keeping obligations?
d) Safe-keeping of the compliance reports relating to client
contact compiled by the compliance officer and provided to the
FSP every quarter
4. The main laws dealing with money laundering in South Africa are:
c) POCDATARA + POCA + FICA
9. Which one of the following statements is true with regard to the record
keeping function of records regarding transactions?
a) Records may be kept in electronic form and should be kept for
at least five years from conclusion of the transaction.
Questions
This manual includes the following sample exam paper/assessment test and
suggested answers:
The following questions are similar in format and content to those you may find
in the exam. Do not only study these questions, but ensure that you cover the
contents of your notes thoroughly.
Select the correct answer and write it into your answer book next to the
question number:
6. Sarah has been licensed as an FSP for Excel Life for the past two years.
A colleague, Ann, who worked with her at Afro Life many years ago has
been appointed at Excel Life and realised that Sarah left Afro Life under
a cloud because her licence was withdrawn at the time due to
dishonesty.
Which of the following examples does not correctly explain this type of
complaint?
a) Complaints submitted by a specific client against another client.
b) Complaints relating to a financial service rendered by the
representative of an FSP.
c) Complaints relating to an admin service rendered by an admin
manager of an FSP.
d) Complaints relating to a financial service rendered by a sole
proprietor
11. In order to be able to provide the client with appropriate advice, the
representative should first of all obtain appropriate and available
information from the client regarding his:
a) financial situation.
b) financial situation, financial product experience and objectives.
c) financial product experience and objectives.
d) financial situation and objectives.
16. Ethan was debarred as a representative by Afro Life two years ago. He
now meets all the fit and proper requirements.
Before they may remove her name from their register they have to
inform Alison:
a) of the conditions for lifting the debarment only.
b) in writing of the debarment only.
c) in writing of the debarment, inform her of the reasons for the
debarment as well as the conditions for lifting it.
d) of the reasons for the debarment only.
18. Wilfred has been appointed as the compliance officer at Excel Life.
19. Wilfred's job description should describe the following duties with
regard to his role as compliance officer:
a) Monitoring and training
b) Monitoring and providing support
c) Providing support and training
d) Monitoring, training and providing support
21. You have been asked under which circumstances Afro Life should
appoint a compliance officer.
5. Karin acts as a representative for Excel Life. She has done an analysis
for a client. When she presents the results of the analysis, she
recommends that the client takes out a retirement annuity. She leaves
a report on the performance of the specific retirement annuity with the
client to support her recommendation.
Which of the following examples does not correctly explain this type of
complaints?
a) Complaints submitted by a specific client against another client
b) Complaints relating to a financial service rendered by the
representative of an FSP
c) Complaints relating to an admin service rendered by an admin
manager of an FSP. Complaints relating to a financial service
rendered by a sole proprietor
d) Complaints relating to a financial service rendered by a sole
proprietor
10. Jackson, who acts as a representative for Afro Life, has a shareholding
of R500 000 in a product supplier that supplies products to Afro Life.
Their total shareholding has been valued at R4 500 000.
11. In order to be able to provide the client with appropriate advice, the
representative should first of all obtain appropriate and available
information from the client regarding his:
a) financial situation.
b) financial situation, financial product experience and objectives.
c) financial product experience and objectives.
d) financial situation and objectives.
Before they may remove her name from their register they have to
inform Alison:
a) of the conditions for lifting the debarment only.
b) in writing of the debarment only.
c) in writing of the debarment, inform her of the reasons for the
debarment as well as the conditions for lifting it.
d) of the reasons for the debarment only.
18. Wilfred has been appointed as the compliance officer at Excel Life.
21. You have been asked under which circumstances Afro Life should
appoint a compliance officer.
26. The laws dealing with money laundering in South Africa are:
a) POCA, FICA, POCDATARA and FAIS
b) POCA, FICA and POCDATARA
c) FICA and FAIS
d) POCA and POCDATARA
1. Form FSP 2
2. FSB Preparation Guide for representatives
3. FSB Preparation Guide: Appendix A
The FSB‟s Form FSP 2 can be downloaded from the web site www.fsb.co.za.
The FSB‟s Preparation Guide for Level 1 Regulatory Examination (RE 1 and RE
5) can be downloaded from the web site www.fsb.co.za (under the heading
“FAIS”).