RE5 cheat sheet

FAIS is the Financial Advisory and Intermediary Services Act 37 of 2002; it regulates the rendering of financial services in respect of financial products by providers and their representatives.

Purpose (s2): promote a fair, efficient and transparent financial services industry, protect clients, promote confidence in the industry, and ensure that providers and representatives are fit and proper.

Structure: the Act itself; regulations/Board Notices made by the Registrar; sector-specific codes of conduct; the FAIS Ombud; and appeal/review to the Financial Services Tribunal. The Registrar is the FSCA (previously the FSB).

'Advice' = any recommendation, guidance or proposal of a financial nature furnished to a client regarding the purchase of, investment in, or variation of the terms of a financial product; factual information and purely administrative acts are excluded.

'Intermediary service' = any act other than advice performed for or on behalf of a client in relation to a financial product, e.g. buying, selling, administration, safe custody, collecting premiums.

'Client' includes a prospective client and a person acting as the client's agent; 'financial product' is an exhaustive list in s1 (insurance policies, CIS interests, securities, deposits, health products and others) – products outside the list fall outside FAIS.

Two regulated roles: the provider (licensed FSP) and the representative (a person who renders a financial service on behalf of an FSP). A product supplier (insurer, CIS manager) must itself be licensed if it gives advice or intermediary services.

Rendering a financial service as a regular business without a licence is a criminal offence, and an FSP may not allow an unauthorised person to render services on its behalf.

Section 8: no person may render a financial service as a regular business unless licensed by the Registrar; a licence is limited to the categories and financial products applied for.

Licence categories: I (advice and/or intermediary services), II (discretionary services), IIA (hedge fund services), III (administrative services) and IV (assistance business, e.g. multi-agents and juristic representatives).

An applicant must satisfy the s8 requirements: fit and proper (and its key individuals fit and proper), operational ability, financial soundness (juristic persons), and the ability to comply with the applicable codes of conduct.

The Registrar may refuse a licence, grant it subject to conditions, suspend it or withdraw it; the applicant must receive written reasons and an opportunity to make representations before an adverse decision.

A person renders a financial service on behalf of an FSP only if appointed in writing as a representative of that FSP and fit and proper for the functions concerned.

A representative may be appointed by more than one FSP only with the written consent of every FSP concerned, and each FSP remains accountable for the representative's conduct.

The FSP must maintain a register of its representatives and key individuals at its business premises, recording the services each may render and any supervision arrangement, and produce it to the Registrar on request.

A key individual must be approved by the Registrar before managing or overseeing the rendering of financial services; approval may be withdrawn on the same grounds that justify licence withdrawal.

Four pillars: (1) honesty and integrity; (2) competence; (3) operational ability; and (4) financial soundness (the last applies to juristic FSPs). All must be met at licensing and continuously thereafter.

Honesty and integrity: no conviction for a crime involving dishonesty, no current debarment (unless rehabilitated with the Registrar's approval), no pending dishonesty proceedings or complaints, and no adverse regulatory findings.

Competence = the combination of a qualification at the required NQF level, relevant experience, the prescribed regulatory examination (RE1 for key individuals, RE5 for representatives) and class-of-business training for the products concerned.

Continuing professional development: representatives and key individuals must complete the prescribed number of CPD hours each year (including ethics-related activities) and keep verifiable evidence of completion.

Operational ability: adequate and appropriate human, technological and systems resources, suitable premises, and the capacity to keep records, supervise staff and resolve complaints.

Financial soundness (juristic FSPs): maintaining the prescribed solvency and liquidity position, not being in liquidation, judicial management or business rescue, and holding professional indemnity cover where required.

A change in any fit-and-proper circumstance (e.g. a new criminal charge, debarment or insolvency) must be disclosed to the Registrar and may lead to conditions, suspension or withdrawal.

A person who does not yet meet the competence requirements may act only as a representative under supervision, under a documented supervision plan, and must disclose that status to clients.

Codes of conduct are issued by the Registrar under s15 for categories of financial services; the General Code of Conduct applies where no sector-specific code governs the service.

Specific codes exist inter alia for long-term insurance, short-term insurance, health service benefits, friendly societies, collective investment schemes and securities.

Contravention of a code is an offence and grounds for suspension or withdrawal of a licence, an administrative penalty and debarment of the representative.

Core standards: act honestly and fairly, with due skill, care and diligence; act in the client's interest; avoid, or disclose and manage, conflicts of interest.

Disclosure standards: identity and licence status, the services and products offered, fees and commission, any interest in a product supplier, and the complaints procedure.

Suitability standard: the provider must obtain the client's information and must not recommend a product that is not appropriate to the client's needs, circumstances and risk profile.

Advertising, marketing and comparative statements must be accurate, fair and not misleading, and records of advice and client communications must be retained.

A breach of a code is treated by the FAIS Ombud and the courts as evidence that the financial service was not rendered with the required care and skill.

At the earliest reasonable opportunity the representative must disclose: identity and contact details, licence status, services and products, fees and commission, any conflict of interest, whether acting under supervision, and the complaints procedure.

Any financial interest in a product supplier (commission, fees, shareholding, contractual tie) must be disclosed in writing before the service is rendered.

The advice process: gather client information; analyse needs and financial situation; identify and select a suitable product; present the advice with disclosures; and record the advice.

A record of advice must be retained and furnished to the client on request, and must reflect the client's needs, the product recommended and the reasons for the recommendation.

A representative may render services only in respect of the products and categories for which the FSP is licensed and the representative is authorised.

No person may receive commission or remuneration for rendering a financial service unless licensed or appointed as a representative; undisclosed or unearned consideration is prohibited.

A representative may not sign on a client's behalf, take custody of client assets or handle client funds unless specifically authorised and mandated in writing.

On termination of a representative's appointment, client records must be handed to the FSP and affected clients must be notified of the change.

Records relating to a financial service must be kept for at least five years from the date the service was rendered, and must be readily accessible and producible to the Registrar on request.

Records must be kept in a safe, legible and retrievable form; electronic storage is permitted if the records can be reproduced in printed form.

Mandatory records include client information and needs analysis, records of advice, transaction records, fees and commission, complaints and their resolution, CPD and training evidence, supervision records and fit-and-proper evidence.

Client profiling must capture financial situation, objectives and needs, risk tolerance, knowledge and experience, investment time horizon and any other information relevant to the product.

The profile must be reviewed and updated before any new advice or transaction, and whenever the client's circumstances change materially.

If a client refuses to provide the required information, the representative must record the refusal and explain the consequences, and the advice must be limited accordingly.

Client records are confidential and may be disclosed only with the client's consent or where required or permitted by law.

Every FSP must have a compliance function; where the FSP is a sole proprietor, the key individual may perform the compliance officer function.

The compliance officer must be approved by the Registrar, must be independent of the advisory and administrative functions, and must have access to the governing body and management.

Compliance monitoring covers fit and proper status, disclosures, records of advice, complaints, marketing material, supervision and compliance with the applicable code of conduct.

The FSP must submit an annual compliance report to the Registrar covering its compliance with the Act and codes and describing any material deficiencies and remedial steps.

The FSP must maintain a written supervision policy, appoint a qualified supervisor, prepare a supervision plan for each representative under supervision and record the arrangement on the register.

Supervisors must monitor and evaluate the representative's advice, countersign or review records, and confirm in writing when the representative meets the competence requirements.

Key individuals manage and oversee the rendering of financial services and are accountable for the provider's control functions and for the conduct of its representatives.

Delegation of a function does not transfer accountability: the FSP remains responsible for the conduct of its representatives, and identified non-compliance must be escalated and remedied.

A complaint is a grievance alleging that a financial service was rendered improperly, that the client suffered financial loss or harm, or that the conduct breached the Act or a code of conduct.

The FSP must maintain a documented internal complaints procedure, record every complaint and its resolution, and must resolve the complaint within six weeks.

If the complaint is not resolved within six weeks, the client may lodge it with the FAIS Ombud, whose services are free of charge to the complainant.

The FAIS Ombud is appointed by the Minister of Finance and investigates complaints within its jurisdiction; it may decline matters that fall outside its jurisdiction or the monetary limit.

The Ombud may issue a determination ordering compensation, rectification or other relief; the determination is binding on the FSP only if the complainant accepts it.

If the complainant rejects the determination, the complainant may pursue the matter in court; the FSP may also take a determination on review.

The Ombud's determinations and conduct standards are guided by the Act, the applicable code of conduct and principles of fairness.

Complaints data, outcomes and any determinations must be recorded and reported to the Registrar as part of the compliance reporting process.

The regulatory ladder: conditions on a licence, suspension or withdrawal of a licence, administrative penalty, debarment of individuals, and criminal prosecution.

The Registrar may suspend or withdraw a licence where the FSP no longer meets the fit-and-proper requirements or has contravened the Act or a code; the FSP must first be given notice and an opportunity to be heard.

An administrative penalty is imposed by the Registrar for a contravention and is payable in addition to, or instead of, other regulatory action; the maximum is prescribed in the Act.

Debarment procedure: the FSP must notify the representative of the intended debarment, give an opportunity to be heard, then debar and notify the Registrar within the prescribed period.

A debarred person may not render financial services on behalf of any FSP unless the Registrar approves, and the debarment is recorded on the register of representatives.

An aggrieved party may appeal to, or apply for review by, the Financial Services Tribunal against decisions such as licence refusal, suspension, withdrawal, debarment and administrative penalties.

Registrar's decisions remain subject to judicial review in the High Court under the Promotion of Administrative Justice Act.

Offences under the Act (e.g. unlicensed rendering of services, obstruction, failure to comply with a directive or licence condition) attract a fine and/or imprisonment as prescribed in the Act.