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RE5 practice questions

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Question 1The FAIS Act: purpose, structure, key definitions and the regulatory environment

What is the primary purpose of the FAIS Act?

  1. To provide for the licensing of stock exchanges and the registration of their members
  2. To prescribe prudential capital adequacy standards for banks, insurers and other financial institutions
  3. To establish a national credit register and to regulate the conduct of credit bureaux
  4. To regulate the rendering of financial advisory and intermediary services to clients Correct answer.

Explanation

The long title of the Act states that it regulates the rendering of certain financial advisory and intermediary services to clients and provides for matters incidental thereto. Prudential capital regulation sits with the Prudential Authority under the Banks Act and the Insurance Act, while credit bureaux are regulated under the National Credit Act.

Question 2The FAIS Act: purpose, structure, key definitions and the regulatory environment

Which body administers the FAIS Act and performs the functions of the Registrar of Financial Services Providers?

  1. The Prudential Authority of the South African Reserve Bank
  2. The Financial Sector Conduct Authority Correct answer.
  3. The National Credit Regulator
  4. The Financial Intelligence Centre

Explanation

On 1 April 2018 the market conduct functions of the old Financial Services Board, including the administration of the FAIS Act, were taken over by the Financial Sector Conduct Authority. The FSCA therefore performs the Registrar functions under the Act.

Question 3The FAIS Act: purpose, structure, key definitions and the regulatory environment

In terms of the FAIS Act, a 'financial service' means:

  1. Any transaction concluded on a licensed exchange
  2. Any advice given by an attorney or accountant in the course of a professional practice
  3. Advice or an intermediary service Correct answer.
  4. Any product sold by a bank or insurer to a retail customer

Explanation

Section 1 defines a financial service as the furnishing of advice or the rendering of an intermediary service in respect of a financial product. The Act then regulates persons who provide such services as a regular feature of their business.

Question 4The FAIS Act: purpose, structure, key definitions and the regulatory environment

Which statement best describes the meaning of 'client' in the FAIS Act?

  1. Only a natural person who buys a financial product for personal or household use rather than for resale
  2. A person who has concluded a transaction in a financial product at any time during the preceding twelve months
  3. A person who has signed a written mandate or service agreement with a licensed financial services provider
  4. A person who uses, has used or intends to use a financial service, including a prospective client Correct answer.

Explanation

The definition covers present, past and prospective users of a financial service. It is not limited to natural persons and does not depend on a transaction having been concluded or a written mandate existing.

Question 5The FAIS Act: purpose, structure, key definitions and the regulatory environment

An entity furnishes advice on financial products as a regular feature of its business without a FAIS licence. What is the legal position?

  1. A minor administrative irregularity that is cured once the entity is registered
  2. A breach of the applicable code of conduct only, with no further statutory consequence
  3. Nothing unlawful, because advice is not regulated unless a product is also sold
  4. A criminal offence under the Act, punishable by a fine or imprisonment or both Correct answer.

Explanation

No person may act as a financial services provider unless licensed, and contravention of the Act is an offence for which a court may impose a fine or imprisonment, or both. Advising on financial products is itself a financial service and does not require that a sale also take place.

Question 6The FAIS Act: purpose, structure, key definitions and the regulatory environment

Which of the following is one of the fit and proper requirements applicable to financial services providers and their representatives?

  1. Honesty and integrity Correct answer.
  2. Minimum paid-up share capital of R1 million
  3. Membership of a recognised industry association
  4. Ownership of a physical office in the province where clients reside

Explanation

The fit and proper requirements comprise honesty and integrity, competency, financial soundness and operational ability. Industry association membership and prescribed share capital are not components of those requirements.

Question 7The FAIS Act: purpose, structure, key definitions and the regulatory environment

Which of the following is a 'financial product' for purposes of the FAIS Act?

  1. A motor vehicle purchased on hire purchase
  2. A trademark registered in the client's name
  3. A retirement annuity policy Correct answer.
  4. A residential townhouse purchased for letting

Explanation

The definition of financial product lists securities, deposits, insurance policies including retirement annuity policies, participatory interests in collective investment schemes, pension benefits and money market instruments. Physical assets and intellectual property are not financial products.

Question 8The FAIS Act: purpose, structure, key definitions and the regulatory environment

Which of the following amounts to 'advice' as defined in the FAIS Act?

  1. Sending a client a copy of the product's standard terms and conditions
  2. Collecting a premium from a client and issuing a receipt
  3. Recommending that a client terminate an existing policy Correct answer.
  4. Capturing a client's details on the insurer's administration system

Explanation

Advice is a recommendation, guidance or proposal of a financial nature in respect of the purchase, investment, variation or termination of a financial product. Administrative steps such as capturing data, collecting premiums or sending standard documents are not advice.

Question 9The FAIS Act: purpose, structure, key definitions and the regulatory environment

An applicant applies for a FAIS licence. Which statement about the Registrar's power is correct?

  1. The Registrar may only refuse a licence if the applicant has been convicted of fraud
  2. The Registrar must grant the licence whenever the application form is complete
  3. The Registrar may not impose conditions because licensing is a purely administrative act
  4. The Registrar may grant the licence subject to conditions Correct answer.

Explanation

After considering an application the Registrar may grant the licence, subject to such conditions as the Registrar determines, or refuse it. Conditions may, for example, limit the categories of financial services or the class of financial products for which the licence is granted.

Question 10The FAIS Act: purpose, structure, key definitions and the regulatory environment

In which circumstance may the Registrar suspend or withdraw a financial services provider's licence?

  1. The FSP's auditors issued a management letter with minor findings
  2. The FSP no longer complies with the fit and proper requirements Correct answer.
  3. The FSP changed its registered address without notifying clients beforehand
  4. The FSP's client base grew faster than projected in its business plan

Explanation

The Registrar may suspend or withdraw a licence where the FSP has contravened or failed to comply with a provision of the Act or a code of conduct, no longer meets the fit and proper requirements, or has failed to comply with licence conditions. The FSP must generally be given an opportunity to make representations before such action is taken.

Question 11The FAIS Act: purpose, structure, key definitions and the regulatory environment

What is the function of a code of conduct issued under the FAIS Act?

  1. It replaces each FSP's licence conditions automatically
  2. It is a voluntary industry guideline with no legal force
  3. It prescribes how FSPs in a category must conduct business with clients Correct answer.
  4. It determines the annual licence fees payable by each FSP falling within that category of business

Explanation

The Registrar may prescribe codes of conduct for different categories of financial services providers and financial services, setting standards for how business is conducted with clients. A contravention is a contravention of the Act and can lead to regulatory action and be relied on in a complaint.

Question 12The FAIS Act: purpose, structure, key definitions and the regulatory environment

A client is unhappy about advice given by an FSP. What must happen before the FAIS Ombud will consider the complaint?

  1. Lodge the complaint with the FSP first Correct answer.
  2. Ask the Registrar to withdraw the FSP's licence immediately
  3. Refer the matter directly to the FSCA's enforcement committee
  4. Issue summons against the FSP in the magistrate's court

Explanation

The Ombud's rules require the complainant to submit the complaint to the FSP concerned and give it an opportunity to resolve the matter before the Ombud will entertain it. The Ombud may also decline a complaint that is already before a court.

Question 13The FAIS Act: purpose, structure, key definitions and the regulatory environment

Which person is a 'representative' of a financial services provider?

  1. A client who refers a family member to the FSP
  2. The FSP's external auditor who reports on its compliance
  3. An attorney who is litigating against the FSP on a client's behalf
  4. An employee who advises clients on the FSP's behalf Correct answer.

Explanation

A representative is a person, including a juristic person, who renders a financial service to a client on behalf of a financial services provider, typically an employee or appointed agent. Auditors, attorneys acting against the FSP and clients do not render financial services on the FSP's behalf.

Question 14The FAIS Act: purpose, structure, key definitions and the regulatory environment

An FSP appoints a new representative. What does the Act require in respect of the Registrar?

  1. The FSP must publish the appointment in the Government Gazette
  2. The representative must be recorded on the FSP's register of representatives Correct answer.
  3. The Registrar must issue a separate licence to every representative before the representative may act
  4. Nothing, provided the representative signs an employment contract

Explanation

Representatives are not licensed individually; they act under the licence of the FSP, which must maintain a register of its representatives and furnish details to the Registrar. The representative must also meet the fit and proper requirements and be properly appointed.

Question 15The FAIS Act: purpose, structure, key definitions and the regulatory environment

A newly appointed representative has not yet met all the competence requirements. Which arrangement is permitted?

  1. Rendering services under supervision while the requirements are being met Correct answer.
  2. Rendering services only to juristic clients until the requirements are met
  3. Negotiating with clients but earning no commission until qualified
  4. Rendering services unsupervised, provided the client consents in writing

Explanation

A supervised representative may render financial services while completing the required qualifications or experience, provided the services are rendered under the supervision of a suitably qualified person and the supervision is properly documented and reported.

Question 16The FAIS Act: purpose, structure, key definitions and the regulatory environment

A company occasionally gives informal advice about its own shares to a shareholder. Why might the licensing requirement not apply?

  1. Because advice about shares is reserved for stockbrokers and does not require a licence
  2. Because a company's own shares are never financial products
  3. Because the services are not a regular feature of the business Correct answer.
  4. Because all advice given by a juristic person is exempt from the Act

Explanation

A financial services provider is a person who, as a regular feature of that person's business, furnishes advice or renders an intermediary service. Isolated or casual conduct that is not part of the regular business does not make the person an FSP, although other legislation may still apply.

Question 17The FAIS Act: purpose, structure, key definitions and the regulatory environment

Which complaint falls within the FAIS Ombud's jurisdiction?

  1. An FSP dismissed one of its employees without a fair hearing
  2. An FSP failed to disclose the costs of a product to the complainant Correct answer.
  3. A court has already decided the same complaint in the FSP's favour
  4. The Registrar refused to grant a licence to an applicant

Explanation

The Ombud investigates complaints by clients about financial services rendered by an FSP, including failures to disclose costs and unsuitable advice. Employment disputes, licensing decisions and matters already adjudicated by a court fall outside that jurisdiction.

Question 18The FAIS Act: purpose, structure, key definitions and the regulatory environment

An applicant is refused a FAIS licence by the Registrar. Which route does the Act provide?

  1. No appeal is available; the applicant must lodge a new application
  2. An appeal to the FAIS Ombud within 30 days
  3. An appeal to the Appeal Board established under the Act Correct answer.
  4. An appeal to the Minister of Finance, whose decision on the matter is final

Explanation

The Act establishes an Appeal Board to hear appeals against specified decisions of the Registrar, including refusals of licences and suspensions or withdrawals. Appeals must be lodged within the period and in the manner prescribed.

Question 19The FAIS Act: purpose, structure, key definitions and the regulatory environment

Which requirement applies to an FSP in relation to compliance?

  1. It must appoint a compliance officer who is also its managing director
  2. It must appoint a compliance officer and adequately resource that function Correct answer.
  3. It must outsource compliance to a third party because in-house compliance officers are prohibited
  4. It must obtain an annual compliance certificate from the Registrar

Explanation

An FSP must appoint a compliance officer to monitor compliance with the Act, the codes of conduct and its licence conditions, and the compliance function must be appropriately resourced. The function may be performed in-house or outsourced, provided the statutory requirements are met.

Question 20The FAIS Act: purpose, structure, key definitions and the regulatory environment

An intermediary buys a unit trust on a client's written instruction without giving any recommendation. This act is best described as:

  1. A financial service only if the intermediary charges a fee for the transaction
  2. Neither advice nor an intermediary service, because no recommendation was made
  3. Advice, because the client relied on the intermediary to transact
  4. An intermediary service, because it brings about a transaction Correct answer.

Explanation

Intermediary service is any act other than advice that is aimed at bringing about a transaction in a financial product, such as buying or selling a product on a client's behalf. Executing an instruction does not become advice merely because the client relied on the intermediary to carry it out.

Question 21The FAIS Act: purpose, structure, key definitions and the regulatory environment

An FSP appoints a private company as its representative. Which statement is correct?

  1. Only the company's directors must meet the fit and proper requirements
  2. A juristic person cannot lawfully be appointed as a representative, so the appointment is void from the outset
  3. The company may act as a representative, and its staff who render the services must be appointed Correct answer.
  4. The company becomes licensed as an FSP automatically once it is appointed

Explanation

The definition of representative expressly includes a juristic person. Where a company is a representative, the natural persons through whom it renders financial services must be identified, must meet the fit and proper requirements, and must themselves be appointed as representatives.

Question 22The FAIS Act: purpose, structure, key definitions and the regulatory environment

A representative of an FSP gives unsuitable advice to a client. How does the Act allocate responsibility?

  1. Responsibility shifts to the product supplier whose product was recommended
  2. Responsibility is shared equally with the client, who chose to follow the advice
  3. Only the representative is liable, because the representative is an independent contractor
  4. The FSP is accountable to the Registrar for the representative's conduct Correct answer.

Explanation

The duties and accountability under the Act rest on the licensed FSP, which must ensure that its representatives comply with the Act and the codes of conduct. Conduct of a representative within the scope of the appointment is treated as conduct of the FSP for regulatory purposes.

Question 23The FAIS Act: purpose, structure, key definitions and the regulatory environment

When the FAIS Ombud issues a determination against an FSP, what is its legal effect?

  1. It is binding on the parties, subject to review by a court Correct answer.
  2. It must be confirmed by the Registrar before it has any effect
  3. It is a non-binding recommendation that the FSP may ignore without consequence
  4. It automatically suspends the FSP's licence until the amount is paid

Explanation

After investigating a complaint the Ombud may make a recommendation and, if that is not accepted, a determination. A determination is binding on the parties and enforceable, subject to review by a court.

Question 24The FAIS Act: purpose, structure, key definitions and the regulatory environment

Which statement best describes the FAIS Act's place in the current regulatory architecture?

  1. It is a market conduct statute administered by the FSCA and still in force Correct answer.
  2. It is a prudential statute administered by the Prudential Authority alongside the Banks Act
  3. It regulates only insurers and banks, with other financial institutions falling outside its scope
  4. It has been repealed and replaced in its entirety by the Conduct of Financial Institutions Act

Explanation

Under the Twin Peaks model the FSCA is the market conduct regulator and administers the FAIS Act. The Conduct of Financial Institutions Act will eventually consolidate market conduct regulation, but it has not yet replaced the FAIS Act, which remains in force.

Question 25The FAIS Act: purpose, structure, key definitions and the regulatory environment

Which statement about exemptions under the FAIS Act is correct?

  1. The Registrar may exempt a person or category from a provision, subject to conditions Correct answer.
  2. An exemption granted to one FSP automatically extends to all other FSPs
  3. Only the Minister may exempt an FSP, and only from the fit and proper requirements
  4. An exemption is the same thing as a licence condition and is granted in the licence application form

Explanation

The Act empowers the Registrar to exempt a person or a category of persons from specified provisions, subject to conditions and usually by notice in the Gazette. An exemption is a distinct regulatory instrument and is not the same as a licence condition.

Question 26The FAIS Act: purpose, structure, key definitions and the regulatory environment

Which statement best describes the main purpose of the FAIS Act?

  1. To regulate the listing and trading of securities on exchanges.
  2. To protect clients by regulating the rendering of advice and intermediary services. Correct answer.
  3. To supervise the prudential soundness of banks and insurers.
  4. To provide a national pension system for retired employees.

Explanation

The FAIS Act is market-conduct legislation aimed at regulating financial services providers and representatives so that clients are treated fairly. Prudential supervision, securities exchange regulation and national pensions are dealt with under other laws.

Question 27The FAIS Act: purpose, structure, key definitions and the regulatory environment

A 'financial services provider' under the FAIS Act is a person who, as a regular feature of business, does what?

  1. Furnishes advice or renders intermediary services in respect of financial products. Correct answer.
  2. Holds financial products on behalf of clients.
  3. Supervises the conduct of other financial institutions.
  4. Issues financial products to the public.

Explanation

The core definition of an FSP is a person who, as a regular feature of business, furnishes advice or renders intermediary services in respect of financial products. Issuing products or merely holding them does not by itself make a person an FSP.

Question 28The FAIS Act: purpose, structure, key definitions and the regulatory environment

What is the role of the FAIS Advisory Committee?

  1. It hears complaints from clients against financial services providers.
  2. It approves or rejects applications for a FAIS licence.
  3. It advises the Registrar on matters relating to the Act, including proposed codes of conduct. Correct answer.
  4. It investigates and prosecutes unlicensed providers.

Explanation

The Advisory Committee is a statutory body that advises the Registrar on matters connected with the FAIS Act, including the content of codes of conduct. It does not adjudicate complaints, grant licences or prosecute offenders.

Question 29The FAIS Act: purpose, structure, key definitions and the regulatory environment

For purposes of the FAIS Act, which person is a 'client'?

  1. Only a person who has already purchased a financial product.
  2. Any member of the public who reads an advertisement for a financial product.
  3. Only a person who pays a fee to a financial services provider.
  4. A specific person to whom a financial service is or is to be rendered. Correct answer.

Explanation

A client is a specific person or group to whom a financial service is rendered or is to be rendered, and the definition includes a prospective client. The general public and persons who merely see advertising are not clients.

Question 30The FAIS Act: purpose, structure, key definitions and the regulatory environment

A company is licensed as an FSP. Its sales director oversees all advice given by the company's representatives but does not personally advise clients. Which statement is correct?

  1. She is a product supplier because she controls the products.
  2. She needs no FAIS role because she does not advise clients.
  3. She is a key individual because she oversees the rendering of financial services. Correct answer.
  4. She is a representative because she is employed by the FSP.

Explanation

A key individual is a natural person who manages or oversees the rendering of financial services by the FSP, even if that person does not deal with clients directly. Representatives are the persons who actually render financial services to clients.

Question 31Licensing of financial services providers and the authorisation of representatives

Under the FAIS Act, which person requires a financial services provider licence?

  1. An employee of a licensed provider who performs only administrative work
  2. A person who regularly renders financial services to clients for reward Correct answer.
  3. A bookkeeper who records transactions for a single employer and gives no advice
  4. A client who gives a friend informal advice about a savings product, free of charge

Explanation

A provider is a person who, as a regular feature of the business of that person, renders financial services to clients for reward. Such a person must hold a licence before rendering those services. Private, unpaid or purely administrative activity falls outside the licensing requirement.

Question 32Licensing of financial services providers and the authorisation of representatives

Who is responsible for appointing a person as a representative under the FAIS Act?

  1. The Financial Sector Conduct Authority, after approving the appointment
  2. The client, who mandates the representative to act on the client's behalf
  3. The licensed provider on whose behalf the representative acts Correct answer.
  4. The Registrar, who issues each representative with an individual licence

Explanation

Only financial services providers are licensed; individuals are authorised to act by being appointed by a licensed provider. The provider must appoint and record its representatives and remains accountable for the services they render.

Question 33Licensing of financial services providers and the authorisation of representatives

The Registrar keeps a register of financial services providers. Which statement about that register is correct?

  1. It is open to inspection by any member of the public Correct answer.
  2. It may be inspected only in terms of a court order
  3. It may be inspected only by the provider concerned and its auditors
  4. It lists representatives but not the providers themselves

Explanation

The register of licensed providers is a public document that any person may inspect. This allows clients and other providers to verify whether a person is licensed and for which services.

Question 34Licensing of financial services providers and the authorisation of representatives

Which description best fits a 'key individual' of a financial services provider?

  1. A natural person who manages or oversees the provider's business conduct Correct answer.
  2. The auditor who signs off the provider's financial statements
  3. Any representative who has more than five years of experience
  4. The largest shareholder of the provider, whether or not involved in management

Explanation

A key individual is a natural person who is responsible for managing or overseeing the conduct of the provider's business relating to financial services. Such a person must meet the fit and proper requirements and be approved by the Registrar.

Question 35Licensing of financial services providers and the authorisation of representatives

A provider must be 'fit and proper'. Which set of requirements is assessed for the provider itself?

  1. Financial soundness and membership of a professional body
  2. Honesty and integrity, competence, operational ability and financial soundness Correct answer.
  3. Operational ability and a minimum prescribed number of clients in each category
  4. Honesty and integrity, competence and a university degree

Explanation

The fit and proper requirements rest on four pillars: honesty and integrity, competence, operational ability and financial soundness. Operational ability and financial soundness are assessed at the level of the provider, while honesty and integrity and competence are assessed for individuals.

Question 36Licensing of financial services providers and the authorisation of representatives

Which statement about the compliance function of a Category I financial services provider is correct?

  1. It may be dispensed with where the provider has fewer than ten clients
  2. It must always be performed by a separate full-time employee with no other role
  3. It may be performed by the provider's key individual Correct answer.
  4. It must be outsourced to an independent auditor in every case

Explanation

A Category I provider may arrange for its compliance function to be performed by its key individual, subject to the Registrar's approval of that person as compliance officer. The function itself may never be abandoned, and the provider remains responsible for it.

Question 37Licensing of financial services providers and the authorisation of representatives

The Registrar may suspend or withdraw a provider's licence where the provider:

  1. wishes to add a new product to its range of services
  2. has appointed a new representative without advertising the post
  3. has earned less profit than it projected in its business plan
  4. no longer complies with the fit and proper requirements Correct answer.

Explanation

Suspension or withdrawal is available where the provider contravenes the Act, fails to comply with a licence condition, or is no longer fit and proper. The Registrar must afford the provider an opportunity to make representations before taking such action.

Question 38Licensing of financial services providers and the authorisation of representatives

A representative who has not yet met the competence requirements may render financial services only if:

  1. the provider holds a separate licence for inexperienced staff
  2. the representative pays an additional annual levy
  3. the representative does so under supervision as prescribed Correct answer.
  4. the client signs a waiver of the competence requirements

Explanation

A person who is appointed but not yet competent may render financial services under supervision, in the manner prescribed. The provider remains accountable for the supervised representative, and supervision ends once the requirements are met.

Question 39Licensing of financial services providers and the authorisation of representatives

An applicant submits a licence application, but the Registrar is not satisfied that its key individual meets the honesty and integrity requirements. What may the Registrar do?

  1. Grant the licence, since honesty is assessed only after licensing
  2. Refuse the application until satisfied the applicant is fit and proper Correct answer.
  3. Grant the licence and leave the issue to the provider's compliance officer
  4. Grant the licence on condition that the key individual resigns within a year

Explanation

The Registrar may only license an applicant that satisfies the fit and proper requirements, and the onus is on the applicant to demonstrate this. Where the Registrar is not so satisfied, the application may be refused or held back until the concerns are addressed.

Question 40Licensing of financial services providers and the authorisation of representatives

A provider is aggrieved by the Registrar's decision to withdraw its licence. What is the appropriate step?

  1. Apply to the High Court for an interdict against the Registrar
  2. Apply to the Financial Services Tribunal for reconsideration of the decision Correct answer.
  3. Ask the provider's compliance officer to overrule the Registrar
  4. Ignore the decision and continue trading while negotiating with the Registrar

Explanation

A decision of the Registrar may be taken on reconsideration to the Financial Services Tribunal. The Tribunal, not the compliance officer, is the body that reviews such regulatory decisions.

Question 41Licensing of financial services providers and the authorisation of representatives

A financial services provider's licence lapses when the provider:

  1. fails to achieve its annual sales target
  2. changes its registered address
  3. ceases to render financial services Correct answer.
  4. appoints a second key individual

Explanation

A licence lapses where the provider ceases to render financial services, is liquidated or wound up, or dies in the case of a natural person. Administrative changes and commercial underperformance do not cause a licence to lapse.

Question 42Licensing of financial services providers and the authorisation of representatives

Which statement about a financial services provider licence is correct?

  1. It may be sold together with the provider's client base
  2. It is not transferable from one person to another Correct answer.
  3. It may be lent to a related company for a fee
  4. It may be inherited by the provider's children

Explanation

A licence is granted to a specific person after that person's fitness and propriety have been assessed, so it cannot be ceded or transferred. Any other person wishing to render financial services must apply for its own licence.

Question 43Licensing of financial services providers and the authorisation of representatives

The sole director of a licensed provider resigns and is replaced by another person. What must the provider do?

  1. Nothing needs to be done, because a change of directors does not affect the licence
  2. Report the change only to its clients in the next newsletter
  3. Apply for a completely new financial services provider licence before trading further
  4. Notify the Registrar of the change and apply for approval of a new key individual Correct answer.

Explanation

Changes in the management of a licensed provider must be disclosed to the Registrar, and a person may not act as key individual without the Registrar's approval. A change of director does not require a fresh licence, but silence about it is non-compliant.

Question 44Licensing of financial services providers and the authorisation of representatives

When must a financial services provider debar a representative?

  1. When the representative takes more than the allowed annual leave
  2. When the representative no longer meets the fit and proper requirements Correct answer.
  3. Whenever the representative's sales fall below the provider's target
  4. When the representative asks to be transferred to another provider's payroll

Explanation

A provider must debar a representative who contravenes the Act or who no longer complies with the fit and proper requirements, and must inform the Registrar. Debarment protects the integrity of the industry and is recorded on the Registrar's register.

Question 45Licensing of financial services providers and the authorisation of representatives

A provider wishes to appoint a new key individual. Which step is required?

  1. The appointment takes effect once the clients are informed
  2. The appointment must be approved by the Financial Services Tribunal
  3. The appointee must first pass a fit and proper test set by the provider's auditor
  4. The appointment requires the Registrar's approval Correct answer.

Explanation

A person may not act as a key individual unless the Registrar has approved the appointment. Approval follows an assessment of the person's honesty, integrity and competence.

Question 46Licensing of financial services providers and the authorisation of representatives

A provider licensed only to give advice on short-term insurance wants to start selling retirement annuities. What should it do?

  1. Apply to the Registrar to extend its licence before rendering the new service Correct answer.
  2. Proceed, because any licensed provider may render any financial service
  3. Proceed, provided the adviser holds an RE5 certificate
  4. Ask its representatives to sell the product under a sister company's licence instead

Explanation

A licence authorises only the categories and products covered by it, and rendering services outside that scope contravenes the Act. The provider must have its licence extended, or obtain a further licence, before doing the new business.

Question 47Licensing of financial services providers and the authorisation of representatives

Which fit and proper element is assessed for the provider itself rather than for a representative?

  1. Honesty and integrity
  2. Record of dishonest conduct
  3. Product-specific competence
  4. Financial soundness Correct answer.

Explanation

Financial soundness and operational ability are assessed at the level of the provider. Individuals are assessed for honesty and integrity and for competence in the products and services concerned.

Question 48Licensing of financial services providers and the authorisation of representatives

Which matter is most relevant when assessing a person's honesty and integrity?

  1. The person's membership of a professional association
  2. The number of years the person has worked in the industry
  3. The person's marks in the regulatory examination
  4. A previous conviction for fraud or theft Correct answer.

Explanation

Honesty and integrity are judged from a person's history and conduct, including convictions for offences involving dishonesty. Examination results and length of service speak to competence rather than to integrity.

Question 49Licensing of financial services providers and the authorisation of representatives

Which statement describes a Category III (administrative) financial services provider?

  1. It is exempt from the fit and proper requirements because it has no clients
  2. It is licensed to sell only short-term insurance products to retail clients
  3. It may give advice to retail clients but may not sell any products to them
  4. It administers financial products for other providers rather than advising clients Correct answer.

Explanation

An administrative provider performs back-office functions such as administering financial products on behalf of other providers under an agreement. It does not render advice or intermediary services to the investing public.

Question 50Licensing of financial services providers and the authorisation of representatives

A person who holds no licence advertises that it is 'a licensed financial services provider'. What is the correct view?

  1. This is acceptable if the person intends to apply for a licence soon
  2. This is acceptable if no client has yet complained
  3. This is acceptable if the person uses the licence of a representative appointed elsewhere
  4. This is an offence, as only a licensed provider may hold itself out as licensed Correct answer.

Explanation

Holding out as a licensed provider when no licence is held is a contravention of the Act, whatever the person's future intentions. Clients rely on licensing status when deciding whether to deal with a provider.