The FAIS Act: purpose, structure, key definitions and the regulatory environment
Purpose and architecture
The FAIS Act 37 of 2002 regulates the rendering of financial services. Its core purposes are to protect clients, promote fair treatment, ensure that providers and representatives are fit and proper, and support confidence in the financial sector. The Act is framework legislation: it is supplemented by regulations, Codes of Conduct, Fit and Proper Determinations and Board Notices. The Financial Sector Conduct Authority (FSCA) is the conduct regulator, and the FAIS Ombud resolves unresolved client complaints within its jurisdiction.
Definitions that drive answers
Candidates must distinguish a financial product, a financial service, advice and an intermediary service. Advice is a recommendation, guidance or proposal of a financial nature in respect of a financial product. Intermediary service is any act other than advice performed to facilitate a transaction in a financial product. A person may provide both. A client is the person to whom a financial service is rendered. An FSP is a person licensed to render financial services, while a representative acts for or on behalf of an FSP.
Traps
A common trap is treating general business information as “advice”. It is not advice unless it relates to a financial product and contains a recommendation or guidance. Another trap is assuming every product is a financial product. Also remember that the FAIS Act sits within a wider regulatory environment, including Twin Peaks conduct regulation, but FAIS remains the primary licensing and conduct statute for financial services providers.
Rule of thumb
Ask two questions: “Is there a financial product?” and “Is there a recommendation?” If both are present, advice is being given. If the act merely facilitates a transaction, it is intermediary service.