FAIS RE1 EXAM FOR KEY IN

CHAPTER 3: Maintain the license of the FSP

Describe the requirements for licensing of an FSP *
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MAJOR SECTIONS OF THE FAIS ACT
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STRUCTURE OF THE FSCA:

A. REGISTRATION DEPARTMENT *

B. SUPERVISION DEPARTMENT *

C. ENFORCEMENT DEPARTMENT *

FAIS GENERAL CODE OF CONDUCT FOR FSP's: *

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Complaints and the FAIS Ombud for FSP's

1.

Explain the role and authority of the Ombud for FSPs.

2.

3.

4.

The fit and proper requirements consist of: 1.

2.
2.a
2.b
2.c
2.d
2.e
3.
4.
 5.

Financial services are defined as the rendering of

advice and/or intermediary services in terms of the
FAIS Act.

Key reporting obligations for FSP's to the Registrar: 1.

2.
3.
4.

Obligations of the Key Individual re Debarment: 1.

2.
3.
4.
5.

6.
7.
8.
9.
10.
11.

Debarment by the Registrar:

Reappointment of debarred reps: 1.

2.

3.
4.
5.
 FAIS RE1 EXAM FOR KEY INDIVIDUALS STUDY NOTES

Section 8 of the FAIS Act stipulates the licensing requirements for an FSP as well as the appeal procedure for
declined13
Section applications.
of the FAIS Act stipulates the requirements, duties & responsibilities for Representatives & key
Individuals to act on behalf of an FSP. It also outlines the structure, content & manner of updates of the
Representative
According Register.
to Section 7 of the Act, the FSP must update the Commissioner within 15 days of any changes in the
business info that was provided on application or any changes in the licensing conditions that was imposed on the
FSP whenLicence
A Lapsed its license wasfrom
differs granted.
Suspended/Withdrawn Licence in that a Lapse is triggered by the FSP following an
event (eg sickness, death, sequestration, etc.) whilst a Suspension/Withdrawal is triggered by the Commissioner
following a breach by the FSP.
Market conduct regulation aims to prevent and manage the poor outcomes that arise from financial institutions
conducting
The their business
FSCA's mandate in ways that
is to enhance are unfair and
the efficiency to customers orfinancial
integrity of undermines the integrity
markets; promoteoffair
financial markets
customer and
treatment
confidence in the financial system.
by financial institutions; provide financial education and promote financial literacy; and assist in maintaining financial
stability.
Section 8 provides details of the application for authorisation to act as an FSP & Section 6 empowers the FSCA to
publish the FAIS Fit and Proper Requirements for Reps, FSP's & KI's.
Section 19 of the FAIS Act states that financial statements must be submitted by authorised financial services
provider to the registrar not later than four months after the end of the providers financial year end.
Section 14 of the FAIS Act which deals with the debarment of representatives by authorised FSPs has been
substituted with a new set of requirements.
In terms of Section 7 of FAIS, no person (including juristic persons) will be able to act as an FSP, unless such person
has been issued with a licence by the FSCA.
Section 1 of the FAIS Act provides definitions of Advice, Intermediary Service, Financial Product, Financial Service,
Section 17(1)(c) of the FAIS Act read together with Section 19(4) provides that the compliance officer of an
authorised financial services provider (“FSP”) must report to and inform the Registrar in writing of Financial Services
Providers of any irregularity or suspected irregularity in the conduct or the affairs of the FSP.
Section 36 provides for penalties and consequences for breaching the various sections of the FAIS Act.
Section 18 of the FAIS Act outines the record keeping requirements for FSP's.
Section 34 of the FAIS Act speaks about undesirable practices & empowers the Commissioner to declare a business
practice 'undesirable' if its contrary to public interest or is unfair to clients.
Sequestration, Winding-up, Closure, Voluntary Surrender of FAIS Licence & Business Rescue arrangemenets are
dealt with under Section 38 of the FAIS Act.
Lapsing of licences is dealt with under Section 11 of the FAIS Act.

New FSP Licence Applications, Profile Changes (name, address, directorship/ownership, Key Individuals, Licensed
Financial Products, etc), Approval of Compliance Officers, Lapsing of Licences, Updating Central Representatives
Registrar, Approval of Mandates for Discretionary & Administrative FSP's & Collection of Levies.

Implementing a risk-based approach to regulation of FSPs, Analysis & review FSP Financial Statements, Audit &
Compliance Reports, Onsite Visits, Industry Liaison on legislation changes, etc.

Handling complaints against FSPs, Investigating FSPs, Taking Regulation Action against deliquent FSPs,
Suspension/Withdrawal of Licenses, Debarments, Reinstatement of debarred Reps, Appeals, etc,

Provides detailed Rules & Regulations for FSP's on how to run their licensed businesses in line with the FAIS Act.
Some of the key issues covered by the General Code of Conduct such as:
1. Discloure Requirements
Info & contact details of the Product Supplier and its Complaints/Compliance Dept., contractual relationship with
Product Supplier, confirmation of PI, Fidelity or Guarantees in place, the Financial Products/Services the Product
Supplier is licensed for, Commission/Fees earned from the Product Supplier, etc.
Whether the FSP receives more than 30% of its income from one Product Supplier.
Whether the FSP has more than 10% ownership interest in a Product Supplier.
Oral info must be confirmed in writing within 30 days of the conversation.
Forex Investment Intermediaries mandate must disclose commission, fee reductions, rebates and/or non-cash
For Investment Financial Products, disclosure must be made of:
>How the value of the investment will be determined
>Details of the underlying assets/financial instruments
>Any amounts that will be charged against the investment & how they will be determined/calculated eg investment
performance linked charges or platform fees
>Adequate info for the client to be able to determine the ultimate net investment amount
>Info on past performance of the investment products including a disclaimer that "past performance is not always
an indicator of future performance"
>Any special conditions/clauses, limitation of liability/disclaimers, waiting periods, penalties, loadings, guaranteed
>Terms & Conditions for early withdrawal/termination of the investment product
>Tax implications of the investment product
>Whether or not cooling rights are offered and if so how to exercise them
>An indication of the risk of loss of the capital amount invested as well as other risks associated with market
>Amount
>An Annual of Statement
insurance premium
should beincreases
issued tofor
thethe firstevery
client 5yrs and
yearthereafter every
stating: the 5yrs upto
investment 20yrs. ongoing
product(s),
monetary obligations of the client, main benefits of the product, how much is accesible to the client, value of the
investment,
>Where oneongoing
financialearnings/incentives of the FSP,
product is being replaced with etc.
another, a comprehensive comparison should be provided to
the client covering issues such as: the financial implications of replacing the product, any special terms and
conditions, penalties, restrictions. loadings, losses, waiting periods, etc that will arise as a result of replacing the
financial product.
2. Handling of Client Funds
FSP must hold a seperate bank account to receive client funds/premiums & ensure any interest earned from these
FSP will be responsible for bank charges for such an account except charges for deposits/withdrawals which must be
borne by the client.
Cash payments received by the FSP should be deposited within one business day of receipt.
3. Conflict of Interest
A FAIS conflict of interest is any situation in which a FSP or representative has an actual or potential interest which,
when providing advice and/or intermediary services to a client, influences his/her objectivity and prevents the entity
or representative from providing a fair,
objective
Every licensedand unbiased financial
should have service
a written to a client.
Conflict of Interest Policy which they should provide to all their staff & also train
them so they can understand it.
Any actual or potential conflict of interest should be disclosed to the client.
Reps should disclose any incentives or financial rewards received from a Product Supplier.
4. Risk Management and Internal Controls
The Key Individual should ensure that the FSP has put in place reasonable risk management and internal controls to
ensure the soundness of the business and that it stays compliant with the FAIS Act and subordinate legislation.
The FSP should use appropriate technology systems to ensure elimination of errors, negligence, poor administration,
Contigency Planning- businesses should have adequate business continuity plans to ensure clients are not prejudiced
financially when an FSP shuts down for whatever reason. This is also very key for sole traders.
Compulsory Insurances:
(i) Cat I, II & IV FSPs who do not hold client funds should have at least R1m PI/FG Insurance.
(ii) Cat I, II, III & IV FSPs who hold client funds should have at least R5m PI/FG Insurance.
(iii) Cat IIA FSPs should hold a minimum of R5m PI/FG cover whether or not they receive/hold client funds
5. Complaints Management Policy
Every FSP should have a written Complaints Management Policy which is shared with staff & customers.
Clients should always be informed of their right to complain & be instructed to do so in writing & attach relevant
Such complaints should be retained for at least 5yrs.
Complaints should be handled promptly & fairly
Clients should be informed of their options together with contact details where they are not satisfied with the
outcome of the resolution of their complaint by the FSP. This will typically be a referral to the FAIS or other Ombud
who will adjudicate the matter further and client must be informed that such escalation needs to be pursued with
theAdvertising
6. Ombud within 6 months of their complaint being rejected by the FSP.
Principles
Every advert should state the business name of the FSP & that it is an authorised/licensed financial services provider.
Adverts should be accurate and not misleading/fraudulent.
should state
Adverts providing the sourceshould
illustrations & datestate
of their data where
reasonable they provide
assumptions financial
on which theyproduct performance.
are based with a qualification that
the illustrated results are not guaranteed and depend on the performance of underlying assets/investments/variable
market forces.
For Telephonic Advertisements, the following rules apply:
>Voice recordings should be kept for each and every call and be availed within 7 days of request by client or
>The voice recording should be kept for at least 45 days if no financial service/product is rendered/purchased as a
>There's no requirement to convert all voice recordings into a written format.
>Voice recording should be availed within 7 days of request by client or regulator.
>Where the call results in a sale, policy documents & disclosure documents should be sent to the client within 30
7. Direct Marketing
Direct marketers should disclose their business name, their FSP status, contact details of their Compliance
Department as well as their relationship with the Product Supplier and the contact details of such supplier.
Direct Marketers should conduct a full client needs analysis before recommending a financial product/service to a
client and provide full info about the product and its costs.
A Direct Marketer should allow for a voluntary termination of the contract by the client but should first inform them
of the implications, penalties and consequences of doing so.

Before submitting a complaint to the Office, the complainant must endeavour to resolve the complaint with the
responding party. The responding party has six weeks in which to resolve the complaint with the complainant. After
receipt of the final response of the responding party, the complainant has six months within which to submit a
complaint to the FAIS Ombud.
Any act of omission complained about must have occurred on or after 30 September 2004. The complaint must not
constitute a monetary claim in excess of R800 000,00 unless the responding party has agreed in writing to this
limitation being exceeded.

The Ombud may not investigate complaints where the complainant has a net asset value, annual turnover, or annual
income of more than R8 million.
The Financial Services Tribunal, which replaced the FSB Appeal Board from 1 April 2018, provides a person who is
“aggrieved” by a “decision” of a “decision-maker” (eg FSCA, FAIS Ombud, or even an FSP) to apply to the Tribunal for
a reconsideration of such a decision.

Personal character qualities of honesty, integrity and good standing

Competence
Experience
Qualifications
Regulatory Exams
Class of business training
Product specific training
Continuous Professional Development (CPD)
Operational ability
Financial soundness

To understand the difference between advice and intermediary services you need to understand that advice helps
the client to make a decision in relation to a financial product while intermediary services facilitate the
administration of the product.

If you're an FSP, a key individual or representative rendering financial services only in respect of Long-term
Insurance sub-category A and/or Friendly Society Benefits- there are no qualification requirements.

If you are a representative or a supervised representative of a Category II, IIA or III FSP a minimum of a degree is

New entrants to the industry may need to obtain a recognized qualification for the applicable financial
product within six years from their date of appointment for that financial product.
If you are a supervised representative of a Category I or IV FSP, you must have an entry level qualification Matric
or equivalent qualification
and you must work under supervision until you gain the full qualification as recognised by the Registrar.

Profile Changes
Debarment
Compliance Reports
Financial Statements

Debarment should be stated in employment contracts as a consequence for breaching the FAIS Act in a material
Debarment should be stated in the FSP's Disciplinary Code.
Debarment processes & procedures should be in place and adhered to when a rep has to be debarred.
Everyone in the organization should be trained/informed re debarment.
When an FSP has decided to debar a rep, they've to ensure the Registrar is notified within 5 days of the debarment
and within 15 days provide reasons/justification for the debarment.
The Rep Register should be updated accordingly once a decision is made to debar a rep.
The Registrar will gazette the debarment and publish it on the FSCA website.
The rep should be informed of their right to appeal the debarment bia the Financial Services Tribunal.
The compliance officer should monitor the debarment process to ensure its procedurally fair according to the FAIS
Protect the interests of the clients that were being serviced by the debarred rep.
Only the registrar may debar a key individual (not the FSP).
In terms of S 14A the registrar may at any time debar a person from rendering financial services if satisfied on the basis of
available facts and information that the person does not meet, or no longer meets, the requirements regarding personal
character qualities of honesty and integrity or if that person has contravened or failed to comply with any provision of this
Act.
The FSCA cannot lift a debarment unless instructed to do so by the Financial Sector Tribunal or a court of law. Only
through the application to the Registrar by an FSP who wants to employ the debarred rep can a debarred rep be
reappointed.
A debarred rep cannot be reappointed unless 12 months have lapsed from when they were debarred unless if the
debarment was due to the failure to comply with 'fit and proper' requirements of qualifications or regulatory exams
or CPD (in this case they can be reappointed once the reason for their debarment has been satisfied).
A rep cannot be reappointed if there are still open/pending cases/appeals.
The Key Individual has to satisfy himself that the rep meets all the fit & proper requirements prior to their
The debarred representative's name will continue to appear on the FSCA website till the FSP employing submits an
application to the Registrar to remove it.