Subject Title - INSETA

LOGO TO BE CONFIRMEDFSB REGULATORY EXAMINATION PREPARATIONSection 1First Level Regulatory ExaminationsFSPs (sole proprietors) and KeyIndividuals inCategories I, II, IIA, III & IV

© INSETA

Table of ContentsTasksGlossary of TermsviiviiiCHAPTER 1:AN INTRODUCTION TO THE FAIS ACT 11.1 The purpose of the FAIS Act 21.2 The role-players/power in the FAIS Act 31.3 Product categories in the FAIS Act 41.4 Codes of Conduct 61.5 Types of financial services and products 7Summary 15Self-Assessment Questions 17CHAPTER 2:THE ROLE OF THE KEY INDIVIDUAL IN TERMS OF THE FAISACT 212.1 The roles and responsibilities of key individuals asdefined in the FAIS Act 222.2 Approval of key individuals 252.3 Fit and Proper requirements for key individuals 27Summary 45Self-Assessment Questions 48CHAPTER 3:THE ROLE OF THE REPRESENTATIVE IN TERMS OF THE FAISACT 573.1 The roles and responsibilities of representatives asdefined in the FAIS Act 583.2 Registration of representatives 603.3 Fit and Proper requirements for representatives 613.4 Representative register 733.5 Recruitment and appointment of representatives 75Summary 76Self-Assessment Questions 79CHAPTER 4:SERVICES UNDER SUPERVISION 854.1 When can representatives act under supervision? 864.2 Supervision requirements 90© INSETA - Section 1 12a i

4.3 Explain the disclosure requirements that representatives areresponsible for 92Summary 93Self-Assessment Questions 94CHAPTER 5:IMPLICATIONS OF SECTIONS 8 AND 13 OF THE FAIS ACT 995.1 Introduction to sections 8 and 13 1005.2 Section 8 1015.3 Section 13 1045.4 The implications if a representative does not meet the Fit andProper requirements by the required date 107Summary 110Self-Assessment Questions 111CHAPTER 6:DEBARMENT 1156.1 Debarment of representatives 1166.2 Keeping record of the activities of representativesand key individuals 120Summary 120Self-Assessment Questions 121CHAPTER 7:THE REGULATORY ENVIRONMENT IN WHICH THE FSPFUNCTIONS 1257.1 Communication with the FAIS regulator 1267.2 Awareness of the regulatory universe 1287.3 Undesirable business practices 129Summary 130Self-Assessment Questions 131CHAPTER 8:OBLIGATIONS IN THE CODES OF CONDUCT 1358.1 Custody, client funds and premiums 1368.2 Disclosure relating to product suppliers, FSPs and commission 1388.3 Disclosure of product information 1418.4 Managing transparency and conflict of interest 1448.5 Ethical conduct in the financial services industry 1508.6 Steps to be taken by a representative when givingadvice to a client 1518.7 Complaints handling 154ii© INSETA - Section 1 12a

8.8 Other provisions of the general code 1558.9 Termination 164Summary 165Self-Assessment Questions 167CHAPTER 9:OVERSEE AND MANAGE THE COMPLIANCE FUNCTION 1739.1 Approval of compliance officers 1749.2 The role and functions of a compliance officer 180Summary 187Self-Assessment Questions 188CHAPTER 10:MAINTENANCE AND MANAGEMENT OF THE FSP LICENSING 191CONDITIONS10.1 Licensing conditions and restrictions 19210.2 Suspension, withdrawal and reinstatement of authorisation 19610.3 Offences 20010.4 Levies payable in terms of the FAIS act 20410.5 Interrelationships between FSPs andco-responsibilities 205Summary 206Self-Assessment Questions 207CHAPTER 11:LAPSING AN FSP LICENCE 20911.1 Voluntary lapsing of a FAIS licence 21011.2 Effect of voluntary sequestration, winding-upor closure of a business on its licensing status 212Summary 213Self-Assessment Questions 213CHAPTER 12:RECORD-KEEPING OBLIGATIONS OF THE FSP 21712.1 Record-keeping obligations under the FAIS act 21812.2 Record-keeping obligations under the FinancialIntelligence Centre Act and other legislation 222Summary 224Self-Assessment Questions 225CHAPTER 13:MANAGE THE FSP INFRASTRUCTURE 229© INSETA - Section 1 12a iii

13.1 Operational ability requirements of the FSP 23013.2 Financial soundness requirements of the FSP 232Summary 234Self-Assessment Questions 234CHAPTER 14:AUDITING AND ACCOUNTING REQUIREMENTS 23714.1 Auditing and accounting requirements 23814.2 Financial record-keeping 240Summary 241Self-Assessment Questions 241CHAPTER 15:THE IMPACT OF FICA ON THE FSP 24515.1 The scope of the Financial Intelligence Centre Act 24615.2 The impact of the FICA on FSPs 24715.3 Record keeping and reporting obligations underFICA and other legislation 251Summary 256Self-Assessment Questions 257CHAPTER 16:THE ROLE AND POWER OF THE OMBUD FOR FINANCIAL SERVICEPROVIDERS (FAIS OMBUD) 26116.1 The role of the Ombud for Financial Services Providers(FAIS Ombud) 26216.2 The power of the Ombud for Financial Services Providers(FAIS Ombud) 26316.3 Obligations of the FSP regarding investigations by the FSBand Ombud for Financial Services Providers(FAIS Ombud) 264Summary 267Self-Assessment Questions 268iv© INSETA - Section 1 12a

TasksThe material provided in this guide is based on the following tasks, aspublished in Board Notice 105 of 2008, Government Gazette 31514, dated 15October 2008 as amended by Board Notice 60 of 2010.1 Describe the role of the key individual in terms of the FAIS Act.2 Describe the role of the representative in terms of the FAIS Act.3 Manage and oversee the appointment of representatives.4 Manage the rendering of services under supervision.5 Manage and oversee the ongoing development/employment ofrepresentatives.6 Debar representatives that have been found to act fraudulently, orcommitted any other act that gives rise to debarment.7 Awareness of the regulatory environment in which the FSP functions.8 Awareness of the specific obligations in terms of the relevant Code ofConduct and other subordinate legislation.9 Oversee and manage the compliance functions as required by theFAIS Act.10 Maintain the licence of the FSP including the management of thelicensing conditions.11 Take the necessary action if the FSP voluntarily lapses its licence.12 Verify that the proper record-keeping activities are carried out.13 Manage and oversee/participate in the setting up and/or managing ofthe infrastructure of the FSP.14 Manage and oversee the requirements that auditors/accountingofficers must adhere to.15 Manage and oversee the FSPs adherence to the requirements of FICAand other relevant anti-money laundering legislation, as it applies tothe FSP.16 Manage any processes required in the event of an investigation by theOmbud for Financial Services Providers (FAIS Ombud).Please note that any reference to: masculine gender implies also the feminine. singular indicates also the plural, and vice-versa.© INSETA - Section 1 12a v

Glossary of TermsAdministrativeCodeBoard Notice 79 of 2003 on Codes of Conduct forAdministrative and Discretionary FSPs (as amended).AdministrativeFSPThis means an FSP, other than a discretionary FSP –(a) that renders intermediary services in respect offinancial products referred to in paragraphs (a), (b), (c)(excluding any short-term insurance contract or policyreferred to therein), (d) and (e), read with paragraphs(h), (i) and (j) of the definition of “financial product” inSection 1(1) of the Act, on the instructions of a client oranother FSP and through the method of bulking; and(b) acting for that purpose specifically in accordance withthe provisions of the Administrative Code, read with theAct, the General Code (where applicable), and any otherapplicable law.DiscretionaryCodeBoard Notice 79 of 2003 on Codes of Conduct forAdministrative and Discretionary FSPs (as amended).Discretionary FSP This means an FSP -(a) that renders intermediary services of a discretionarynature as regards the choice of a particularfinancial product referred to in the definition of“administrative FSP” in this subsection, but withoutimplementing any bulking; and(b) acting for that purpose specifically in accordancewith the provisions of the Discretionary Code, readwith the Act, the General Code (where applicable)and any other applicable law.The FAIS Act Financial Advisory and Intermediary Services Act, No. 37of 2002Forex Code Code of Conduct for Authorised Financial ServicesProviders and Representatives, involved in ForexInvestment business.FSBFinancial Services BoardFSPFinancial services providerGeneral Code General Code of Conduct for Authorised Financial ServicesProviders and Representatives, (as amended).vi© INSETA - Section 1 12a

PurposeThe FAIS Act introduced market conduct legislation in South Africa.It regulates the financial services market and became effective in 2002 withthe main objective to protect consumers in relation to financial services withregard to the regulated products.This chapter provides an overview of the FAIS Act as well as therequirements and some key principles that will assist your understanding ofthe rest of the material.1.1 THE PURPOSE OF THE FAIS ACT1.1.1 Overview of the FAIS ActThe FAIS Act regulates the business of all financial service providers andintermediaries who give advice or provide intermediary services to clients.The Act aims to professionalise the financial services industry and to provideadequate consumer protection.The FAIS Act follows a functional approach and not an institutional approach.This means that the Act regulates certain functions across institutions(insurance companies, brokerages and banks). An institutional approachfocuses on specific institutions, like the Banks Act for example, whichregulates banks only. Therefore, the „function‟ of providing financial services,across the various institutions, is governed by the FAIS Act.Other examples of legislation that are applied across the whole financialservices industry are: The Financial Intelligence Centre Act, 38 of 2001, TheFinancial Intelligence Centre Amendment Act, 11 of 2008 and The CompaniesAct, 61 of 1973.The FAIS Act refers to the Financial Advisory & Intermediary Services Act, no.37 of 2002. The commencement date of the FAIS Act is 15 November 2002,except for the following sections:2 © INSETA - Section 1 12a

Sections 20 to 31 became operational on 8 March 2003 1 . Section 13(1) became operational on 30 September 2004 2 . Section 7 became effective on 30 September 2004 3 .1.1.2 The role players in the FAIS ActThe FAIS Act has a number of role players.The Financial Services Board (FSB) is an independent institutionestablished by law to oversee the South African non-banking financialservices industry in the public interest.Financial Services Providers (FSPs) are the financial institutions,insurance companies or other entities that need to be authorised orlicensed by the FSB to provide financial services covered by the FAISAct.Key individuals are employed by the FSPs and are responsible for themanagement and oversight of the FAIS-related business.Representatives are employed or mandated by FSPs to providefinancial services to clients.Compliance officers are employed by or contracted by FSPs to assistin ensuring that the FSP complies with all the requirements of theAct.The Ombud for Financial Services Providers (FAIS Ombud) resolvesdisputes between consumers (clients) and financial service providersand their representatives with regard to financial services.1.2 THE ROLE-PLAYERS‟ DUTIES/POWER IN THE FAIS ACTThe FAIS Registrar is responsible for administration and enforcement of theAct, and the Registrar has defined functions, powers and obligations.The FAIS Registrar authorises and issues licences to FSPs.The form and manner of applications are stipulated in the Act as well as otherauthorisation requirements such as the fit and proper requirements.The FAIS Registrar approves key individuals and compliance officers.The subordinate legislation describes the fit and proper requirements.The FAIS Registrar may publish Codes of Conduct.The Codes describe the requirements when FSPs and representatives renderfinancial services to clients.1 Proclamation 21 of 20032 Proclamation 35 of 20043 GN 270/2004© INSETA - Section 1 12a 3

The duties of FSPs are described in the Act and subordinate legislation.There are specific provisions for compliance officers and compliancearrangements, requirements for record maintenance, disclosure, andauditing.The FAIS Registrar has power to enforce the Act and to impose penalties.The Act includes provisions relating to civil remedies, undesirable practices,offences and penalties, voluntary sequestration, winding-up and closure.The Act describes the role and power of the Ombud for Financial ServicesProviders (FAIS Ombud).1.3 PRODUCT CATEGORIES IN THE FAIS ACT1.3.1 The product categories in the FAIS ActEach authorised FSP is licensed to provide financial services in relation tocertain FAIS products. These products are defined and grouped in productcategories.FSPs may have various licences in respect of different product categories.The product category may also have different products falling in the maincategory and these are called product sub-categories.The category descriptions in the FAIS Act are as follows:“Category I”, in relation to a financial services provider, means all persons,other than persons referred to in Categories II, IIA, lll and IV, who areauthorised to render the financial services (other than financial servicesmentioned in Categories II, IIA, III and IV) as set out in the relevantapplication;“Category II”, in relation to a financial services provider, means all personswho are authorised as discretionary FSPs as set out in the relevantapplication;“Category IIA”, in relation to a financial services provider, means all personswho are authorised as hedge fund FSPs as set out in the relevant application;“Category III”, in relation to a financial services provider, means all personswho are authorised as administrative FSPs as set out in the relevantapplication;4 © INSETA - Section 1 12a

“Category IV”, in relation to a financial services provider, means all personswho require licences as Assistance Business FSP.The classification of the categories and sub-categories are important for thefollowing reasons:FSP licences are issued for specific product categories;Key individuals and representatives are approved and appointed tobe operative within certain product categories and sub-categories;Compliance officers are approved for certain product categories andsub-categories; andthe fit and proper requirements relate to product Categories and subcategories.1.3.2 Examples of product sub-categories in the FAIS ActLet‟s look at some examples of product categories and sub-categories:CATEGORIES I: SUBCATEGORIES1.1 Long-term Insurance Subcategory A1.2 Short-term Insurance Personal Lines1.3 Long-term Insurance Subcategory B1.3.1 Subcategory B11.3.2 Subcategory B21.4 Long-term Insurance Category C1.5 Retail Pension Benefits1.6 Short-term Insurance Commercial Lines1.7 Pension Fund Benefits1.8 Securities and instruments: Shares1.9 Securities and Instruments: Money market instruments1.10 Securities and Instruments: Debentures and securitised debt1.11 Securities and Instruments: Warrants, certificates and otherinstruments acknowledging debt1.12 Securities and Instruments: Bonds1.13 Securities and Instruments: Derivative instruments excludingwarrants1.14 Participatory interests in one or more collective investment schemes1.15 Forex Investment Business1.16 Health Service Benefits1.17 Long-term Deposits1.18 Short-term Deposits1.19 Friendly Society Benefits© INSETA - Section 1 12a 5

CATEGORY II: SUBCATEGORIES2.1 Long-term Insurance2.1.1 Subcategory B12.1.2 Subcategory B22.2 Long-term Insurance Category C2.3 Retail Pension Benefits2.4 Pension Fund Benefits2.5 Securities and instruments: Shares2.6 Securities and Instruments: Money market instruments2.7 Securities and Instruments: Debentures and securitised debt2.8 Securities and Instruments: Warrants, certificates and otherinstruments acknowledging debt2.9 Securities and Instruments: Bonds2.10 Securities and Instruments: Derivative instruments excludingwarrants2.11 Participatory Interests in one or more collective investment schemes2.12 Forex Investment Business2.13 Long-term Deposits2.14 Short-term Deposits1.4 CODES OF CONDUCTAs mentioned above, the FAIS Registrar may publish Codes of Conduct. Thepurpose of the Codes is to provide more detailed provisions regarding therendering of financial services. These Codes are part of the subordinatelegislation and are binding on all FSPs, key individuals and representatives.Section 16 of the FAIS Act requires that the Codes must contain (at least)provisions relating to:making adequate disclosuresadequate record-keepingavoidance of fraudulent and misleading advertising, canvassing andmarketingproper safe-keeping, separation and protection of funds andtransaction documentation of clientswhere appropriate, suitable guarantees or professional indemnity orfidelity insurance cover, and mechanisms for adjustments of suchguarantees or cover by the registrar in any particular case6 © INSETA - Section 1 12a

the control or prohibition of incentives given or accepted by aprovider; andany other matter which is necessary or expedient to be regulated insuch code for the better achievement of the objects of the Act.The following Codes have been published so far:General Code of Conduct for Authorised Financial Services Providersand Representatives, (as amended)Specific Code of Conduct for Authorised Financial Services Providersand Representatives conducting Short-term Deposit BusinessCode of Conduct for Authorised Financial Services Providers andRepresentatives, involved in Forex Investment BusinessNotice on Codes of Conduct for Administrative and Discretionary FSPs(as amended).As and when required, the Codes are amended through the publication ofBoard Notices in Government Gazettes.1.5 TYPES OF FINANCIAL SERVICES AND PRODUCTS1.5.1 Types of financial servicesTo provide a financial service means to:give advice; orprovide an intermediary service; orgive advice and provide an intermediary service.We refer to financial service throughout the material and it is important thatyou understand that it may consist of both or either of the above elements.Sometimes a representative or FSP may only be authorised to give advice inrespect of certain product categories, or to provide an intermediary service(without advice).© INSETA - Section 1 12a 7

1.5.2 AdviceThe FAIS Act defines „advice‟ as follows:Definition of advice:“‟advice‟ means, subject to subsection (3)(a), any recommendation, guidanceor proposal of a financial nature furnished, by any means or medium, to anyclient or group of clients -a) in respect of the purchase of any financial product; orb) in respect of the investment in any financial product; orc) on the conclusion of any other transaction, including a loan orcession, aimed at the incurring of any liability or the acquisition ofany right or benefit in respect of any financial product; ord) on the variation of any term or condition applying to a financialproduct , on the replacement of any such product, or on thetermination 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 planningin connection with the affairs of the client; orii. results in any such purchase, investment, transaction,variation, replacement or termination, as the case may be,being effected;"Subsection 3(a) says the following:Exclusions from "advice"“a) advice does not include -(i) factual advice given merely -(aa) on the procedure for entering into a transaction inrespect of any financial product;(bb) in relation to the description of a financial product;(cc) in answer to routine administrative queries;(dd) in the form of objective information about aparticular financial product; or(ee) by the display or distribution of promotionalmaterial;(ii) an analysis or report on a financial product without anyexpress or implied recommendation, guidance or proposalthat any particular transaction in respect of the product is8 © INSETA - Section 1 12a

appropriate to the particular investment objectives, financialsituation or particular needs of a client;(iii) advice given by -(aa) the board of management, or any board member, ofany pension fund organisation or friendly societyreferred to in paragraph (d) of the definition of“financial product” in subsection (1) to the membersof the organisation or society on benefits enjoyed orto be enjoyed by such members; or(bb) the board of trustees of any medical schemereferred to in paragraph (g) of the said definition of“financial product”, or any board member, to themembers of the medical scheme, on health carebenefits enjoyed or to be enjoyed by suchmembers; or(iv) any other advisory activity exempted from the provisions ofthis Act by the registrar, after consultation with the AdvisoryCommittee, by notice in the Gazette;"© INSETA - Section 1 12a 9

The elements of „advice‟ include the following:GIVING ADVICE ISTOMake arecommendationProvide guidanceProvide a proposalOf a financialnatureTo a client or agroup of clientsRegarding the purchasing ofa financial productRegarding investment in a financial productOn the conclusion of any other transaction to cede orpledge or to get benefits or rights in respect of afinancial product.On the variation of any term or condition of financial products: on replacement; or on termination of buying the products; or on termination of investing in the products.It does not matter if the advice was given during or incidental to financialplanning with the client OR if it results in buying, investing, transacting,variation, replacement or termination.10 © INSETA - Section 1 12a

The following is not included in the definition of „advice‟:ADVICE IS NOTAbout procedures to do a financial transactionAbout describing a financial productAdvice isnotfactualadvice/informationBy answering routine admin queriesBy displaying or distributing promotionalmaterialBy giving objective information about afinancial productAdvice isnotAn analysis or report on a financial productwithout an express or impliedrecommendation, guidance or proposal thata transaction in respect of the productmeets the client's needs, investmentobjectives or financial situation.Advice by a board member of anypension fund organisation or friendlysociety, to their members on benefits tobe enjoyed by the members.Advice by the board of trustees of amedical scheme to members of themedical scheme on healthcare benefits.© INSETA - Section 1 12a 11

1.5.3 Intermediary serviceLet's look at the elements of „intermediary service‟ in order to distinguishbetween the two components which make up „financial service‟.The FAIS Act defines „intermediary service‟ as follows:Definition of intermediary service:“‟intermediary service‟ means subject to subsection (3)(b), any act otherthan the furnishing of advice, performed by a person for or on behalf of aclient or product supplier –a) the result of which is that a client may enter into, offers to enter intoor enters into any transaction in respect of a financial product with aproduct supplier; orb) with a view to -(i) buying, selling or otherwise dealing in (whether on adiscretionary or non-discretionary basis), managing,administering, keeping in safe custody, maintaining orservicing a financial product purchased by a client from aproduct supplier or in which the client has invested;(ii) collecting or accounting for premiums or other moneyspayable by the client to a product supplier in respect of afinancial product; or(iii) receiving, submitting or processing the claims of a clientagainst a product supplier;"Subsection 3(b) says the following:Exclusions from intermediary service"b) intermediary service does not include -(i) the rendering by a bank, mutual bank or co-operative bankof a service contemplated in paragraph (b)(ii) of thedefinition of „intermediary service‟ where the bank, mutualbank or co-operative bank acts merely as a conduit betweena client and another product supplier;(ii) an intermediary service rendered by a product supplier -(aa) who is authorised under a particular law to conductbusiness as a financial institution; and(bb) where the rendering of such service is regulated byor under such law;12 © INSETA - Section 1 12a

(iii)any other service exempted from the provisions of this Act bythe registrar, after consultation with the Advisory Committee,by notice in the Gazette."The elements of „intermediary service‟ include the following:INTERMEDIARY SERVICE ISAny act, except giving advice, by a personFor oron behalf of a client or a product supplierResulting inORWith a view tothe client entering into or offeringto enter into a transaction inrespect of a financial product with aproduct supplier.do the following in respect of afinancial product purchased by aclient from a product supplier or inwhich a client has invested: Buying, selling or dealing in(discretionary or not); Managing; Administering; Keeping in safe custody; Maintaining; or servicing.ORWith a view to collecting or accounting for premiums; or other moneywhich a client has to pay to a product supplier inrespect of a financial product.ORWith a view toreceiving;submitting; orprocessing the claims of a client against aproduct supplier.© INSETA - Section 1 12a 13

1.5.2 Types of financial productsFinancial products are grouped in the various product categories and subcategories.Below examples of financial products:Financial producta) Securities and instruments, including:(i) shares in a company other thana “share block company” asdefined in the Share BlocksControl Act, 1980 (Act No. 59 of1980);(ii) debentures and securitiseddebt;(iii) any money-market instrument.(iv) any warrant, certificate, andother instrumentacknowledging, conferring orcreating rights to subscribe to,acquire, dispose of, or convertsecurities and instrumentsreferred to in subparagraphs (i),(ii) and (iii);(v) any “securities” as defined inSection 1 of the SecuritiesServices Act, 2002.b) A participatory interest in one or morecollective investment schemesc) A long-term or a short-term insurancecontract or policy, referred to in theLong-term Insurance Act 4 , and theShort-term Insurance Act 5 , respectivelyd) A benefit provided by:(i) a pension fund organisation asdefined in Section 1(1) of theExampleShares in a company suchas Absa bank.An example of a debentureis an unsecured bond.Money market instrumentsare short-term financialinstruments such asbankers‟ acceptances,certificates of deposit.Securities include shares,stocks and depositoryreceipts in publiccompanies.Money market fundsmanaged by a fundmanagerCredit life insurance as anexample of Long-TermInsurance Category BBenefits include payout ofmoney accumulated in apension fund, for the4 Act No. 52 of 19985 Act No. 53 of 199814 © INSETA - Section 1 12a

Financial productExamplePension Funds Act, 1956 (Act benefit of the members.No. 24 of 1956), to themembers of the organisation byvirtue of membership; or(ii) a friendly society referred to inthe Friendly Societies Act 6 , tothe members of the society byvirtue of membershipe) A foreign currency denominatedinvestment instrument, including aforeign currency depositf) A deposit as defined in Section 1(1) ofthe Banks Act 7Savings and 32-day noticedeposit accountsg) A health service benefit provided by amedical scheme as defined in Section1(1) of the Medical Schemes Act 8 Health benefits that areavailable in terms of amedical schemeh) Any other product similar in nature to any financial product referredto in paragraphs (a) to (g), inclusive, declared by the Registrar, afterconsultation with the Advisory Committee, by notice in the Gazette tobe a financial product for the purposes of this Acti) Any combined product containing one or more of the financialproducts referred to in paragraphs (a) to (h), inclusivej) Any financial product issued by any foreign product supplier andmarketed in the Republic and which in nature and character isessentially similar or corresponding to a financial product referred toin paragraphs (a) to (i), inclusive.SummaryChapter 1 introduced you to the main purpose and ambit of the FAIS Act,which sets out to regulate financial services in South Africa.We also discussed the product categories and sub-categories.The categorisation of products is important because it is used for thefollowing:6 Act No. 25 of 19567 Act No. 94 of 19908 Act No. 131 of 1998© INSETA - Section 1 12a 15

FSP licences are issued for specific product categories.Key individuals and representatives are approved and appointed tooperate within certain product categories and sub-categories.Compliance officers are approved for certain product categories andsub-categories.The fit and proper requirements relate to product categories and subcategories.The FAIS Act makes provision for Codes of Conduct. The Codes give us thedetailed provisions that prescribe what and how to do things.We also unpacked the concept of „financial service‟ in this chapter. Twoelements make up „financial service‟:adviceintermediary servicesor a combination of both.Only those financial products that are listed in the FAIS Act are subject to theAct.16 © INSETA - Section 1 12a

Self-Assessment QuestionsPlease note that the questions which follow are formative in nature. Thequestions were not developed by the FSB‟s examination bodies and as suchcannot be used as an indication of the nature/structure/level of the questionsthat you will encounter in the FSB‟s regulatory examination.1. The FAIS Act regulates the business of all financial services providersand intermediaries who:a) give advice or provide intermediary services to clientsb) give advice and grant creditc) are registered as credit providersd) only give advice to clients2. FSPs may:a) only be registered for one licenceb) have various licences but for the same product categoriesc) only apply for one licenced) have various licences in respect of different productcategories3. The classification of the categories and sub-categories are importantfor the following reasons:a) FSP licences are issued for specific product categoriesb) Compliance officers are approved for certain productcategories and sub-categoriesc) a) and b)d) a)4. Section 16 of the FAIS Act requires that the Codes must have (atleast) provisions relating to:a) adequate record-keepingb) the power of the Registrarc) the control or prohibition of incentives given or accepted by aproviderd) a) and c)© INSETA - Section 1 12a 17

5. To provide a financial service means to:a) only give adviceb) only provide an intermediary servicec) give advice and/or provide an intermediary serviced) adhere to the General Code6. To give advice means to:a) give factual information about productsb) make a recommendation of a financial nature to a clientc) provide guidance of a financial nature to a clientd) a) and c)e) b) and c)7. Advice excludes the following:a) Procedures to do a financial transactionb) Describing a financial productc) Factual information about productsd) All of the above8. To provide an intermediary service means to:a) do something for a client, which may result in him buying aninsurance policyb) do something with a view to collecting premiums from aclientc) give adviced) a) and b)e) b) and c)9. Financial products are grouped in the various product categories andsub-categories. The following are examples of financial products inthe FAIS Act:a) Credit life insuranceb) Money market funds managed by a fund managerc) Shares in a company such as Old Mutuald) Savings and 32-day notice deposit accountse) All of the above10. The following are examples of subcategories in Category I:a) Credit life insuranceb) Money market funds managed by a fund managerc) Shares in a company such as Old Mutuald) Savings and 32-day notice deposit accountse) All of the above18 © INSETA - Section 1 12a

Self-Assessment Answers1. The FAIS Act regulates the business of all financial service providersand intermediaries who:a) give advice or provide intermediary services to clientsb) give advice and grant creditc) are registered as credit providersd) only give advice to clients2. FSPs may:a) only be registered for one licenceb) have various licences but for the same product categories.c) only apply for one licence.d) have various licences in respect of different productcategories.3. The classification of the categories and sub-categories are importantfor the following reasons:a) FSP licences are issued for specific product categoriesb) Compliance officers are approved for certain productcategories and sub-categoriesc) a) and b)d) a)4. Section 16 of the FAIS Act requires that the Codes must have (atleast) provisions relating to:a) adequate record keepingb) the power of the Registrarc) the control or prohibition of incentives given or accepted by aproviderd) a) and c)5. To provide a financial service means to:a) only give adviceb) only provide an intermediary servicec) give advice and/or provide an intermediary servicec) adhere to the General Code© INSETA - Section 1 12a 19

6. To give advice means to:a) give factual information about productsb) make a recommendation of a financial nature to a client.Provide guidance of a financial nature to a clientc) a) and c)d) b) and c)7. Advice excludes the following:a) Procedures to do a financial transactionb) Describing a financial productc) Factual information about productsd) All of the above8. To provide an intermediary service means to:c) do something for a client, which may result in him buying aninsurance policyd) do something with a view to collecting premiums from aclientc) give adviced) a) and b)e) b) and c)9. Financial products are grouped in the various product categories andsub-categories. The following are examples of financial products inthe FAIS Act:a) Credit life insuranceb) Money market funds managed by a fund managerc) Shares in a company such as Old Mutuald) Savings and 32-day notice deposit accountse) All of the above10. The following are examples of subcategories in Category I:a) Credit life insuranceb) Money market funds managed by a fund managerc) Shares in a company such as Old Mutuald) Savings and 32-day notice deposit accountse) All of the above20 © INSETA - Section 1 12a

Chapter2The role of the key individual in terms of theFAIS ActThis chapter covers the following criteria:KNOWLEDGE CRITERIA:Describe the roles and responsibilities of key individuals as defined in the FAIS Act.(Task 1)Explain the requirements for licensing by the FSB for the role of the key individual.(Task 1)Describe what the key individual‟s management responsibility entails regardingthe regulated functions of the FSP. (Task 1)Describe what the honesty and integrity requirements are for a key individual. (Task 1)Explain what the implications are for the key individual if a key individual‟s personalsituation changes and he/she is no longer fit and proper. (This refers to the honesty andintegrity requirement.) (Task 1)Explain the competence/qualification requirements that a key individual needs to meet.(Task 1)Explain the experience requirements that the key individual must meet. (Task 1)Explain what management responsibilities should be carried out by a key individual.(Task 1)Explain when an individual can commence acting as a key individual. (Task 1)© INSETA - Section 1 12a 21

PurposeThis chapter introduces the role of the key individual. Key individuals areappointed by the FSP but APPROVED by the FSB. The management andoversight responsibilities of key individuals stretch over the whole (FAISrelated)business of the FSP. In this chapter we unpack the fit and properrequirements applicable to key individuals.2.1 THE ROLES AND RESPONSIBILITIES OF KEY INDIVIDUALSAS DEFINED IN THE FAIS ACT2.1.1 Definition of a key individualThe FAIS Act defines a key individual as follows:Definition of key individual:"‟Key individual‟, in relation to an authorised financial services provider, or arepresentative, carrying on business asa)a corporate or unincorporated body, a trust or a partnership, meansany natural person responsible for managing or overseeing, eitheralone or together with other so responsible persons, the activities ofthe body, trust or partnership relating to the rendering of anyfinancial service; orb) a corporate body or trust consisting of only one natural person asmember, director, shareholder or trustee, means any such naturalperson.”A key individual must therefore:manage or overseealone or with another approved key individualthe activities of the FSP, which the key individual is appointed for.Where a single key individual does not meet all the requirements, an FSPmay have more than one key individual and amongst them they will meet therequirements. The activities of the FSP refer to the rendering of an22 © INSETA - Section 1 12a

intermediary service and/or advice relating to the financial products the FSPis licensed for (category and subcategories).2.1.2 The role of a key individualWe also see that it is possible that an FSP can have one natural person in thebusiness (sole proprietor) and that person can be the key individual as well.In other words, the sole proprietor and the key individual is the same person.The Act refers to the FSP in this instance as "the applicant". Insurancecompanies will normally have designated key individuals and representatives.Key individuals may also act as representatives, in which case they have tomeet the requirements for both roles respectively.Section 17(3) of the Act states that an FSP must establish and maintainprocedures to be followed by the FSP and its representatives in complyingwith the Act. The KI is usually tasked, on behalf of the FSP, with ensuringthat such procedures (for example, procedures in respect of the provision ofadvice, or retaining records of advice) are implemented and maintained.RepKISolePropSpecific fit and properrequirementsfor representativesSpecific fit and properrequirementsfor key individualsSpecific fit and properrequirementsfor FSPsLet's look at some examples that explain the various „hats‟ that keyindividuals can wear.© INSETA - Section 1 12a 23

Example 1:CBA Financial services is a sole proprietor with Sarah as the owner. CBA, as ajuristic body, is authorised by the FSB as an FSP. Sarah operates on her ownand she is therefore the key individual as well.Sarah provides her clients with financial services, therefore, she acts as arepresentative as well.As the key individual for CBA Financial services, Sarah must oversee andmanage all the activities of CBA for which a key individual is responsible interms of the FAIS Act.Example 2:InsCo is an insurance company with 200 employees and authorised to sellCategory I products. It is very likely that InsCo will have at least two (2) keyindividuals to manage and oversee the activities and functions of the FSP.2.1.3 Management responsibilitiesThe key individual has the responsibility of management and oversight of theFSP that performs the activities relating to the rendering of financial services,which includes the provision of advice and intermediary services in respect ofsuch a licence. The key individual must have the required experience inmanagement before the Registrar will approve the appointment.The experience must include practical experience in the management oroversight of the services similar to or corresponding to the financial servicesrendered by the FSP.The key individual is responsible, amongst other things, for therepresentatives, as well as the overall business management of the FSP.In the chapters to follow we discuss all the responsibilities that keyindividuals have in terms of the FAIS Act.24 © INSETA - Section 1 12a

2.2 APPROVAL OF KEY INDIVIDUALS2.2.1 Requirements for approvalThe FSP applies to the Registrar for approval of a key individual. The onus ison the applicant (when it is a partnership, a trust or a corporate orunincorporated body) to "satisfy" the Registrar that a key individual meetsthe fit and proper requirements in respect of honesty and integrity, as well ascompetence and operational abilities. (We discuss these requirements in thenext section.)If the applicant's qualification is not on the recognised qualification list, andthe applicant thinks the qualification is indeed relevant and applicable to therole, application for recognition (to the Registrar in the prescribed manner) ofthe qualification must be made prior to submitting the application form.Let‟s look at the administrative requirements for the approval of keyindividuals.Submitting documentsKey individuals and sole proprietors (FSP which is a natural person) mustcomplete a specific application form (Form FSP4). The following is a summaryof what is required in completing the application form.A description of what best describes the applicant's (FSPs)Rolerole in the organisation is required. Questions relating to honesty and integrity must becompleted (refer the discussion on honesty andFit and properintegrity above).requirements Details about qualifications must be completed andcertified copies of qualifications must be attached.© INSETA - Section 1 12a 25

Submitting documentsEmploymenthistoryOperationalabilityGeneralA detailed CV must be attached, indicating theexperience that the applicant has gained within thelast five (5) years. Full details of the person‟sresponsibilities must be provided to illustrate that theperson‟s experience is relevant to the category offinancial services and subcategory of financialproducts being offered/rendered.Reference letters from previous employers must besubmitted.Details of experience for the categories of financialservices and the subcategories of financial productsin respect of which the sole proprietor will berendering financial services and the key individualwill be managing or overseeing, must be provided.Reference letters from previous employers regardingresponsibilities of the applicant in the variouscategories must be submitted.The key individual and sole proprietor must have theoperational ability to fulfil the responsibilities imposedon the licensee and its key individuals by the Act.If the applicant is both key individual and arepresentative, a separate form (FSP 5) must becompleted.The applicant needs to sign an indemnity, authorisingthe FSB to verify all information.Once the Registrar is satisfied that the applicant meets all the requirementsfor the key individual role in the FSP, the Registrar will grant or refuse theapplication.The Registrar may impose restrictions or additional conditions on the FSPlicence, which may include specific conditions regarding the key individual.An example of a condition (in terms of Section 8(4)(b)) is the following:A person may be approved for the position as key individual subjectto the successful completion of the first level regulatory exam by acertain date.26 © INSETA - Section 1 12a

After a licence has been issued to an FSP, the Registrar may impose newconditions on the licence after evaluation of a new key individual or whenthere is a change in a key individual's personal circumstances as discussedbelow.2.3 FIT AND PROPER REQUIREMENTS FOR KEY INDIVIDUALS2.3.1 Overview of the fit and proper requirements for key individualsThe FAIS Act is clear on the various requirements and criteria a person mustmeet in order to be approved as a key individual. Apart from the definition inthe Act, which we looked at above, we find most of the requirements in thesubordinate legislation (Board Notices).Remember, the FSP, being the employer, will identify/appoint the people itwants to act as key individuals, and the FSB, being the regulator, willapprove the appointment of key individuals for each FSP.What are the fit and proper requirements to be a key individual?The fit and proper requirements for all key individuals include the following:We discuss the requirements relating to honesty and integrity andcompetence in the sections to follow. (Refer to BN 106 for further detail inrespect of these requirements.)Part of a key individual's fit and proper requirements is the operational abilityto fulfil its functions in terms of the FAIS Act, including the oversight of thefinancial services (regarding the giving of advice and rendering ofintermediary services) provided by the representatives of the FSP.FSPs must also meet operational ability requirements in order to beauthorised as such – these will be discussed throughout the chapters tofollow. In addition, FSPs (including sole proprietors) must also meet the© INSETA - Section 1 12a 27

financial soundness requirement – this requirement does not apply to keyindividuals.Below are the fit and proper requirements applicable to the different roleplayers:Personalcharacter ofintegrity andhonestyCompetency: Qualifications Experience RegulatoryExamsCPDFinancialSoundnessOperationalAbilityFSP – Sole FSP – NOTKeyRepresentativeproprietor Sole ProprietorIndividualYes Yes –YesYesdirectors/members/etc.Yes No Yes YesYes Yes No NoYes Yes No YesThe summary below of the applicable fit and proper requirements gives us anoverview of the more detailed discussions that follow.Key individuals must: meet the requirement in respect of honesty and integrity; have the minimum experience requirements; have the required qualifications; and have completed the relevant first level regulatory examinationbefore the Registrar will APPROVE the appointment. 9 have completed the relevant second level regulatory examinationsfor the categories and subcategories, 10 if these are required by theFSP.An FSP who is a sole proprietor must: meet the requirement in respect of honesty and integrity; have the minimum experience requirements; have the required qualifications; and have completed the relevant regulatory examinations for thecategories and subcategories before a LICENCE will be granted. 119 Section 3(4) of BN 10610 Section 3(2) of BN 10628 © INSETA - Section 1 12a

At least one (1) or more of the approved key individuals must: have the same experience and qualifications; and have completed the same regulatory examinations as would applyto a sole proprietor FSP (above), which must relate to the samecategories/subcategories that the FSP is licensed for. 12In a juristic representative (where a juristic person, such as anothercompany renders financial service to an FSP), at least one (1) of the keyindividuals (overseeing and managing) must have the same experience,qualifications and regulatory examination requirements as would apply tothe key individual of the FSP of the juristic representative. 13All key individuals must also meet the Continuous Professional Developmentrequirements once all the experience, qualifications and regulatoryexamination requirements are met. 142.3.2 Honesty and integrity requirements for key individualsThe key individual is managing or overseeing a large portion of the businessof the FSP and these personal attributes are crucial in ensuring that theobjectives of the FAIS Act are met and that the FSP renders a professionalfinancial service to its clients.One way to determine whether a person is honest and has integrity, is toprovide certain criteria which the key individual must meet. In addition, theFAIS Registrar may refer to any information it has or anything that is broughtto the attention of the Registrar in relation to the fitness and propriety of akey individual. 15The honesty and integrity requirement is ongoing. Section 2(4) of BN 106requires that honesty and integrity be declared in the application for approvalof a key individual.Key individuals are required to disclose all information and facts available andapplicable to them when applying for approval by the Registrar.The following table summarises factors that may exclude a person fromapproval as a key individual.11 Section 3(3) of BN 10612 Section 3(5) of BN 10613 Section 3(6) of BN 10614 Section 3(2)(d) of BN 106)15 Section 2(2) of BN 106© INSETA - Section 1 12a 29

The person was found guilty in any criminal proceedings or liable inany civil proceedings of acting fraudulently, dishonestly,unprofessionally, dishonourably or in breach of a fiduciary dutywithin five (5) years before application, approval, and appointment.The person was found guilty by any statutory professional body orvoluntary professional body of dishonesty, negligence,incompetence, mismanagement serious enough to impugn thehonesty and integrity of the FSP, key individual, within five (5) yearsbefore application, approval, appointment.The person was denied membership of any statutory professionalbody or voluntary professional body because of an act of dishonesty,negligence, incompetence or mismanagement, within five (5) yearsbefore application, approval, appointment.The person was found guilty by a regulatory or supervisory body ofan act of dishonesty, negligence, incompetence or mismanagementserious enough to impugn the honesty and integrity of the FSP, KI,within five (5) years before application, approval or appointment.The FSP had its authorisation to carry on business/any licencewithdrawn or suspended by any regulatory or supervisory bodybecause of an act of dishonesty, negligence, incompetence ormismanagement, within five (5) years before application, approvalor appointment.The person was disqualified or prohibited by a court from taking partin the management of any company or other statutorily created,recognised or regulated body, current or not, irrespective of whetherthis has been lifted or not.2.3.3 Changes in the personal circumstances of key individualsSection 13(2)(a) of the Act requires that the FSP must be AT ALL TIMESsatisfied that the key individual meets the requirements of honesty andintegrity and the FSP must ensure that the key individual/s responsible for itsbusiness remain/s qualified in terms of these personal attributes, to fulfil thefunction of key individual.To achieve this, the key individual must declare to the FSP if there is anychange in his/her personal situation that affects his/her honesty and integrity– particularly in view of the criteria which may be used to determine"exclusions" - which we discussed above.30 © INSETA - Section 1 12a

If there is a change in the circumstances of the key individual that affects herhonesty and integrity adversely, the FSP is responsible to advise theregulator and also tell the regulator what action the FSP has taken –including debarment (which we discuss later) of the key individual.This notification is also referred to as a profile change – which we discusslater.Section 8(4)(b) of the FAIS Act states that:if there is any change in the personal circumstances of a keyindividual which affects the fit and proper requirements and rendersor may render such person to be no longer a fit and proper person,no such person may be permitted to take part in the conduct ormanagement or oversight of the licensee‟s business in relation to therendering of financial services,unless such person has on application been approved by the registrarby the registrar by notice in the Gazette.In addition, Section 2(b)(ii) of Board Notice 122 of 2003, states that the FSPis responsible for providing the Regulator with full disclosure on steps thatthe key individual and the FSP intend to take in order to comply fully with therequirements of honesty, integrity and competence in due course. i2.3.4 Competency requirements for key individualsThe competency requirements for a key individual include 16 :minimum experience requirementsrelevant qualification requirementscompletion of relevant regulatory examinations; andongoing compliance with continuous professional development (CPD)requirements.16 Section 3(2) of BN 106© INSETA - Section 1 12a 31

2.3.5 Experience requirements for key individualsThe key individual's experience is one of the crucial elements whichdetermines whether he will be approved by the Registrar or not.When discussing the experience requirements for key individuals, one has todistinguish between general management experience and experiencerequired in a specific product category.General management and oversight experienceKey individuals of a Category 1 FSP must, on date of approval by theRegistrar, have at least one year‟s practical experience in the management oroversight of the activities of a business. Such experience:could have been gained either within or outside South Africacould have been gained during intermittent periods, not more thanfive years prior to the application of the approval of the keyindividual; andmay have been gained in the management or oversight of servicessimilar to or corresponding to the financial services rendered by theFSP.For key individuals of Category II and IIA FSPs, the requirement is similar,except that the key individual must have actually provided the financialservices in relation to the subcategories on date of approval. A key individualof a Category III FSP must have three years‟ practical experience gained inthe rendering of financial services in that category, in addition to meeting therequirement for one year management/oversight experience.Management and oversight experience must already exist when the keyindividual applies for approval; it can never be obtained under supervisionwhilst the key individual is fulfilling the duties of a key individual in terms ofthe Act. 1717 Generally in Section 4 of BN 106 – all FSP categories32 © INSETA - Section 1 12a

Experience required for product categoriesBN 106 (part 3(5)) requires that an FSP must at all times ensure that at leastone or more of the key individuals approved by the Registrar meet the sameexperience, qualifications and regulatory examination requirements as wouldapply to an FSP who is a sole proprietor in relation to any one of thecategories or subcategories that the provider is authorised for.This means that key individuals may also require experience in specificproduct categories in addition to the general management experiencerequired.The other instance where a key individual would need to meet the experiencerequirements of a particular product category is of course where the keyindividual is also a representative of the FSP.The specific experience requirements in respect of each category arepublished in the subordinate legislation and show in a table format, whereapplicable, the number of months/years required for each subcategory.Note:Categories IIA and III do not have tables because of the nature of thebusiness/ financial service provided.Let's look at the table applicable to Category I. (Published in Board Notice106/2008, amended by BN 151/2008 and substituted by BN 60/2010):© INSETA - Section 1 12a 33

TABLE A: CATEGORY I EXPERIENCE REQUIREMENTS FOR AN FSP ANDREPRESENTATIVEColumn OneSubcategoryColumn TwoAdvice:MinimumexperienceColumn ThreeServices:Minimumexperience1.1 Long-term Insurance Subcategory A 6 months 2 months1.2 Short-term Insurance Personal Lines 1 year 6 months1.3 Long-term Insurance1.3.1 Subcategory B1 1 year 6 months1.3.2 Subcategory B2 1 year 6 months1.4 Long-term Insurance Subcategory C 1 year 6 months1.5 Retail Pension Benefits 1 year 6 months1.6 Short-term Insurance Commercial Lines 1 year 6 months1.7 Pension Fund Benefits 1 year 6 months1.8 Securities and instruments: Shares 2 years 1 year1.9 Securities and Instruments: Money 2 years 1 yearmarket instruments1.10 Securities and Instruments: Debentures 2 years 1 yearand securitised debt1.11 Securities and Instruments: Warrants, 2 years 1 yearcertificates and other instrumentsacknowledging debt1.12 Securities and Instruments: Bonds 2 years 1 year1.13 Securities and Instruments: Derivative 2 years 1 yearinstruments excluding warrants1.14 Participatory interests in one or more 1 year 1 yearcollective investment schemes1.15 Forex Investment Business 2 years 1 year1.16 Health Service Benefits 2 years 2 years1.17 Long-term Deposits 6 months 3 months1.18 Short-term Deposits 6 months 3 months1.19 Friendly Society Benefits 6 months 2 months34 © INSETA - Section 1 12a

Let's look at the table applicable to Category II.(Published in Board Notice 106/2008, amended by BN 151/2008 andsubstituted by BN 60/2010)TABLE B: CATEGORY II EXPERIENCE REQUIREMENTS FOR AN FSP ANDREPRESENTATIVEColumn One:SubcategoryColumn Two:Minimum experience2.1 Long-term Insurance2.1.1 Subcategory B1 2 years2.1.2 Subcategory B2 2 years2.2 Long-term Insurance Subcategory C 2 years2.3 Retail Pension Benefits 2 years2.4 Pension Fund Benefits 2 years2.5 Securities and Instruments: Shares 3 years2.6 Securities and Instruments: Money market 3 yearsinstruments2.7 Securities and Instruments: Debentures and 3 yearssecuritised debt2.8 Securities and Instruments: Warrants, 3 yearscertificates and other instrumentsacknowledging debt2.9 Securities and Instruments: Bonds 3 years2.10 Securities and Instruments: Derivative 3 yearsinstruments excluding warrants2.11 Participatory interests in one or more2 yearscollective investment schemes2.12 Forex Investment Business 3 years2.13 Long-term deposits 1 year2.14 Short-term deposits 1 yearRemember, key individuals may gain „product‟ experience (if they need it)under supervision, but they are not allowed to gain management experienceunder supervision – they need to have this experience on date of approval bythe Registrar.As the key individual may be required to have experience relating to aspecific product category for which the FSP is authorised (either because heis authorised as a representative, or alternatively because the FSP needs toensure at all times that at least one key individual meets the sameexperience requirements as a sole proprietor), we need to look at theexperience requirements set for sole proprietor FSPs:© INSETA - Section 1 12a 35

Experience requirements for a Category IThe FSP (who is a sole proprietor) must meet the minimum experienceapplicable to the subcategories as described in Table A. It must be practicalexperience gained in the rendering of financial services in respect of CategoryI and the subcategories concerned, provided that: 18the experience involved the active and ongoing gaining of knowledge,skills and expertise required in terms of the Act.the experience was obtained through active involvement and couldhave been gained whilst rendering financial services undersupervision.the experience could have been gained simultaneously in multiplesubcategories, provided that proof of such experience can besubmitted.if the licence changes to include other financial services or othersubcategories, the experience requirements of the othersubcategories must be met, PROVIDED that:– if the change includes additional financial service (advice andintermediary service), the FSP (key individual) must obtain50% of the experience requirements applicable to theadditional financial services (as indicated in the applicabletable); and– if the change relates to an additional subcategory, the FSP(key individual) must obtain 100% of the experiencerequirements applicable to the additional subcategory (asindicated in the applicable table).Experience requirements for a Category IIThe FSP (who is a sole proprietor) must meet the minimum experienceapplicable to the subcategories as described in Table B. It must be practicalexperience gained in the rendering of financial services in respect of CategoryII and the subcategories concerned, provided that 19 :the experience involved the active and ongoing gaining of knowledge,skills and expertise required in terms of the Act;18 Section 4(1)(a) of BN 10619 Section 4(2)(a) of BN 10636 © INSETA - Section 1 12a

the experience was obtained through active involvement in providingfinancial services and could have been gained while working undersupervision;the experience could have been gained simultaneously in multiplesubcategories, provided that proof of such experience can besubmitted;the experience could have been gained in a team environment wherethe person participated in the process of making investment decisionswhilst working under supervision; andif the licence changes to include the financial services in othersubcategories, the experience requirements of the othersubcategories must be met.Experience requirements for Category IIAThe FSP (who is a sole proprietor) must have three (3) years‟ experiencewhich must be practical experience gained in the rendering of financialservices in respect of Category IIA, provided that the experience:involved the active and ongoing gaining of knowledge, skills andexpertise required in terms of the Act; andwas obtained through active involvement in providing financialservices and could have been gained while working undersupervision. 20Experience requirements for a Category IIIA representative of a Category III FSP must have three (3) years‟ practicalexperience gained in the rendering of financial services as referred to in thedefinition of „Administrative FSP‟.The key individual of the Category III FSP must also have at least one (1)year's practical experience in the management and/or oversight of servicessimilar to or corresponding to the financial services rendered by the FSP,provided that the experience:involved the active and ongoing gaining of knowledge, skills andexpertise required in terms of the Act;20 Section 4(3)(a) of BN 106© INSETA - Section 1 12a 37

was obtained through active involvement in providing financialservices and could have been gained while working undersupervision; andcould have been gained simultaneously in multiple subcategories,even while working under supervision, provided that proof of suchexperience can be submitted.2.3.6 Qualifications requirements for key individualsRemember, one of the competency requirements for fitness and proprietybeyond 2010, is that the key individual must have an appropriatequalification. The FAIS Registrar publishes a list of „recognised qualifications‟for each category and subcategory.When a key individual is responsible for more than one category orsubcategory, he needs to have a qualification that meets the most onerousrequirements – there is no need to have a qualification for each category orsubcategory.2.3.7 Qualifying criteriaIn order to establish which qualifications are recognised as appropriate forkey individuals, the qualifications must meet the qualifying criteria, also setby the Registrar and published in the subordinate legislation.The qualifying criteria serve two purposes. They are used to:1. evaluate the content of the qualifications.2. set the standards for the regulatory examinations.The qualifying criteria describe what a person must know (knowledge) andwhat a person must be able to do (skills) in order to complete a specific tasksuccessfully (such as giving advice and/or rendering intermediary services orperforming the functions of a key individual).38 © INSETA - Section 1 12a

Example of qualifying criteria for a key individualTASK KNOWLEDGE SKILLSDescribe what the key individual‟smanagement responsibility entailsPerform the necessarymanagement andregarding the regulated functions oversight functionsDescribe theof the FSP.regarding theirrole of thefunctioning within thekeyFSP.individual inDescribe what the honesty and Check whether aterms of theintegrity requirements are for a key potential/current keyFAIS Act.individual.individual meets therequirements regardinghonesty and integrity.2.3.8 Types of qualificationsIt is not possible for all qualifications to meet all the qualification criteria, andyou find that some qualifications‟ content meets 80% of specific criteria, andothers may meet 100% of the applicable criteria.To differentiate between these qualifications, the regulator introduced a„rating‟ system.If a qualification, in terms of content, meets the qualifying criteriaonly partially, it is recognised as a Generic (G) qualification.If a qualification, in terms of content, matches the qualifying criteria80%, it is recognised as a Specific (S) qualification.If a qualification, in terms of content, matches the qualifying criteria100%, it is recognised as a Specific (SP) qualification.The main reason for the differentiation and classification of qualifications is toindicate if a person has to complete a second level regulatory examination, inaddition to the qualification.IF YOU…have a generic qualification(G)Were appointed prior to 31December 2009 and haveobtained a specificqualification (S)THEN…you have to complete a product-specificregulatory examination.you will be exempted from the productspecificregulatory examination,© INSETA - Section 1 12a 39

IF YOU…Were appointed from 1January 2010 and haveobtained a specificqualification (SP)THEN…you will be exempted from the productspecificregulatory examinationThe Registrar publishes an updated qualifications list, as subordinatelegislation, at least quarterly.It is important that key individuals consult the list, not only to establish theirown qualification requirements, but also to match and map the qualificationrequirements of the representatives for which they are responsible.Remember, if a particular qualification is not on the list, an application can bemade to the FSB for recognition of the particular qualification, if thequalification is appropriate.Let‟s look at an example of a qualifications list.In the example below we are looking at a qualification that is recognised bothas generic and specific depending on the subcategory/product category.Remember that it is the content of the qualification that must match thequalifying criteria for the specific subcategory/product category, and basedon this, the type of recognition is awarded.40 © INSETA - Section 1 12a

Below we are looking at a qualification that is recognised both as generic andspecific, depending on the subcategory/product category.Remember that it is the content of the qualification that must match thequalifying criteria for the specific subcategory/product category, and basedon this, the type of recognition is awarded.The FSB will confirm the qualification as being appropriate after they haveconcluded that the qualifying criteria are adequately covered.© INSETA - Section 1 12a 41

A key individual must have already obtained a qualification from the list whenapplying to the Registrar for approval.A key individual who onlymanages and overseesMust have obtained qualification relevant tokey individuals prior to being appointed andapproved as a key individual. 21A key individual whomanages and oversees, actsMust have obtained the relevant qualificationrecognised for the financial product(s) theas a representative and has key individual is authorised for as aadequate product experience. representative. 22Remember, a relevant qualification is just ONE (1) of the fit and propercompetency requirements, the key individual must still have the requiredmanagement and oversight experience as well as meeting the otherrequirements.2.3.9 Regulatory examinationsTo meet the fit and proper requirements in terms of competence, all keyindividuals and representatives have to complete the regulatory examinations(from 2010 onwards), except where there is provision for exemption, whichwe discuss below.The Registrar introduced the first-level regulatory examinations becausethere is a severe lack of understanding and application of the key principlesof the FAIS Act in the financial services industry.The focus of the first-level regulatory examinations is to test the applicationof factual knowledge of the representatives and key individuals with regard tothe:rendering of financial services applicable to specific categories orsubcategories to clients; andunderstanding and application of the relevant legal provisionspertaining to providers and clients.21 Section 5(1)(c) of BN 10622 Section 5(1)(c) of BN 10642 © INSETA - Section 1 12a

There are two (2) levels of regulatory examinations:First level regulatory examination•The examination includes the regulatory framework of the FAIS Act, thesubordinate legislation, the FIC Act and related content (such as KI roles andresponsibilities).•The examination is compulsory and varies across the Categories and roles.Second level regulatory examination•The second level regulatory examination ONLY APPLIES TO REPRESENTATIVES.•The examination is product specific and will test the knowledge and skillsrequired of a representative in relation to specific products.•Therefore key individuals who are also representatives must comply with secondlevel regulatory examination requirementsIf the key individual is also acting as a representative, he will have tocomplete the applicable second level regulatory examination(s).Regulatory examinations for the key individualAs discussed above, the qualifying criteria prescribe what must be covered ineach of these regulatory examinations. There are different examinations fordifferent categories and subcategories and also for the different role players(key individuals, representatives, compliance officers, sole proprietor FSPs).There are also different first-level regulatory examinations for key individualsin the different categories; and the nature of the products in thesubcategories differs. First-level regulatory examinations for applicants and/or keyindividuals in Category I, II, IIA, III and IV. First-level regulatory examinations for applicants and/or keyindividuals in Category II and IIA (key individuals operating in Cat IIand IIA only, will therefore do this RE). First-level regulatory examinations for applicants and/or keyindividuals in Category III (key individuals operating in Cat III only,will therefore do this RE).© INSETA - Section 1 12a 43

Key individuals fulfilling the roles of representatives must completethe relevant (category) key individual first-level regulatoryexamination, AS WELL AS the applicable second-level regulatoryexamination applicable to representatives for the applicable category. Key individuals who apply for approval from 2011 onwards must havecompleted the first-level regulatory examinations by the time theyapply for approval. Key individuals who are already approved prior to 2010 mustcomplete the first-level regulatory examination by 31 December2011. Key individuals who were approved during 2010 have until 31December 2012 to complete their first level regulatory exam anduntil 31 December 2014 to complete their second level regulatoryexam (where relevant).Continuous professional developmentContinuous professional development (CPD) is part of the fit and properrequirements that are effective from 1 January 2010 onwards. However, thethree-year (3-year) CPD cycle will only start on completion of the highestlevel (first or second) regulatory examination, but not later than on thecompletion of a six-year (6-year) period from date of authorisation,appointment or approval. 23The aim of CPD is to ensure that the relevant role players in FAIS, such askey individuals, representatives and compliance officers are enabled to do thefollowing: Develop and maintain professional competence in order to providefinancial services of a high quality in the public interest that willsupport the professionalisation of the financial services industry. Understand that the primary responsibility of competence vests in theindividual, and that they have an obligation to develop and maintaintheir professional competence. Render financial services with due care, competence and diligencewith an ongoing duty to maintain knowledge and skill at a levelrequired to ensure that the client receives competent professionalservice based on up-to-date developments in legislation and thefinancial services industry.(Source: FSB Key Individual Plain Language Guide 2009)23 Section 7(1)(c) of BN 10644 © INSETA - Section 1 12a

Various CPD programmes and hoursThe Registrar will consider various CPD programmes and will maintain a CPDlist. Institutions, employers and the like may apply to the Registrar forrecognition of their applicable programmes/activities.The amount of time spent by the role players (such as key individuals,representatives and compliance officers) on updating skills and knowledgethrough participation in CPD programmes, reflect the CPD hours which areprescribed for each function in the subordinate legislation. These hours mustbe achieved during a three-year (3-year) cycle. We do not discuss the detailhere but you can consult Board Notice 106 for the required number of hours.SummaryChapter 2 dealt with the fit and proper requirements for key individuals. FSPsappoint key individuals and the FSB approves the key individual to operatefor a specific FSP, in specific product categories and subcategories.Below is a summary of the exclusions, with regard to honesty and integritythat will disqualify a key individual from approval by the Registrar.A PERSON MAY NOT BE APPOINTED AS A KEY INDIVIDUAL IF:The person was found guilty in any criminal proceedings or liable inany civil proceedings of acting fraudulently, dishonestly,unprofessionally, dishonourably or in breach of a fiduciary dutywithin five (5) years before application, approval, and appointment.The person was found guilty by any statutory professional body orvoluntary professional body of dishonesty, negligence, incompetence,mismanagement serious enough to impugn the honesty and integrityof the FSP, key individual, within five (5) years before application,approval, appointment.The person was denied membership of any statutory professionalbody or voluntary professional body because of an act of dishonesty,negligence, incompetence or mismanagement, within five (5) yearsbefore application, approval, appointment.The person was found guilty by a regulatory or supervisory body ofan act of dishonesty, negligence, incompetence or mismanagement© INSETA - Section 1 12a 45

serious enough to impugn the honesty and integrity of the FSP, KI,within five (5) years before application, approval or appointment.The FSP had its authorisation to carry on business/any licencewithdrawn or suspended by any regulatory or supervisory bodybecause of an act of dishonesty, negligence, incompetence ormismanagement, within five (5) years before application, approval orappointment.The person was disqualified or prohibited by a court from taking partin the management of any company or other statutorily created,recognised or regulated body, current or not, irrespective of whetherthis has been lifted or not.46 © INSETA - Section 1 12a

We have summarised the competence requirements for a key individualapplicable from 2010 below:Experience Qualification Regulatory examOne year (or moredepending on licencecategory) practicalexperience in themanagement andoversight of a business.This experience may notbe gained undersupervision.The individual must havegained the requiredexperience prior toapproval.A completedqualification from thelist of recognisedqualificationsappropriate to a keyindividual.The qualificationcannot be obtainedunder supervisionand must have beenobtained prior toapproval.First level regulatoryexamination(s) for keyindividuals.The regulatoryexamination must havebeen successfullycompleted prior toapproval (unlessapproved prior to 2010).Second level regulatoryexamination(s) for eachof the productsubcategories that thekey individual isauthorised asrepresentative.The second levelregulatoryexamination(s) may becompleted while undersupervision.Product experience – if representative, or if required in order to meetrequirement that the FSP must at all times ensure that at least one KImeets the same requirements as set for a sole proprietor: Must also have product-specific experience as it relates to thesubcategories that the key individual is responsible for. The product-specific experience can be gained under supervision. The experience required depends on the product subcategory thatthe key individual is responsible for.© INSETA - Section 1 12a 47

Self-Assessment QuestionsPlease note that the questions which follow are formative in nature. Thequestions were not developed by the FSB‟s examination bodies and as suchcannot be used as an indication of the nature/structure/level of the questionsthat you will encounter in the FSB‟s regulatory examination.1. Which of the following statements describe a key individual best?a) In a sole proprietorship, it is not allowed for the keyindividual to also act as a representativeb) A person must be a senior manager or director to qualify forappointment as a key individualc) A key individual is a person within a company who takes fullresponsibility for the management and the supervision of thecompany in relation to the FAIS Act requirementsd) A key individual may be any person with some experienceregarding financial services2. Once a key individual is approved by the FSB:a) it is not necessary to ensure that he continue to meet thehonesty and integrity requirements at all timesb) it is necessary to ensure that he continue to meet thehonesty and integrity requirements at all timesc) it means that he can automatically be a representative in allproduct categoriesd) the key individual keeps the appointment for life but needs toreapply when he changes employment3. Part of the FAIS Act fit and proper requirements are that a keyindividual must meet the honesty and integrity requirements.InsCo is an insurance company, which needs to appoint a new keyindividual. Jody and Peter are potential candidates and you need tomake sure that they meet the honesty and integrity requirements.Consider the following scenario, read each statement carefully andthen choose the statement that is TRUE.a) Peter was found not guilty on a charge of fraud last year,everything else is fine, so he meets the honesty and integrityrequirements.48 © INSETA - Section 1 12a

Peter meets the honesty and integrity requirements.b) Jody qualified as a Chartered Accountant seven (7) yearsago. Three (3) months ago her membership of SAICA (theprofessional body that all Chartered Accountants must belongto) was terminated because they found her guilty offraudulent activities. Jody declared that this is not seriousbecause she wants to make a career change and doesn‟twant to practise as a CA any longer, therefore termination ofher membership is not relevant to her appointment as a keyindividual.Jody meets the honesty and integrity requirements.c) Jody meets the requirements because she was not foundguilty in any court of any acts of fraud, dishonesty or the likewithin the last five (5) years, although the FSP she workedfor, before applying to InsCo, had its licence withdrawn bythe FSB four (4) months ago because of mismanagement.Jody meets the honesty and integrity requirements.4. When submitting documentation with the application to be approvedas a key individual by the FSB, the following is required:a) Reference letters from previous employers must be submittedb) A detailed CV must be attached, indicating the experience theapplicant has gained within the last two (2) yearsc) A detailed CV must be attached, indicating the experience theapplicant has gained within the last five (5) yearsd) a) and b)e) a) and c)5. Key individuals must meet the following fit and proper requirements:a) All key individuals must have the required qualificationsb) All key individuals must complete the relevant regulatoryexaminations for the categories and subcategoriesc) All key individuals must have the minimum experiencerequirementsd) All of the above6 The following applies to changes in the personal circumstances of keyindividuals:a) Any change in the personal circumstances of a key individualafter approval by the Registrar, that affects his honesty andintegrity, must be declared to the FSP and FSB© INSETA - Section 1 12a 49

) Once a key individual has been approved by the Registrar, itdoes not matter if his personal circumstances change andaffect the honesty and integrity requirementsc) If a key individual is found guilty of any of the prohibitedactions within two (2) years after approval, it must bereported to the FSP and FSBd) All of the above7. The competency requirements for key individuals include thefollowing:a) Ongoing compliance with Continuous ProfessionalDevelopment (CPD) requirementsb) Minimum experience requirementsc) Completion of relevant regulatory examinationsd) a) and b)e) All of the above.8. With regard to management and oversight experience of keyindividuals:a) it must already exist when the key individual applies forapprovalb) it can be gained while working under supervision of anotherkey individualc) it must be obtained within five (5) years of approvald) it must be obtained within two (2) years of approval9. The qualifying criteria serve two (2) purposes:a) They are used to determine the fit and proper status of keyindividualsb) They are used to evaluate the content of the qualificationsagainstc) They are used to set the standards for the regulatoryexaminationsd) They are used to determine the experience of key individualse) a) and b)f) b) and c)g) d) and e)50 © INSETA - Section 1 12a

10. Key individuals must meet the following management experiencebefore they will be approved:a) One (1) year of practical experience in the management andoversight of a businessb) Product-specific experience as it relates to the subcategoriesthat the key individual is responsible forc) Five years‟ practical experience in the management andoversight of a business.d) b) and c)© INSETA - Section 1 12a 51

Self-Assessment Answers1. Which of the following statements describe a key individual best?a) In a sole proprietorship, it is not allowed for the keyindividual to also act as a representativeb) A person must be a senior manager or director to qualify forappointment as a key individualc) A key individual is a person within a company who takes fullresponsibility for the management and the supervision of thecompany in relation to the FAIS Act requirementsd) A key individual may be any person with some experienceregarding financial services2. Once a key individual is approved by the FSB:a) it is not necessary to ensure that he continue to meet thehonesty and integrity requirements at all timesb) it is necessary to ensure that he continue to meet thehonesty and integrity requirements at all timesc) it means that he can automatically be a representative in allproduct categoriesd) the key individual keeps the appointment for life but needs toreapply when he changes employment3. Part of the FAIS Act Fit and Proper requirements are that a keyindividual must meet the honesty and integrity requirements.InsCo is an insurance company, which needs to appoint a new keyindividual. Jody and Peter are potential candidates and you need tomake sure that they meet the honesty and integrity requirements.Consider the following scenario, read each statement carefully andthen choose the statement that is TRUE.a) Peter was found not guilty on a charge of fraud last year;everything else is fine, so he meets the honesty and integrityrequirements.Peter meets the honesty and integrity requirements.52 © INSETA - Section 1 12a

) Jody qualified as a Chartered Accountant seven (7) yearsago. Three (3) months ago her membership of SAICA (theprofessional body which all Chartered Accountants mustbelong to) was terminated because they found her guilty offraudulent activities. Jody declared that this is not seriousbecause she wants to make a career change and doesn‟twant to practice as a CA anymore, therefore termination ofher membership is not relevant to her appointment as a keyindividual.Jody meets the honesty and integrity requirements.c) Jody meets the requirements because she was not foundguilty in any court of any acts of fraud, dishonesty or the likewithin the last five (5) years, although the FSP she workedfor, before applying to InsCo, had its licence withdrawn bythe FSB four (4) months ago because of mismanagement.Jody meets the honesty and integrity requirements.4. When submitting documentation with the application to be approvedas a key individual by the FSB, the following is required:a) Reference letters from previous employers must be submittedb) A detailed CV must be attached, indicating the experience theapplicant has gained within the last two (2) yearsc) A detailed CV must be attached, indicating the experience theapplicant has gained within the last five (5) yearsd) a) and b)e) a) and c)5. Key individuals must meet the following fit and proper requirements:a) All key individuals must have the required qualificationsb) All key individuals must complete the relevant regulatoryexaminations for the categories and subcategoriesc) All key individuals must have the minimum experiencerequirementsd) All of the above6 The following applies to changes in the personal circumstances of keyindividuals:a) Any change in the personal circumstances of a key individualafter approval by the Registrar, that affects his honesty andintegrity, must be declared to the FSP and FSB© INSETA - Section 1 12a 53

) Once a key individual has been approved by the Registrar, itdoes not matter if his personal circumstances change andaffect the honesty and integrity requirementsc) If a key individual is found guilty of any of the prohibitedactions within two (2) years after approval, it must bereported to the FSP and FSBd) All of the above7. The competency requirements for key individuals include thefollowing:a) Ongoing compliance with continuous professionaldevelopment (CPD) requirementsb) Minimum experience requirementsc) Completion of relevant regulatory examinationsd) a) and b)e) All of the above8. With regard to management and oversight experience of keyindividuals:a) It must already exist when the key individual applies forapprovalb) It can be gained while working under supervision of anotherkey individualc) It must be obtained within five (5) years of approvald) It must be obtained within two (2) years of approval9. The qualifying criteria serve two purposes:a) They are used to determine the fit and proper status of keyindividualsb) They are used to evaluate the content of the qualificationsagainstc) They are used to set the standards for the regulatoryexaminationsd) They are used to determine the experience of key individualse) a) and b)f) b) and c)g) d) and e)54 © INSETA - Section 1 12a

10. Key individuals must meet the following management experiencebefore they will be approved:a) One (1) year of practical experience in the management andoversight of a businessb) Product-specific experience as it relates to the subcategoriesthat the key individual is responsible forc) Five years‟ practical experience in the management andoversight of a businessd) b) and c)© INSETA - Section 1 12a 55

56 © INSETA - Section 1 12a

Chapter3The role of the representative in terms of theFAIS ActThis chapter covers the following criteria:KNOWLEDGE CRITERIA:Describe the roles and responsibilities of representatives as defined in the FAIS Act.(Task 2)Explain the requirements for registration of representatives. (Task 2)Explain the fit and proper requirements applicable to representatives. (Task 2)Explain the qualification requirements for representatives. (Task 2)Discuss the purpose of the representatives Register. (Task 2)Explain what recruitment and appointment procedures have to be implemented whenappointing representatives. (Task 3)© INSETA - Section 1 12a 57

PurposeChapter 3 introduces you to the role of representatives and their fit andproper requirements. The FSP is responsible for the actions of representativesand as a key individual, you are responsible to oversee and manage therepresentatives including their fitness and propriety.3.1 THE ROLES AND RESPONSIBILITIES OF REPRESENTATIVESAS DEFINED IN THE FAIS ACT3.1.1 Definition of a representativeThe FAIS Act defines a „representative‟ as follows:Definition of representative"‟Representative‟ means any person, including a person employed ormandated by such first-mentioned person, who renders a financial service toa client for or on behalf of a financial services provider, in terms of conditionsof employment or any other mandate, but excludes a person renderingclerical, technical, administrative, legal, accounting or other service in asubsidiary or subordinate capacity, which service-a) does not require judgment on the part of the latter person; orb) does not lead a client to any specific transaction in respect of afinancial product in response to general enquiries;"The representative IS:a person who renders a financial service (advice or intermediaryservice)to a clienton behalf of a provider (licensed FSP)by virtue of an employment contract with the provider orby virtue of a mandate from the provider.58 © INSETA - Section 1 12a

The representative is NOT:a person who provides clerical, technical, administrative, legal,accounting or related service IF– that service requires no judgment; OR– does not specifically influence (lead) a client towards afinancial product transaction when the client merely enquiresabout the product or service.A very important component of the definition is the exercise of judgment,because the moment a person exercises judgment in relation to a client andproduct/service, the person comes under the ambit of "representative",thereby requiring the person to be fit and proper.3.1.2 Roles and responsibilities of representativesAs discussed above, once a person exercises judgement, and provides arecommendation, opinion or guidance in respect of a financial service to aclient regarding a (FAIS) financial product, that person is a representative.As the representative of an FSP, the representative either renders anintermediary service and/or gives advice to clients.As such, the representative does not act for himself, but for the FSP – even inthe case of a sole proprietor FSP – the whole business may consist of onlyone person, but the person fulfils various roles and in different legal andregulatory 'persona'.© INSETA - Section 1 12a 59

Let's look at the responsibilities of representatives: A representative gives advice and/or provides an intermediaryservice to the clients of the FSP. A representative must confirm to clients (and certified by the FSP)that he:– has an employment or mandate agreement with the FSP, torepresent the FSP; and– that the FSP accepts responsibility for the activities of therepresentative performed in terms of the agreement. A representative must be fit and proper as required by the FAIS Act.(We discuss this in more detail below.) Representatives appointed after 1 January 2010 may have to workunder supervision whilst getting the required qualifications,experience and/or completing the regulatory examinations. A representative must comply with the FAIS Act and other relevantlaws which apply to the conduct of business. (The compliance withthe General Code is discussed in more detail below.)If a representative also acts as a key individual (discussed above), it followsthat the representative will also have those responsibilities (KIresponsibilities), in addition to the representative responsibilities.If a representative was debarred, he can only operate as a representativeagain if the procedures for reappointment of debarred representatives havebeen followed.3.2 REGISTRATION OF REPRESENTATIVES3.2.1 Appointment of representativesThe FAIS Registrar does not issue licences to representatives, nor does theRegistrar „approve‟ representatives.The FSP appoints representatives and carries all the responsibilities inrelation to ensuring that the representatives are fit and proper and complywith legislation and the FAIS subordinate legislation in particular (like theGeneral Code).The FAIS Registrar (FSB) authorises an FSP to provide financial services andissues a licence.60 © INSETA - Section 1 12a

Representatives are not authorised or „licensed‟ – if they meet all therequirements they are included on the representative register, which meansthat they may provide financial services on behalf of a specific FSP in aspecific capacity.Representatives are appointed by the FSP, either through contract ofemployment or through another mandate agreement.Representatives act on behalf of the FSP and the FSP is responsible for theactions of the representative insofar as the representative provides a financialservice in respect of FAIS products.As such, the FSP must maintain a register of all the representatives and keyindividuals employed or mandated by the FSP.Part of the management and oversight duties of a key individual, within theFSP is to oversee and manage all aspects relating to representatives.3.3 FIT AND PROPER REQUIREMENTS FOR REPRESENTATIVES3.3.1 Overview of the fit and proper requirements for representativesThe fit and proper requirements for honesty and integrity are the same forboth representatives and key individuals. The main difference between the fitand proper requirements for these two role players comes in with therequired competence and CPD.Remember, the FSP, appoints or mandates a representative to act for and onbehalf of the FSP. This also means that the FSP is responsible, in terms of theFAIS Act, to ensure that the appointed/mandated representatives meet allthe FAIS Act requirements, including fit and proper.It is important to understand what is meant by „date of first appointment‟, asit indicates the type of qualification and experience needed in the variouscategories.The date of first appointment means the date on which a person was firstdeployed in a FAIS role – it does not mean the date on which they started towork in the current organisation.© INSETA - Section 1 12a 61

For example, a person may have started an insurance or banking career on 1June 2006. The person was not appointed as a representative at that stage.On 1 September 2008, the person started in a new function, with the sameorganisation (or another one), as a FAIS representative. This date – 1September 2008 – is the „date of first appointment‟ for purposes of the FAISAct.What are the fit and proper requirements for representatives?The fit and proper requirements for all representatives include the following:3.3.2 Honesty and integrityThe requirements in terms of honesty and integrity are the same for keyindividuals and representatives.The FSP, in appointing or mandating a representative, may refer to anyinformation it has or anything that is brought to its attention, relating to theapproval of the representative. 24The FAIS Registrar has similar powers, even though the FSB does notapprove or appoint a representative, the Registrar may still use information ithas, to question the approval of a representative or even to debar arepresentative.As with key individuals, the honesty and integrity requirement is ongoing andthe FSP must ensure that the representatives appointed and mandated toprovide financial service remain qualified in terms of these personalattributes.To achieve this, the representative must declare to the FSP on a regular basisif there is any change in his personal situation that affects his statusnegatively 25 .24 This is implied in Section 13(2) and 8(2)(b) of the Act25 This is implied in Section 13(2)(b) of the Act62 © INSETA - Section 1 12a

If the FSP becomes aware of a change in the circumstances of therepresentative that affects his honesty and integrity adversely, the FSP isobliged to debar the representative. This means that the FSP must preventthe representative from rendering any financial service by withdrawing anyauthority to act on its behalf. In addition, the FSP must remove the name ofthe representative from the representative register and must advise theRegulator and also inform the Regulator what action the FSP has taken.The following table summarises factors that may exclude a person from beinga representative. The factors mentioned below are merely some of theindications of the fitness and propriety of a representative and should not beregarded as a „closed list‟.A person may not be appointed as a representative if:The person was found guilty in any criminal proceedings or liable inany civil proceedings of acting fraudulently, dishonestly,unprofessionally, dishonourably or in breach of a fiduciary dutywithin five (5) years before application, approval and appointment.The person was found guilty by any statutory professional body orvoluntary professional body of dishonesty, negligence, incompetenceor mismanagement serious enough to impugn the honesty andintegrity of the representative, within five (5) years beforeappointment.The person was denied membership of any statutory professionalbody or voluntary professional body because of an act of dishonesty,negligence, incompetence or mismanagement, within five (5) yearsbefore application, approval and appointment.The person was found guilty by a regulatory or supervisory body ofan act of dishonesty, negligence, incompetence or mismanagementserious enough to impugn the honesty and integrity of therepresentative, within five (5) years before appointment.The FSP had its authorisation to carry on business/any licencewithdrawn or suspended by any regulatory or supervisory bodybecause of an act of dishonesty, negligence, incompetence ormismanagement of the representative, within five (5) years beforeapplication, approval and appointment.The person was disqualified or prohibited by a court from taking partin the management of any company or other statutorily created,recognised or regulated body, current or not, irrespective whethersuch disqualification has since been lifted or not.© INSETA - Section 1 12a 63

3.3.3 Competency requirements for representativesThe Act requires that representatives must have certain minimumexperience, qualifications and that they should complete prescribed exams,all of these within stipulated deadline dates. To understand whichcompetency requirements/deadline dates apply to each representative, it isnecessary to correctly establish the first-ever date of appointment into a FAISrole.The „date of first appointment‟ into a FAIS role refers to the date when theindividual was appointed, at any financial services provider in the industry, torender financial services in terms of the FAIS Act.The competency requirements for representatives are made up of thefollowing:minimum experience requirementsrelevant qualifications requirementsthe successful completion of relevant regulatory examinations; andongoing compliance with continuous professional development (CPD)requirements.The following general competency requirements are discussed in more detailin the material to follow.GENERAL COMPETENCY REQUIREMENTS FOR REPRESENTATIVESA representative, must at date of appointment by an FSP:have the minimum experience requirements;have all the required qualifications (unless the representative worksunder supervision and the minimum qualifications for supervision aremet)must have completed all regulatory examinations.64 © INSETA - Section 1 12a

GENERAL COMPETENCY REQUIREMENTS FOR REPRESENTATIVESPROVIDED THATThe Registrar may exempt representatives from any of the above while theyare working (providing financial service) under supervision.A health service representative must be accredited as a broker or apprenticebroker if services are performed under supervision in terms of the MedicalSchemes Act. 26Once all the qualifications, experience and regulatory examinationrequirements are met, the representative must complete CPD as required.3.3.4 Experience requirements for representativesThe experience required for a representative must be practical – „hands-on‟experience. This means that the representative must have providedadvice/rendered intermediary services in respect of the products and servicesin the subcategories for which he seeks appointment.Difference between general and specific experienceThere are general experience requirements and specific experiencerequirements for representatives. The main differentiating factor betweenthe general experience requirements applicable to all representatives and thespecific requirements, lies in the nature of the products in the differentcategories and the length of experience gained in the preceding five-year (5-year) period.Representatives may obtain the experience while providing financial servicesunder supervision and may therefore be exempted from compliance with therequirements when appointed (subject to the criteria and requirements forservices under supervision).The specific experience requirements in respect of each subcategory arepublished in the subordinate legislation and show the number ofmonths/years, in a table format, required for each subcategory, whereapplicable. (Categories IIA and III do not have tables because of the natureof the business.)26 Section 3(8) of BN 106© INSETA - Section 1 12a 65

We discussed the tables under 2.3 above – refer to these tables to see whatthe experience requirements are for representatives in each category.Let‟s look at the GENERAL EXPERIENCE requirements that apply to ALLrepresentatives in ALL the categories. 27The representative must, on the date of appointment (by the FSP), meet theminimum experience required in the different subcategories (as described inthe relevant table).It must be practical experience gained in the rendering of financialservices in the different categories and the subcategories concernedprovided that the experience:– involved the active and ongoing gaining of knowledge, skillsand expertise required in terms of the Act;– was obtained through active involvement in providingfinancial services and could have been gained whilst workingunder supervision for the minimum experience period;– could have been gained within or outside the borders ofSouth Africa;– could have been gained in intermittent periods, not morethan five (5) years prior to the application, and includesexperience gained prior to the implementation of the FAISAct. The dates relating to the experience must be clearlystated;– could have been gained simultaneously in multiplesubcategories, provided that proof of such experience can besubmitted.Now we look at the SPECIFIC EXPERIENCE REQUIREMENTS forrepresentatives for each category.27 Sections 4(1)(b), 4(2)(b), 4(3)(b), 4(4)(b), 4(5)(b) of BN 10666 © INSETA - Section 1 12a

Experience requirements for Category I representativesAll the general experience requirements must be met in relation to Category Iand the subcategories concerned, and in addition:if the licence changes to include other financial services or othersubcategories, the experience requirements of the othersubcategories must be met provided that: 28– if the change includes additional financial service (advice andintermediary service), the representative must obtain 50% ofthe experience requirements applicable to the additionalfinancial services (as indicated in the applicable table); and– if the change relates to an additional subcategory, therepresentative must obtain 100% of the experiencerequirements applicable to the additional subcategory (asindicated in the applicable table).Experience requirements for Category II representativesAll the general experience requirements must be met in respect of CategoryII and the subcategories concerned, and in addition:the experience could have been gained in a team environment wherethe person participated in the process of making investmentdecisions while working under supervision; 29 andif the licence changes to include the financial services in othersubcategories, the experience requirements of the othersubcategories must be met. 30Experience requirements for Category IIA representativesAll the general experience requirements must be met in respect of CategoryIIA, and in addition:the representative must have three (3) years‟ practical experience inthe rendering of financial services in Category IIA.28 Section 4(1)(a)(iv) / (b) of BN 10629 Section 4(2)(a)(vi) / (b) of BN 10630 Section 4(2)(a)(vii) / (b) of BN 106© INSETA - Section 1 12a 67

Experience requirements for Category III representativesAll the general experience requirements must be met in respect of CategoryIII, and in addition 31 :the representative must have three (3) years‟ practical experience inthe rendering of financial services in Category III;It must be practical experience gained in the rendering of financialservices as referred to in the definition of „Administrative FSP‟.Experience Requirements for Category IV RepresentativesAll the general experience requirements must be met in respect of CategoryIV, and in addition 32 :the Representative must have one year practical experience in therendering of financial services as referred to in the definition of“administration of assistance policies”.3.3.5 Qualification requirements for representativesRepresentatives, like key individuals, must also meet qualification criteria inorder to be fit and proper and must therefore have appropriate qualifications.We discussed the concepts of "qualifying criteria" and the "types ofqualifications" in Chapter 2 when we looked at the qualification criteria forkey individuals.The same principles apply to representatives – we repeat some of it here foryour convenience.The FAIS Registrar publishes a list of "recognised qualifications" for eachcategory and subcategory. When a representative is responsible for morethan one category or subcategory he needs to have a qualification that meetsthe most onerous requirements - there is no need to have a qualification foreach category or subcategory.31 Section 4(4)(a)/(b) of BN 10632 Section 4(5)(a) / (b) of BN 10668 © INSETA - Section 1 12a

Qualifying criteriaIn order to establish which qualifications are recognised as appropriate forrepresentatives, the qualifications must meet the qualifying criteria, also setby the Registrar and published in the subordinate legislation.The qualifying criteria serve two purposes. It is used to:1. evaluate the content of the qualifications.2. set the standards for the regulatory examinations.The qualifying criteria describe what a person must know (knowledge) andwhat a person must be able to do (skill) in order to complete a specific task(such as giving advice and/or rendering intermediary services) successfully.Example of qualifying criteria for a representativeTASK KNOWLEDGE SKILLSProvide an overview of thedifferent types of financial servicesand financial products an FSP candeal with.Apply knowledgeApply knowledge ofof financialthe financialproducts.Explain the relationship between products and roledifferent industry players.players within thefinancial servicesenvironment.Types of qualificationsAs with key individuals, one of the competency requirements for fitness andpropriety beyond 2010 is that the representative must have an appropriatequalification.The FAIS Registrar publishes a list of „recognised qualifications‟ for eachcategory and subcategory.It is not possible for all qualifications to meet all the qualification criteria, andyou find that some qualifications content meets 80% of specific criteria, andothers may meet 100% of the applicable criteria.© INSETA - Section 1 12a 69

The main reason for the differentiation and classification of qualifications is toindicate if a person has to complete a regulatory examination, in addition tothe qualification. To differentiate between the qualifications, the Regulatorintroduced a "rating" system.IF YOU...have a qualification and the contentmeets the qualifying criteria onlypartially, it is recognised as aGeneric (G) qualificationhave a qualification and the contentmeets the qualifying criteria 80%,it is recognised as a Specific (S)qualification. This recognition onlyapplies to representatives/soleproprietors authorised prior to 2010and will be replaced by SP from2010 onwards.have a qualification and the contentmeets the qualifying criteria 100%,it is recognised as a Specific (SP)qualification. The recognitionapplies to pre and post 2010.THEN YOUhave to complete a product-specificregulatory examination.will be exempted from the productspecificregulatory examination,provided you were first authorised priorto 2010.will be exempted from the productspecificregulatory examination.Generic qualifications must meet the criteria below:Section 3(6) of Board Notice 105 of 2008 says:(i) The qualification must be approved by the Registrar as a genericqualification for meeting the entry level qualification requirement inrespect of Category I/II/IIA and/or III.(ii) The generic qualification must be completed in full.(iii) The individual must have successfully completed a minimum of threedifferent subjects or modules that appear in the appropriate subjectlist 33 . Provided that at Certificate and Diploma level, the qualificationmust contain at least three of these subjects with at least one of thesubjects in the field of commerce, and where a certificate or diplomahas major subjects, at least one must be a major subject (final yearlevel) and;33 The list of appropriate subjects is published in Part IV of Board Notice 105 of 2008.70 © INSETA - Section 1 12a

(iv)At Degree level, at least one of the subjects must be in the field ofcommerce and of the three subjects, at least one must be a majorsubject (final year level).Qualifications listThe Registrar will publish an updated qualifications list, as subordinatelegislation, at least four (4) times a year. If a particular qualification is noton the list, application can be made to the FSB (download the form from theFSB website) for recognition.Refer to Chapter 2 for examples of a qualification list.Appointment datesThere are different qualification requirements for different appointment dates.Representatives appointed between 2004 and 2009 are subject to thetransitional arrangements published in the subordinate legislation. Theserules determine the type of qualification that is required as well asarrangements regarding the requirements in terms of experience, regulatoryexaminations and CPD.Representatives appointed from 2010 onwards must get a full qualificationfrom the qualification list and comply with the other fit and properrequirements relating to competence.3.3.6 Regulatory examinations for representativesThe principles applicable to the regulatory examinations for key individualswas discussed in Chapter 2. The same basic principles as to the need andreasons apply to representatives, but the application of the examinationsdiffer.To meet the fit and proper requirements in terms of competence,representatives have to complete the relevant first and second levelregulatory examinations (within the prescribed dates).Only when a qualification meets all the qualifying criteria will a person beexempted from the applicable second level (product-related) regulatoryexamination, as discussed above.© INSETA - Section 1 12a 71

Regulatory examinations for representativesAll representatives will be required to complete the first-level regulatoryexamination applicable to representatives. All representatives performing financial services in relation toCategory I, II, IIA, III and/or IV are required to complete the firstlevelregulatory examination based on the qualifying criteria. Representatives appointed to provide financial services in CategoriesII, IIA, III and subcategories of Categories I and IV must alsocomplete the applicable second-level regulatory examnations exceptif the Registrar provided an exemption for the applicable second-levelregulatory examinations in a specific subcategory. There is provision in the legislation that representatives may beappointed without having completed the relevant regulatoryexamination as long as the representatives work under supervision inthe particular category or subcategory. The regulatory examinationmust then be completed in terms of the requirements which apply toservices under supervision, as discussed in Chapter 4. The Registrar appointed Examination Bodies that are responsible forcompiling the examination questions and for administering theexaminations. In some instances the second-level regulatoryexaminations may be offered in conjunction with the first levelregulatory examinations. Representatives who were first appointed into a FAIS role between 30September 2004 and 31 December 2009 must complete the firstlevel regulatory examination by 31 December 2011 (except forproduct subcategories long-term insurance category A and friendlysociety benefits, which have different completion dates andrequirements; refer to Board Notice 106 of 2008 for further detail inthis regard) and all required second-level regulatory examinations by31 December 2013 (same exception as above applies).72 © INSETA - Section 1 12a

3.3.7 Continuous professional development for representativesRepresentatives will also have to complete CPD programmes - refer to thediscussions in Chapter 2 above, which apply to representatives as well.The FSB must approve CPD activities and/or programmes and BN 103 of2008 contains the conditions for approval.Examples of verifiable CPD programmes and/or activities include thefollowing:a) Courses, conferences and seminarsb) Studies leading to informal assessments (e.g. additional qualification,which may be done through private study, distance learning orattendance at formal courses)c) Workshops ord) Structured self-study programmes, including web-based, computerbasedor paper-based delivery that assess knowledge.The amount of time spent by the role-players (such as Key Individuals,Representatives and Compliance Officers) on updating skills and knowledgethrough participation in CPD programmes, reflects the CPD notional hourswhich are prescribed for each function in the subordinate legislation. CPD willrequire that between 15 to 60 notional hours be achieved during a three-yearcycle.CPD notional hours must be completed every three years. The three-yearcycle will start on successful completion of the highest level regulatoryexamination. However, CPD cannot start later than six years from date offirst-ever appointment into a FAIS role or date of approval as a KI.3.4 REPRESENTATIVE REGISTER3.4.1 Overview of the register of representativesThe FAIS Act 34 requires that every FSP must have and maintain a registerwith information about the appointed representatives and where therepresentatives have key individuals, the information of those key individualsmust also appear on the register. (Juristic representatives will have keyindividuals).34 Section 13 of the FAIS Act 37 of 2002© INSETA - Section 1 12a 73

The purpose of the register is to:provide a record of all the representatives of an FSP (and whereapplicable, key individuals of juristic representatives) which showspersonal information, capacity of the representative(employee/mandatory), compliance with fit and proper requirementsand the applicable categories and subcategories the representative isappointed for or key individual is approved for;enable the Registrar to maintain a central register with all theinformation gathered from the FSP registers;calculate the levies (fees) payable by the FSP in respect of eachrepresentative and key individual.3.4.2 Information required for the register of representativesThe register requires the following information:1. FSP Reference Number 14. Physical address postal code2. Natural Person ID No. orPassport No. or Registration 15. Date of appointmentNo.3. ID Type 16. Key individual or rep.4. Type (natural or juristicperson)17. ID number of rep18. Category/Sub-category/A/B;5. TitleA=Advice,B=Intermediary service6. Initials 19. Accreditation No.7. First name of natural person 20. Qualifications8. Surname of natural personor company name of juristic 21. Debarredperson9. Date of birth 22. Date debarred10. Country of registration ifjuristic person or Passport 23. Reason for debarmentNo.11. Physical business addressfield 124. Process flag(Add/Update/Delete)12. Physical business addressfield 225. Regulatory examinations13. Physical business addressfield 374 © INSETA - Section 1 12a

3.4.3 Updating the register of representativesThe FSP must ensure that the register is constantly updated – adding andremoving representatives and key individuals. The register must be sent(uploaded) to the Registrar within 15 days of changes either in hard copyformat or electronically.The key individual is responsible, as part of the management and oversightfunctions, to ensure that the representative register is updated and sent tothe Registrar as required.Changes in the circumstances of representatives or key individuals must berecorded in the register.Changes may include: Change of name Qualifications Change of address Change in categories orsubcategories where financialservice is provided Services under Debarmentsupervision Resignation Regulatory DismissalexaminationsKey individuals must ensure that there are adequate procedures in place torecord the information as well as to identify changes in the information andrecord same.3.5 RECRUITMENT AND APPOINTMENT OF REPRESENTATIVES3.5.1 Recruitment and appointment procedures for representativesAs a key individual, you will play an integral role in ensuring that the FSPrecruits and appoints representatives who meet the fit and properrequirements.When an FSP wants to appoint a representative, the necessary checks mustbe done and documentation obtained to ensure that the prospectiverepresentative meets all the requirements.© INSETA - Section 1 12a 75

Part of the management and oversight functions of a key individual is toensure that there are adequate processes in place to achieve this. In biggerFSPs there may be a Human Resource Division which takes care ofrecruitment and employment, and in smaller FSPs, the key individual mayhave to fulfil the functions himself. Once a representative is appointed in aspecific category, the representative register must be updated accordingly.The following processes and procedures may be considered to ensure thatadequate recruitment and appointment procedures are in place (to verify fitand proper requirements) when appointing representatives:Fit and properrequirementHonesty andintegrityPROCESS Check data bureaux. Check details of applicant against available datasupplied by regulatory and professional bodies(such as FSB debarred list). Check validity of membership of professionalbodies or other institutions. Check the FSB website to see if therepresentative has been debarred. Check any other source which may be used bythe FSP (such as criminal checks).Experience Obtain and verify details of previous experience.QualificationsRegulatoryexaminations Obtain and verify details of appropriatequalifications submitted by applicant. Check completion of REs as submitted byapplicant.CPD Obtain and verify details of completed CPD.SummaryChapter 3 introduced you to the fit and proper requirements forrepresentatives. There is similarity between the requirements for keyindividuals and representatives.One of the critical elements to remember as a key individual is that yourduties include ensuring that the representatives under your managementmeet the fit and proper requirements.76 © INSETA - Section 1 12a

Let's look at a summary of the instances where honesty and integrity may bequestioned:The person was found guilty in any criminal proceedings or liable inany civil proceedings of acting fraudulently, dishonestly,unprofessionally, dishonourably or in breach of a fiduciary duty withinfive (5) years before application, approval and appointment.The person was found guilty by any statutory professional body orvoluntary professional body of dishonesty, negligence, incompetenceor mismanagement serious enough to impugn the honesty andintegrity of the representative, within five (5) years beforeappointment.The person was denied membership of any statutory professionalbody or voluntary professional body because of an act of dishonesty,negligence, incompetence or mismanagement, within five (5) yearsbefore application, approval and appointment.The person was found guilty by a regulatory or supervisory body of anact of dishonesty, negligence, incompetence or mismanagementserious enough to impugn the honesty and integrity of therepresentative, within five (5) years before appointment.The FSP had its authorisation to carry on business/any licencewithdrawn or suspended by any regulatory or supervisory bodybecause of an act of dishonesty, negligence, incompetence ormismanagement of the representative, within five (5) years beforeapplication, approval and appointment.The person was disqualified or prohibited by a court from taking partin the management of any company or other statutorily created,recognised or regulated body, current or not, irrespective whethersuch disqualification has since been lifted or not.© INSETA - Section 1 12a 77

Let‟s look at a summary of the competence requirements for representatives:Experience Qualification Regulatory exam Experience relates tothe products in thesubcategories for A completedqualificationfrom the list of First level regulatoryexamination forrepresentatives.which therepresentative isappointed.recognisedqualificationsappropriate to The first-levelregulatory examinationmust be completed The amount ofrepresentatives. successfully within tworequired experience(years) depends on Qualificationswhich are(2) years from date offirst appointment.the productsubcategory for whichthe representative isappointed.applicable tospecific productsubcategoriesmay also be Second-level regulatoryexaminations for eachof the productsubcategories that the The experience may obtained.representative isbe gained whilst The qualification responsible for.working undersupervision.can be obtainedwhilst workingundersupervision. The second-levelregulatory examinationsmust be successfullycompleted within six (6)years from the date offirst appointment. The first- and secondlevelregulatoryexaminations may becompleted whilstworking undersupervision.Representatives render a financial service that consists of either advice orintermediary service, or a combination of both.The FAIS Registrar does not issue licences to representatives, nor does theRegistrar "approve" representatives.The FSP appoints representatives and carries all the responsibilities inrelation to ensuring that the representatives are fit and proper and complywith legislation and the FAIS subordinate legislation in particular (like theGeneral Code).78 © INSETA - Section 1 12a

The representative register must be updated when representatives‟ namesare removed and the registrar must be informed about these changes within15 days.When appointing representatives, care must be taken to ensure that theymeet and maintain all the fit and proper requirements.Self-Assessment QuestionsPlease note that the questions which follow are formative in nature. Thequestions were not developed by the FSB‟s examination bodies and as suchcannot be used as an indication of the nature/structure/level of the questionsthat you will encounter in the FSB‟s regulatory examination.1. In terms of the definition of a representative, which of the followingfall within the definition?a) A person who renders a financial service to a client on behalfof an FSPb) A person who provides a clerical, technical, administrative,legal, accounting or related service with no judgmentc) A person who provides a clerical, technical, administrative,legal, accounting or related service WHICH IS just factualinformation about productsd) A person who renders a financial service to a client on behalfof an FSP but with no contractual or mandate agreements inplace with the FSP2. Once a person exercises judgement, and provides a recommendation,opinion or guidance in respect of a financial service to a client, thatperson is:a) a key individualb) a representativec) a compliance officerd) All of the above3. Read the statements carefully and choose the CORRECT statement.a) Representatives are appointed by the FSP, either throughemployment or through a mandate-type agreement and acton behalf of the FSPb) Representatives carry the responsibility for their actions, notFSPs© INSETA - Section 1 12a 79

c) The representative register needs to be updated twice a yearand when a representative joins or leaves the FSPsemploymentd) All of the above4. The following applies to the regulatory examinations forrepresentatives:a) The first-level regulatory examination is not compulsory forrepresentativesb) Representatives must first obtain the required qualificationsbefore completing the first-level regulatory examinationc) The second-level regulatory examination applies to keyindividuals onlyd) The first-level regulatory examination is compulsory forrepresentatives5. Which of the following applies to the representative register?a) Profile changes must be done and the updated register mustbe sent to the FSB every 15 daysb) The representative register contains personal information ofrepresentatives as well as their status with regard to meetingthe fit and proper requirementsc) The representative register only applies to newly-appointedrepresentativesd) only a) and b)6. A representative, must at date of appointment by an FSP, have:a) the minimum experience requirementsb) all the required qualifications (unless the representativeworks under supervision)c) completed all regulatory examinations, unless working undersupervisiond) All of the above7. The main differentiating factor between the general experiencerequirements applicable to all representatives and the specificexperience requirements, lies in the:a) nature of the products in the different categoriesb) length of experience gained in the preceding five-year (5-year) periodc) length of service of the representatived) only a) and b)80 © INSETA - Section 1 12a

8. The general experience requirements which apply to allrepresentatives in all the product categories:a) must be experience gained in unbroken periods, not morethan ten (10) years prior to the applicationb) may be experience gained within or outside the borders ofSouth Africac) may not be experience gained simultaneously in multiplesubcategoriesd) All the above9. The qualifying criteria serve two purposes. They are used to:a) see if people meet the honesty and integrity requirementsb) set the standards for the regulatory examinationsc) evaluate the content of the qualificationsd) only b) and c)10. Changes on the representative register may include:a) change of addressb) services under supervisionc) qualificationsd) All the above© INSETA - Section 1 12a 81

Self-Assessment Answers1. In terms of the definition of a representative, which of the followingfall within the definition?a) A person who renders a financial service to a client on behalfof an FSPb) A person who provides a clerical, technical, administrative,legal, accounting or related service with no judgmentc) A person who provides a clerical, technical, administrative,legal, accounting or related service WHICH IS Just factualinformation about productsd) A person who renders a financial service to a client on behalfof an FSP but with no contractual or mandate agreements inplace with the FSP2. Once a person exercises judgement, and provides a recommendation,opinion or guidance in respect of a financial service to a client, thatperson is:a) a key individualb) a representativec) a compliance officerd) all of the above3. Read the statements carefully and choose the CORRECT statement.a) Representatives are appointed by the FSP, either throughemployment or through a mandate-type agreement and acton behalf of the FSPb) Representatives carry the responsibility for their actions, notFSPsc) The representative register needs to be updated twice a yearor when a representative joins or leaves the FSPsemploymentd) All of the above82 © INSETA - Section 1 12a

4. The following applies to the regulatory examinations forrepresentatives:a) The first-level regulatory examination is not compulsory forrepresentativesb) Representatives must first obtain the required qualificationsbefore completing the first-level regulatory examinationc) The second-level regulatory examination applies to keyindividuals onlyd) The first-level regulatory examination is compulsory forrepresentatives5. Which of the following applies to the representative register:a) Profile changes must be done and the updated register mustbe sent to the FSB every 15 daysb) The representative register contains personal information ofrepresentatives as well as their status with regard to meetingthe fit and proper requirementsc) The representative register only applies to newly-appointedrepresentatives.d) only a) and b)6. A representative, must at date of appointment by an FSP, have:a) the minimum experience requirementsb) all the required qualifications (unless the representativeworks under supervision)c) completed all regulatory examinations, unless working undersupervisiond) All of the above7. The main differentiating factor between the general experiencerequirements applicable to all representatives and the specificexperience requirements, lies in the:a) nature of the products in the different categoriesb) length of experience gained in the preceding five-year (5-year) periodc) length of service of the representatived) only a) and b)© INSETA - Section 1 12a 83

8. The general experience requirements which apply to allrepresentatives in all the product categories:a) must be experience gained in unbroken periods, not morethan ten (10) years prior to the applicationb) may be experience gained within or outside the borders ofSouth Africac) may not be experience gained simultaneously in multiplesubcategoriesd) All the above9. The qualifying criteria serve two (2) purposes. They are used to:a) see if people meet the honesty and integrity requirementsb) set the standards for the regulatory examinationsc) evaluate the content of the qualificationsd) only b) and c)10. Changes on the representative register may include:a) change of addressb) services under supervisionc) qualificationsd) All of the above84 © INSETA - Section 1 12a

Chapter4Services under supervisionThis chapter covers the following criteria:KNOWLEDGE CRITERIA:Explain when representatives can act under supervision. (Task 4)Describe the supervision requirements that must be in place when representatives actunder supervision. (Task 4)Explain the disclosure requirements that representatives are responsible for. (Task 4)© INSETA - Section 1 12a 85

PurposeIn Chapter 4 you will learn when and under what conditions representativesmay perform services under supervision.The 2010 fit and proper requirements make provision for people who are notquite as competent as they should be on appointment (as far as the requiredqualifications are concerned), to continue with their activities whilst gettingthe required experience or qualifications. These services will then berendered under supervision.4.1 WHEN CAN REPRESENTATIVES ACT UNDER SUPERVISION?4.1.1 When can representatives act under supervision?It is not always possible to appoint representatives who meet the experienceand qualification requirements at date of appointment. Therefore, the FAISRegulator provided an exemption (published in Board Notice 104 of 2008)from the requirement in Section 13 (2) of the Act, which requiresrepresentatives to meet all the fit and proper requirements when renderingfinancial services.In terms of the exemption, 35 representatives will not have to comply inrespect of experience qualifications and regulatory examinations with thestandards set for the representatives at the date of appointment.The exemption allows representatives to gain experience, get qualificationsand complete the regulatory examinations whilst working under supervisionin Categories I, II, IIA, III and IV.The exemption is subject to certain conditions, which are discussed later inthis chapter.Representatives can only be offered the opportunity to work undersupervision if the authorised FSP can satisfy the Registrar that it has therequired operational ability to facilitate services under supervision. 3635 Published in Board Notice 104 of 200836 Section 4(1)(a) of BN 10486 © INSETA - Section 1 12a

The table below depicts the level of supervision that is required in respect ofrepresentatives of Categories I and IV 37 :TABLE ACATEGORIES 1 and IV: LEVEL OF SUPERVISION REQUIREDColumn One:SubcategoryColumn Two:Direct supervisionCategory Long-term InsuranceThe first 21.1 subcategory Amonths of the1.2 Short-term Insurance Personal period underLinessupervision1.3 Long-term Insurance:1.3.1 Subcategory B11.3.2 subcategory B2Column Three:Ongoing levelof supervisionAfter 2 monthsfor the rest ofthe periodundersupervision1.4 Long-term Insurancesubcategory C1.5 Retail Pension Benefits1.6 Short-term InsuranceCommercial Lines1.7 Pension Fund Benefits(excluding Retail PensionBenefits)1.8 Securities and Instruments:Shares1.9 Securities and Instruments:Money Market Instruments1.10 Securities and Instruments:Debentures and SecuritisedDebt1.11 Securities and Instruments:Warrants, certificates and otherinstruments acknowledging debt1.12 Securities and Instruments:Bonds1.13 Securities and Instruments:Derivative Instruments1.14 Participatory Interests in one ormore Collective InvestmentSchemesThe first 4 monthsof the periodunder supervision.After 4 monthsfor the rest ofthe periodundersupervision.37 Board Notice 60 of 2010.© INSETA - Section 1 12a 87

TABLE ACATEGORIES 1 and IV: LEVEL OF SUPERVISION REQUIREDColumn One:SubcategoryColumn Two:Direct supervision1.15 Forex Investment Business1.16 Health Service Benefits The first 2 monthsof the period undersupervision1.17Long-term Deposits The first 6 weeks ofthe period under1.18Short-term Deposits supervision1.19 Friendly Society Benefits The first 2 weeks ofthe period undersupervisionCategory IV Assistance Business FSP The first 6 weeks ofthe period undersupervisionColumn Three:Ongoing levelof supervisionAfter 2 monthsfor the rest ofthe periodundersupervisionAfter 6 weeksfor the rest ofthe periodundersupervisionAfter 2 weeksfor the rest ofthe periodundersupervisionAfter 6 weeksfor the rest ofthe periodundersupervisionRepresentatives can, on appointment, only be exempted from the fit andproper requirements relating to full qualifications if the following criteria aremet:Exemption from competence requirements for Category I and IVrepresentativesTo qualify for the exemption:representatives working in these categories must have the followingentry level qualifications when appointed by the FSP:– Matric;– Grade 12; or– An appropriate certificate at NQF Level 4. 3838 Section 3(b)(i) of BN 10488 © INSETA - Section 1 12a

epresentatives working in Subcategories 1.1 Long-term InsuranceCategory A and/or 1.19 Friendly Society Benefits must have thefollowing entry level qualifications when appointed by the FSP:– ABET Level 1; or– the proven ability to read, write and calculate to thesatisfaction of the FSP. 39The representative must complete an „appropriate‟ full qualificationwithin the prescribed date.The key individual is responsible for the management and oversight of therepresentatives who are rendering financial services under the FSP licence forwhich the key individual is appointed. As such, services under supervisionmust also be managed by the key individual.Exemption from competence requirements for Category II, IIA and IIIrepresentatives to qualify for the exemptionRepresentatives working in these categories must have a degree or similarprofessional qualification that meets the qualification requirements (discussedin Chapter 3) when appointed by the FSP:Board Notice 104 provides the following important definitions:Direct supervision means the supervision of the financial services rendered bya representative under the guidance, instructions and supervision of asupervisor, and which occurs on a regular (ranging between daily andweekly) basis.Ongoing level of supervision means the way in which supervision is exercisedafter the initial period of services under direct supervision has beencompleted, but the supervisee still requires supervision, and such supervisionoccurs on at least a bi-weekly to monthly basis.Investment team meetings means morning meetings and/or similarlystructured meetings that refer to the practice of discretionary financialservice providers where the investment team discusses and decides on theinvestment policy, strategy or the implementation of a specific investmentdecision.39 Ibid© INSETA - Section 1 12a 89

4.2 SUPERVISION REQUIREMENTSKey individual/FSPSupervisorSupervisee(representative)Responsibilities,dutiesandrequirements Satisfy the Registrar that thebusiness has the operationalability to provide servicesunder supervision. Satisfy the Registrar that Sign-off on advice givento clients. Pre-transaction sign-offby a supervisor whereintermediary services Adhere to therequirements of thesupervision agreement. Provide the supervisorupon request, wherethere is a competent personare rendered.applicable, with anyto act as supervisor. Identify the representativeswho act under supervisionand differentiate betweenrepresentatives who meet all Attend meetings withsupervisee and clientswhere the purpose ofthe meeting is therendering of financialrecords and ordocuments regardingthe advice given and/orintermediary servicesrendered.the requirements and thosewho are working undersupervision in therepresentative register. Place supervisees in correctcategories for services undersupervision. Ensure that the superviseeservices. Do appropriate posttransactionsampling. Make follow-up calls toclients after therendering of financialservices by thesupervisee to confirm Disclose to clients thathe is acting undersupervision. Complete the requiredqualifications within theprescribed time limits. Undertake the relevantproduct training.has a good understanding ofand exposure to thecategories and/orsubcategories in which he isproviding financial service. Observe selected meetingsbetween the supervisee andcustomers (frequency maydiffer). Assess the advice given bythe supervisee forappropriateness in terms ofthe requirements of theGeneral Code. Ensure that the FSP/keyindividual takes thenecessary action to protectthe client where it is foundthat the supervisee's actionsmay not have been in theinterest of the client. Have documented evidence,together with thesupervisee, of the methodcertain aspects of theinteraction with theclient. Any other activity thatenables the supervisorto scrutinise theactivities of thesupervisee in respect offinancial services beingprovided by thesupervisee. Ensure that thesupervisee has a goodunderstanding of andexposure to thecategories and/orsubcategories in whichhe is providing financialservice. Observe selectedmeetings between thesupervisee andcustomers (frequencymay differ). Request guidance fromthe supervisor if indoubt. The supervision periodmust be linked to thecategory or subcategorythe representative isappointed for. Maximum period anyrepresentative can actunder supervision in anycategory or subcategoryis six (6) years fromdate of appointment. Representatives workingin multiple categories orsubcategories can getexperience in all thecategories at the sametime. They remainunder supervision untilthey meet requirementsfor the most onerouscategory.and frequency of thesupervision for the period ofservices under supervision. Assess the advice givenby the supervisee forappropriateness in Must complete RE1 (forthe applicable categoryor subcategory) within90 © INSETA - Section 1 12a

Key individual/FSP Ensure that the relevant andapplicable supervisionagreement/s are in placeand signed by the employeeand employer or thesupervisor and supervisee.Supervisorterms of therequirements of theGeneral Code. Ensure that the FSP/keyindividual takes thenecessary action toprotect the client whereit is found that thesupervisee's actionsmay not have been inthe interest of theclient. Have documentedevidence, together withthe supervisee, of themethod and frequencyof the supervision forthe period of servicesunder supervision.Supervisee(representative)two (2) years ofappointment asrepresentative. Must complete RE 2 andthe relevantqualification (for theapplicable category orsubcategory within six(6) years from the dateof appointment.Summary of specific supervisory requirements for Categories II, IIA and III(in addition to the above)The supervisor must also ensure the following: (remember key individualsare responsible for managing and overseeing, to ensure that supervisorscomply with the requirements)In Category II and IIA - when a supervisor signs-off on transactionsregarding intermediary services, the supervisor must check that therepresentative carries out instructions accurately and in line with therelevant mandate and/or consensus decision.Review and approve discretionary financial services provided byrepresentatives (Categories II and IIA), in writing before atransaction is concluded or executed.Approve a transaction before it is finalised if the representativerenders a discretionary financial service in respect of allrepresentatives acting under supervision of Category III OR if itcannot be approved before conclusion, it must be approved within areasonable time thereafter.Ensure that all actions by the representatives in Categories II andIIA, adhere to the mandate and/or morning meeting decisions.Conduct sample checks on a weekly basis to ensure that thesupervisee did not deviate from the relevant mandate and/orinvestment team meetings.© INSETA - Section 1 12a 91

Ensure that the supervision requirements are not lessened inintensity during the duration of the period under supervision.For Category ll & llA FSPs, the following will also be recognised forsupervision purposes:Minutes of the „investment team‟ meetings will be accepted as signoff.Sign-off regarding intermediary services will require that thesupervisor checks that the Representative carries out instructionsaccurately and in line with the relevant mandate and/or consensusdecisions.Types of supervision activitiesSupervision may include one or more of the following activities:Sign-off by a supervisor on the advice given to client.Pre-transaction sign-off by a supervisor where intermediary servicesare rendered.Attending meetings with supervisees and clients, where the purposeof the meeting is the rendering of financial services.Appropriate post-transaction sampling.Follow–up calls to clients after the rendering of financial services bythe supervisee to confirm certain aspects of the interaction with theclient.Any other activity that enables the supervisor to scrutinise theactivities of the supervisee in respect of rendering financial services.4.3 EXPLAIN THE DISCLOSURE REQUIREMENTS THATREPRESENTATIVES ARE RESPONSIBLE FORRepresentatives must disclose the following:All the required information which is discussed in Chapter 8 – relatingto products, providers and commission.The signed „authority‟ from the FSP for whom the representative isacting, indicating the fit and proper status of the representative inrelation to the financial service being rendered.The fact that the representative is acting under supervision – ifapplicable.Any changes to the personal situation of the representative withregard to the honesty and integrity requirements.92 © INSETA - Section 1 12a

SummaryServices under supervision are an important addition to the FAIS fit andproper requirements because they allow representatives who are notcompetent (as far as the required qualifications are concerned) to gain theircompetence levels while working.There are a number of conditions attached to the rendering of services undersupervision:1. The FSP must satisfy the Registrar that it has the requiredoperational ability to facilitate services under supervision.2. Representatives may work under supervision in Categories I, II, IIA,III and IV.3. There are different „entry level‟ requirements for each of thesecategories.4. Representatives must get their qualifications within the prescribedtime.5. Representatives have certain duties while working under supervision.– refer to the summary of the various duties and responsibilitiesexplained previously.6. Supervisors have certain duties while overseeing representatives –refer to the summary of the various duties and responsibilitiesexplained previously.© INSETA - Section 1 12a 93

Self-Assessment QuestionsPlease note that the questions which follow are formative in nature. Thequestions were not developed by the FSB‟s examination bodies and as suchcannot be used as an indication of the nature/structure/level of the questionsthat you will encounter in the FSB‟s regulatory examination.1. In terms of the exemption granted for services under supervision,representatives will not have to comply with the:a) honesty and integrity requirements whilst working undersupervision in certain categoriesb) experience, qualifications and regulatory examinationsc) experience, qualifications and regulatory examinations whilstworking under supervision in certain categoriesd) All of the above2. Representatives can only work under supervision if the licensed FSPcan:a) satisfy the Registrar that it has the required financialreserves to facilitate services under supervisionb) satisfy the Registrar that it has the required operationalability to facilitate services under supervisionc) afford to appoint at least five (5) supervisorsd) All of the above3. The duties of a supervisor include the following:a) Sign-off on advice given to clientsb) Do appropriate post-transaction samplingc) Observe selected meetings between the supervisee andcustomersd) All of the above4. The duties of a supervisee include the following:a) Disclose to clients that he is acting under supervisionb) Do appropriate post-transaction samplingc) Ensure that the FSP/key individual takes the necessary actionto protect the client where it is found that the supervisee'sactions may not have been in the interest of the clientd) All of the above94 © INSETA - Section 1 12a

5. Supervisors in Categories II, IIA and III must do the following:a) Review and approve discretionary financial services providedby representatives (Categories II and IIA), in writing before atransaction is concluded or executedb) Conduct sample checks on a daily basis to ensure that thesupervisee did not deviate from the relevant mandate and/orinvestment team meetingsc) Conduct sample checks on a weekly basis to ensure that thesupervisee did not deviate from the relevant mandate and/orinvestment team meetingsd) only a) and c)© INSETA - Section 1 12a 95

Self-Assessment Answers1. In terms of the exemption granted for services under supervision,representatives will not have to comply with the:a) honesty and integrity requirements whilst working undersupervision in certain categoriesb) experience, qualifications and regulatory examinationsc) experience, qualifications and regulatory examinations whilstworking under supervision in certain categoriesd) All of the above2. Representatives can only work under supervision if the licensed FSPcan:a) satisfy the Registrar that it has the required financialreserves to facilitate services under supervisionb) satisfy the Registrar that it has the required operationalability to facilitate services under supervisionc) afford to appoint at least five (5) supervisorsd) All of the above3. The duties of a supervisor include the following:a) Sign-off on advice given to clientsb) Do appropriate post-transaction samplingc) Observe selected meetings between the supervisee andcustomersd) All of the above4. The duties of a supervisee include the following:a) Disclose to clients that he is acting under supervisionb) Do appropriate post-transaction samplingc) Ensure that the FSP/key individual takes the necessary actionto protect the client where it is found that the supervisee'sactions may not have been in the interest of the clientd) All of the above96 © INSETA - Section 1 12a

5. Supervisors in Categories II, IIA and II must do the following:a) Review and approve discretionary financial services providedby representatives (Categories II and IIA), in writing before atransaction is concluded or executedb) Conduct sample checks on a daily basis to ensure that thesupervisee did not deviate from the relevant mandate and/orinvestment team meetingsc) Conduct sample checks on a weekly basis to ensure that thesupervisee did not deviate from the relevant mandate and/orinvestment team meetingsd) only a) and c)© INSETA - Section 1 12a 97

98 © INSETA - Section 1 12a

Chapter5Implications of Sections 8 and 13of the FAIS ActThis chapter covers the following criteria:KNOWLEDGE CRITERIA:Describe the implications of Section 8 and Section 13 of the Act, and what this means interms of training and development of representatives. (Task 5)Describe the implications if a representative does not meet all the requirements in termsof fit and proper by the relevant date. (Task 5)© INSETA - Section 1 12a 99

PurposeBefore a juristic entity can provide financial services, it has to be authorisedas an FSP.Section 8 of the FAIS Act prescribes what has to be done in order to compileand submit an application, as well as the steps to be taken when anapplication is considered. By going through this part of the chapter, you willget an understanding of the processes involved.Section 13 of the FAIS Act looks at the duties of the FSP in relation to itsrepresentatives. You will gain an understanding of some of theresponsibilities of FSPs, which include the maintenance of the representativeregister.5.1 INTRODUCTION TO SECTIONS 8 AND 135.1.1 Section 8 of the FAIS ActSection 8 of the FAIS Act stipulates the requirements relating to anapplication to become an FSP. It prescribes the process and procedures aswell as the steps to take if an application is turned down by the Registrar.The process is discussed in more detail in Section 5.2.5.1.2 Section 13 of the FAIS ActSection 13 of the FAIS Act stipulates the requirements for representatives toact for and on behalf of FSPs. It also prescribes the format and inputrequired in respect of the representative register.This will be discussed in more detail in Section 5.3.100 © INSETA - Section 1 12a

5.2 SECTION 8The application process1Submit application to beauthorised as FSPConditionswill beimposed onlicence3A2FSPapplicationgrantedRegistrar considersapplicationFSP3 application 5refusedRegistrarmaywithdraw orsuspendlicence orimpose newconditions ifrequired3BRegistrarissueslicenceRegistrar gives4 reasons for 6refusalThe respective steps in the process are discussed on the next page.© INSETA - Section 1 12a 101

Understanding the process step by step1Submitapplication2Registrarconsidersapplication3Registrargrantsapplication3ARegistrarimposesconditions onlicenceThe applicant lodges an application with the Registrar tobecome an authorised financial services provider. The relevantforms must be completed and submitted. The requiredsupporting documents must be submitted.The Registrar will consider the application and may requireadditional information.The Registrar may consider additional information obtainedfrom external sources, provided the applicant was givenopportunity to comment on the information.Once the Registrar has all the required information, a decisionis made to either grant the application or refuse it.The Registrar may impose conditions and/or restrictions onthe FSP licence with regard to: all facts and information available to the Registrarpertaining to the applicant and any key individual ofthe applicant. the category of financial services which the applicantcould appropriately render or wishes to render. the category of financial services providers in whichthe applicant will be classified in relation to the fit andproper requirements. any guidelines provided to the Registrar by theAdvisory Committee or the Board.If after date of granting the licence: a key individual is replaced by a new key individual ora new key individual is appointed or takes up office there is a change in the personal circumstances of akey individual which affects his fitness and proprietynegativelyhe is prohibited from managing and overseeing the licensee'sbusiness in relation to the rendering of financial services,unless the Registrar has approved an application by the keyindividual and published it in the Gazette.102 © INSETA - Section 1 12a

Display licence3BRegistrarconsidersapplication4Registrarissues licenceAn FSP must display certified copies of the licence in aprominent and durable manner in every business premisesand must ensure that all business documentation,advertisements and other promotional material refers to thelicence and that the licence is at all times immediately orwithin a reasonable time available to any person who has alegal right to request it or who wants to enter into a businessrelationship with the FSP.The Registrar may withdraw a licence on application bylicensee or own initiative. The Registrar may also withdraw oramend conditions and the licensee may respond. TheRegistrar may, pursuant to an evaluation of a new keyindividual, impose new conditions (with reasons), after givingthe licensee time to respond. Amended licences must beissued in accordance with the actions of the Registrar.If the Registrar approves the application, a licence is issued tothe applicant.Certain requirements apply to persons who are accreditedunder the Medical Schemes Act 40 . These are described inSection 8(7) – it means that they must apply for a FAISlicence as well and the same fit and proper requirementsapply. If the FAIS licence is refused, suspended or withdrawn,the accreditation in terms of the Medical Schemes Act will bedeemed to have lapsed, suspended or been withdrawn and ifthe accreditation in terms of the Medical Schemes Act iswithdrawn, the FAIS licence will be considered suspended orwithdrawn. 415RegistrarrefusesapplicationIn the event that the application is refused, the Registrar mustadvise the applicant and provide reasons for the refusal.40 Medical Schemes Act, 1998 (Act No. 131 of 1998)41 Section 8(7)9d)(iv) of the Act© INSETA - Section 1 12a 103

5.3 SECTION 13As mentioned above, Section 13 imposes certain duties and responsibilitieson FSPs (and by implication on key individuals).Summary of responsibilities.What must be done?Nobody may provide financialservices to clients for or on behalf ofunauthorised FSPs who are notexempted from the FAIS Act.Nobody may act as a representativefor an FSP unless the person canconfirm to clients (certified by theFSP) that: he has an employment ormandate agreement with theFSP, to represent the FSP; and the FSP accepts responsibilityfor the activities of therepresentative performed interms of the agreement.If a representative was debarred, hecan only operate as a representativeagain if the procedures forreappointment of rehabilitateddebarred representatives have beenfollowed.Who must do it and how?The key individual must ensure thatthere are processes in place to verifythat the other FSP is authorised/licensed in terms of FAIS.The key individual must ensure thatthe representatives are supplied withthe necessary documentation toconfirm the required information toclients.Where representatives providefinancial services on mandates fromthe FSP, the required writtenmandate must be available torepresentatives to provide to clients.The key individual must ensure thatthe necessary checks are done onrepresentatives before appointment,to ensure that they are not debarred.When the FSP wants to reappoint anyperson who had been debarred, thekey individual must ensure that thecorrect procedure is in place toensure that the re-appointmentrequest is assessed in terms of thecriteria as stipulated in Section 2 ofBN 82 of 2003.104 © INSETA - Section 1 12a

What must be done?The FSP must at all times: ensure that representatives andkey individuals of representativesare competent and fit and properto provide financial services; take reasonable steps to ensurethat representatives comply withapplicable Codes of Conduct andwith other applicable laws onconduct of businessWho must do it and how?The key individual must ensure thatthere are adequate processes andsystems in place to: verify fitness and propriety ofrepresentatives and keyindividuals at appointment andthroughout employment; identify the requirements foreach representative and keyindividual to become fit andproper; provide training to enablerepresentatives and keyindividuals to comply with theFAIS Act and other applicablelegislation in the rendering offinancial services; record the qualifications,experience, completion ofregulatory examinations and CPDfor each representative and keyindividual; ensure that representatives andkey individuals have adequateproduct and process training; ensure that services undersupervision are managed inaccordance with therequirements; ensure that representatives andkey individuals understand andcomply with the FSPs codes ofethics or related codes as well asthe relevant Codes of Conduct, asrequired in FAIS subordinatelegislation© INSETA - Section 1 12a 105

What must be done?The FSP must maintain a register ofrepresentatives, and key individualsof such representatives, which mustbe regularly updated and be availableto the Registrar for reference orinspection purposes.The register must: provide a record of all therepresentatives of an FSP (andwhere applicable, keyindividuals of therepresentatives) which showspersonal information andcapacity of the representative(employee/mandatory). reflect compliance with fit andproper requirements; and show the applicable categoriesand subcategories therepresentative is appointed foror key individual is approved forThe Registrar may requireinformation from FSPs to enable theRegistrar to maintain andcontinuously update a central registerof all representatives and keyindividuals.Who must do it and how?The key individual must ensure thatprocesses are in place to ensure thatthe register is constantly updated –adding and removing representativesand key individuals. The register must be sent(uploaded) to the Registrarwithin 15 days of amendmentseither in hard copy format orelectronically. Changes in the circumstances ofrepresentatives or keyindividuals must be recorded inthe register. Key individuals must ensurethat there are adequateprocedures in place to recordthe information as well as toidentify changes in theinformation and record same.(See Chapter 3 for examples of whatshould be included in the register.)106 © INSETA - Section 1 12a

5.4 THE IMPLICATIONS IF A REPRESENTATIVE DOES NOT MEETTHE FIT AND PROPER REQUIREMENTS BY THE REQUIREDDATEThe fit and proper requirements applicable to representatives are as follows:Honesty and integrityCompetency:- Experience- Qualifications- Regulatory examinations; and- CPD.There are defined timelines for successful completion of the experience,qualifications, regulatory examinations and CPD requirements. The CPDrequirements will only become effective at a later stage.The timelines are as follows: 42Date of first appointment: 2004 to 2007For FSPs (sole proprietors), key individuals and representatives who wereapproved or appointed in terms of the FAIS Act between 2004 (when theAct went into effect) and 31 December 2007, the requirements are thatthey must have met the relevant qualification requirements (either a fullqualification or an appropriate skills programme) by 31 December 2009.These requirements can be found in Part 10 of the Determination of Fit andProper Requirements for Financial Services Providers.Date of first appointment: 2008 - 2009The competence requirements for representatives, who were appointed forthe first time in respect of a specific product category in 2008 or 2009, arealso provided for in Part 10 of the Determination of Fit and ProperRequirements for Financial Services Providers.Representatives with a date of first appointment from 1/1/2008 to31/12/2009, have a choice of either completing an appropriate skillsprogramme by 31/12/2011 or a full qualification as published by the42 FAIS Circular 01/2010© INSETA - Section 1 12a 107

Registrar, by 31/12/2013.Failure by a representative to meet the competency requirements by therelevant date means that the FSP is required to take appropriate action, asexplained in this circular.The FSB issued a Circular in March 2010 that deals specifically with the issuesaround not meeting the fit and proper requirements and required action bythe FSP. The Circular reads as follows 43 :"Implications if a representative does not meet the qualificationrequirements”Failure by the representative to meet the necessary qualificationrequirements means that the representative is no longer fit and proper interms of section 8(1) of the FAIS Act.Therefore, in terms of section 14 of the FAIS Act, an authorised financialservices provider must ensure that any representative of the provider who nolonger complies with the requirements referred to in section 13(2)(a) isremoved from the register referred to in section 13(3) of the Act.This also applies to any representative who has contravened or failed tocomply with any provision of this Act in a material manner. This means thatany such representative is prohibited by the provider from rendering any newfinancial service by withdrawing any authority to act on behalf of theprovider, and that the representative‟s name, and the names of the keyindividuals of the representative, are removed from the register referred to insection 13(3). Any such provider must immediately take steps to ensure thatthe debarment does not prejudice the interest of clients of therepresentative, and that any unconcluded business of the representative isproperly concluded.Debarment in terms of the Act means that the provider stops therepresentative concerned from rendering further financial services andremoves his or her name from the register mentioned above.Implementation of the debarment provisions in terms of section 14 isobligatory whenever the representative no longer complies with therequirements referred to in section 13 (2) (a) of the Act.43 Ibid108 © INSETA - Section 1 12a

Section 3 of the FAIS Act states that, subject to the provisions of this Act,any notice given, approval or exemption granted, determination made,requirement or condition determined or imposed, or any other decision takenby the Registrar under an enabling provision of this Act, is valid only if it isreduced to a durable written or printed form or, where communicatedelectronically, has been correctly transmitted in a legible form.Appropriate action by the FSPThe Registrar of Financial Services Providers has deemed it proper that if therepresentative does not meet the required qualifications or appropriate skillsprogramme as specified in Table E, Part 10 of the Determination of Fit andProper Requirements for Financial Services Providers, the FSPs may do asfollows:Debar the representative and request the Registrar to list the latteron the list of debarred persons;Request a profile change to remove the product/s for which therepresentative is not qualified for;Remove the said representative from the register of the particularFSP and subsequently request the Registrar to remove thatrepresentative from the central register.In terms of Condition 1 of the licensing conditions imposed on FSPs, an FSP isrequired to inform the Registrar within 15 days of any change to its licensingconditions. This means that the FSP is required to inform the Registrar of thefailure to meet the qualification requirements by an FSP (sole proprietor) orkey individual within 15 days after the due date for meeting the relevantqualification requirements.It is critical that the FSP ensures that representatives are enabled andsupported to achieve the (outstanding) requirements by the relevant dates.It is therefore imperative that there are adequate processes in place tomonitor and manage the representatives' progress and achievement of the fitand proper requirements.Checks should be done at regular intervals and the key individual mustensure that there are systems to record progress and achievement of therequirements.© INSETA - Section 1 12a 109

It should be a condition of the employment contracts of representatives thatthey are compelled to achieve all the fit and proper requirements in a mannerand timeframe determined by the FSP and agreed to by the representatives.SummarySection 8 of the FAIS Act details the steps required for registration as an FSP.These steps include the following:Submission of application plus supporting documents.Consideration of the application by the Registrar. He may consideradditional information obtained from external sources, provided theapplicant was given opportunity to comment on the information.Registrar approves or declines the application.If approved, conditions will be imposed on the FSP.If declined, the Registrar must give reasons for the refusal.Licences may be suspended or withdrawn at a later stage. If the FSPis also accredited under the Medical Schemes Act, its accreditationwill be treated in accordance with the FAIS licensing.Section 13 provides an overview of the duties of FSPs. These include thefollowing:Ensure that representatives are mandated to act on behalf of theFSP.Ensure that the correct procedures are followed in respect ofdebarment and reinstatement of representatives.Maintenance of the representative register.Appropriate action if representatives do not meet the fit and properrequirements.110 © INSETA - Section 1 12a

Self-Assessment QuestionsPlease note that the questions which follow are formative in nature. Thequestions were not developed by the FSB‟s examination bodies and as suchcannot be used as an indication of the nature/structure/level of the questionsthat you will encounter in the FSB‟s regulatory examination.1. When the FAIS Registrar considers the application for an FSP licence,he may:a) refer to the documentation submitted by the applicant onlyb) consider additional information obtained from externalsources without giving the applicant an opportunity tocomment on the informationc) consider additional information obtained from externalsources provided the applicant was given opportunity tocomment on the informationd) only a) and c)2. The Registrar may impose conditions and/or restrictions on the FSPlicence having regard to:a) all facts and information available to the Registrar pertainingto the applicant and any key individual of the applicantb) the category of financial services which the applicant couldappropriately render or wishes to renderc) any guidelines provided to the Registrar by the AdvisoryCommittee or the Boardd) All the above3. The Registrar may:a) withdraw a licence on application by the licensee or on owninitiativeb) not withdraw or amend conditionsc) pursuant to an evaluation of a new key individual, imposenew conditionsd) Only a) and c)© INSETA - Section 1 12a 111

4. In order to meet the requirements for displaying a licence, the FSPmust:a) display copies of the licence in a prominent and durablemannerb) display copies of the licence in every head office onlyc) ensure that all business documentation, advertisements andother promotional material refers to the licenced) ensure that all business documentation, advertisements andother promotional material reflect the FSP licence number5. Section 13 imposes certain duties and responsibilities on FSPs:a) If a representative was debarred, he can never operate as arepresentative againb) FSPs must take reasonable steps to ensure thatrepresentatives comply with applicable Codes of Conduct andwith other applicable laws on conduct of businessc) Nobody may provide financial services to clients for or onbehalf of unauthorised FSPs who are not exempted from theFAIS Actd) only b) and c)6. The representative register must provide a record of all therepresentatives:a) of an FSP (and where applicable, key individuals of therepresentatives)b) of an FSP, but without personal informationc) provide a record of all the representatives and complianceofficers of an FSP7. If a representative is no longer fit and proper:a) he must be placed under supervision and left on the registerb) he must be left on the register but with a note that he is notfit and properc) he must be removed from the representative registerd) All the above112 © INSETA - Section 1 12a

Self-Assessment Answers1. When the FAIS Registrar considers the application for an FSP licence,he may:a) refer to the documentation submitted by the applicant onlyb) consider additional information obtained from externalsources without giving the applicant an opportunity tocomment on the informationc) Consider additional information obtained from externalsources provided the applicant was given opportunity tocomment on the informationd) only a) and c)2. The Registrar may impose conditions and/or restrictions on the FSPlicence having regard to:a) all facts and information available to the Registrar pertainingto the applicant and any key individual of the applicantb) the category of financial services which the applicant couldappropriately render or wishes to renderc) any guidelines provided to the Registrar by the AdvisoryCommittee or the Boardd) All the above3. The Registrar may:a) withdraw a licence on application by the licensee or on owninitiativeb) not withdraw or amend conditionsc) pursuant to an evaluation of a new key individual, imposenew conditionsd) only a) and c)4. In order to meet the requirements for displaying a licence, the FSPmust:a) display copies of the licence in a prominent and durablemannerb) display copies of the licence in every head office onlyc) ensure that all business documentation, advertisements andother promotional material refers to the licenced) ensure that all business documentation, advertisements andother promotional material reflect the FSP licence number© INSETA - Section 1 12a 113

5. Section 13 imposes certain duties and responsibilities on FSPs:a) If a representative was debarred, he can never operate as arepresentative againb) FSPs must take reasonable steps to ensure thatrepresentatives comply with applicable Codes of Conduct andwith other applicable laws on conduct of businessc) Nobody may provide financial services to clients for or onbehalf of unauthorised FSPs who are not exempted from theFAIS Actd) only b) and c)6. The representative register must provide a record of all therepresentatives:a) of an FSP (and where applicable, key individuals of therepresentatives)b) of an FSP, but without personal informationc) and compliance officers of an FSP7. If a representative is no longer fit and proper, he must be:a) placed under supervision and left on the registerb) left on the register but with a note that he is not fit andproperc) Removed from the representative registerd) All the above114 © INSETA - Section 1 12a

Chapter6Debarment of representativesThis chapter covers the following criteria:KNOWLEDGE CRITERIA:Discuss the purpose of debarment. (Task 6)Describe when the debarment of a representative should take place (reasons). (Task 6)Discuss how the debarment of a representative should take place. (Task 6)Explain the actions a representative may take that would give rise to debarmentprocedures. (Task 6)Describe the ramifications for an FSP if it debars a representative unfairly. (Task 6)Explain the processes that should be followed before a representative is debarred.(Task 6)Explain the process and timeframe to notify the Registrar that a representative has beendebarred. (Task 6)© INSETA - Section 1 12a 115

PurposeChapter 6 gives you an overview of the relevant aspects of debarment. Thisincludes the purpose, reasons, and steps for debarment.As a key individual you have certain responsibilities regarding debarment.This chapter also looks at the record-keeping requirements with regard to theactivities of representatives and key individuals, which also fall under themanagement of key individuals.6.1 DEBARMENT OF REPRESENTATIVES6.1.1 The purpose of debarmentThe purpose of debarment is to prevent a representative in certaincircumstances from rendering financial services to clients, by removing himfrom the representative register. (The representative register was discussedin Chapter 3). Debarment has certain ramifications, such as the fact that aperson who is debarred may not render financial services in the industry. Onthe other hand, removing a person from the representative register becausehe left the employment of a specific FSP is not debarment.Debarment is a requirement of the FAIS Act, and Section 14 of the FAIS Actrequires an FSP to:ensure that a representative who is no longer fit and properis prohibited by the FSP to provide any new financial services.The FSP must do this by:withdrawing the authority of the representative to act for and onbehalf of the FSP; andremoving the name of the representative from the representativeregister.The FSP must also:take immediate steps to ensure that the debarment does notprejudice the interests of the clients of the representative; and116 © INSETA - Section 1 12a

ensure that unconcluded business of the representative is properlyconcluded.6.1.2 Reasons for debarment and debarment procedureRepresentatives must be debarred when they do not meet the FAIS fit andproper requirements – as discussed in Chapter 5.In addition, the FSP may also use information regarding the conduct of arepresentative received from the Ombud for Financial Services Providers(FAIS Ombud), the Registrar and any other source.In certain instances it will be necessary to follow internal disciplinaryprocedures, for instance where lack of honesty and integrity of therepresentative is cause for debarment. In such instances, the key individualmust ensure that the correct procedures are followed in terms of labour lawrequirements before debarment is affected.It is also important to ensure that the relevant role-players in the businessare informed about:the reasons why debarment would be consideredthe process that would be followed in such instances; andany recourse a representative may have.It is the responsibility of the key individual to ensure that there are adequatesystems and procedures in place to identify grounds for debarment, followinternal disciplinary procedures if required, and to effect debarment inrespect of the representative register.It may be a condition of service that representatives and key individuals ofrepresentatives will be debarred in certain circumstances and representativesshould be made aware of the conditions.Once a representative and the key individual of the representative have beenremoved from the register, the Registrar must be advised in writing of theremoval, within 15 days.The debarred representatives are then listed on a central register that ismaintained by the Registrar.© INSETA - Section 1 12a 117

Ramifications for the FSP if debarment is unfairIt follows that representatives should not be debarred unfairly as they willhave full legal recourse to the FSP (the key individual will be held responsibleas s/he is responsible for management and oversight of the business of theFSP which renders financial service).Summary of the key individual's responsibilities with regard to debarmentRefer to debarment as a consequence of non-compliance in contractsof employment and mandatory agreements.Ensure that the FSP Disciplinary Code includes debarment-relatedoffences and failure to comply with material requirements of the FAISAct and reasons.Ensure internal processes and procedures exist and are followedwhen representatives are debarred.Ensure that all role players get adequate and relevant information ondebarment of representatives.Ensure that the representative register is amended as soon as thedecision is taken to debar.Ensure that the FAIS Registrar is notified of the debarment in theprescribed reporting format (notification of debarment/representative register).Ensure that the necessary action is taken to assess the situation ofthe debarred representative's clients and take immediate action topreserve clients' interests.Check that the compliance officer performs monitoring procedures inrespect of the cases where representatives have been debarred.6.1.3 Debarment by the FAIS RegistrarThe FAIS Registrar can also debar a person, including a representative, interms of Section 14A of the Act.The Registrar can debar a person (including a representative) from providingfinancial services for a specific period of time if:that person does not meet the fit and proper requirement of honestyand integrity; orthat person contravened or did not comply with any provision of theAct.118 © INSETA - Section 1 12a

An authorised financial services provider must within a period of five daysafter being informed by the Registrar of the debarment of a representative orkey individual, remove the names of that representative and key individualsfrom the register 44 .The Registrar may publish the debarment or the lifting of the debarment.Before the Registrar can debar a person, the following must happen:The Registrar must inform the person of the grounds for the intentionof debarment and must give the person a reasonable opportunity torespond.The Registrar must also inform the person of any terms or conditionsit wants to attach to the debarment. This may include terms such asa prohibition on the Representative to conclude any new businessfrom the date that the debarment becomes effective. Where therepresentative has unconcluded business (in the pipeline), theRegistrar may take whatever measures it deems appropriate in orderto protect the interests of clients as well as the FSP for which theRepresentative operates. The Registrar may also stipulate termsunder which it will lift the debarment.6.1.4 Reinstatement after debarmentA representative can be reinstated depending on the reasons fordebarment. 45 Debarred representatives may reapply after 12 months if thedebarment was not related to the competency requirements. It follows thatwhere the representative was debarred for not meeting any of thecompetency requirements, such representative may reapply within 12months should the said competency requirement/s be met sooner.When reapplying, the applicant will have to comply with the following:All unconcluded business of the person as a former representativeshould have been properly concluded.All complaints or legal proceedings (if any) submitted by clients tothe applicant or the debarring provider, or the Ombud or any court oflaw should have been properly concluded; or44 Section 14A (3)45 BN 82 of 2003© INSETA - Section 1 12a 119

All other administrative or legal procedures or proceedings in termsof the Act or any other law, arising out of any acts or omissions inwhich the applicant was directly or indirectly involved prior to thedebarment date, must have been properly and lawfully resolved orconcluded, as the case may be, and the applicant must have fullycomplied with any decision, determination or court order inconnection therewith, given or issued in respect of the applicant.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.6.2 KEEPING RECORD OF THE ACTIVITIES OFREPRESENTATIVES AND KEY INDIVIDUALSAdequate record-keeping to keep track of the activities of representativesand key individuals in respect of meeting the fit and proper requirementsmust be in place.There are internal operational and training requirements whichrepresentatives and, in fact, everybody who has a role to play in a FAISfunction need to meet and be aware of.Remember, the key individual must ensure that the FSP has the operationalcapability to function, as part of the management and oversight function ofthe key individual.There should be documented processes in place to record: the training attended by representatives and key individuals –including training relating to FICA requirements. the CPD hours and related activities. compliance by representatives and key individuals with the applicablefit and proper requirements – such as qualifications, completion ofregulatory examinations, etc. the categories and products for which representatives and keyindividuals are authorised to provide intermediary service or advice. all the information relating to services under supervision – such asthe details of supervisors and supervisees as well as the duration ofthe supervision. initial and ongoing checks on the fitness and propriety ofrepresentatives and key individuals – such as honesty and integrity.120 © INSETA - Section 1 12a

SummaryDebarment is a drastic action by an FSP and should be done with thenecessary caution.FSPs may use information gathered from their own records, as wellas information obtained from third parties, to debar representativesor key individuals.Key individuals must ensure that conditions of employment andsimilar agreements contain the fact that employees may be debarredfor non-compliance with the FAIS fit and proper requirements.In order to ensure that all the applicable staff meet the fit and properrequirements, FSPs must keep adequate records of training andrelated activities. This includes records of initial and ongoing checkson the fitness and propriety of representatives and key individuals –such as honesty and integrity.Self-Assessment QuestionsPlease note that the questions which follow are formative in nature. Thequestions were not developed by the FSB‟s examination bodies and as suchcannot be used as an indication of the nature/structure/level of the questionsthat you will encounter in the FSB‟s regulatory examination.1. Debarment means to remove:a) a representative, under certain circumstances, fromrendering financial services to clientsb) an FSP, under certain circumstances, from rendering financialservices to clientsc) a compliance officer, under certain circumstances, fromproviding compliance service to clientsd) All the above2. When debarring a person, the FSP must:a) ensure that unconcluded business of the representative isproperly concludedb) take immediate steps to ensure that the debarment does notprejudice the interests of the clients of the representativec) Get the permission from the FAIS Registrar in writingd) a) and b)© INSETA - Section 1 12a 121

3. May an FSP use information obtained from external sources to debara person?a) Yesb) Noc) Sometimesd) Only if the debarred person agreed4. May the FAIS Registrar debar a person?a) Nob) Sometimesc) Yesd) Only if the debarred person agreed5. There should be documented processes in place to record:a) the CPD hours and related activities of representativesb) compliance by representatives and key individuals with theapplicable fit and proper requirementsc) the categories and products which representatives and keyindividuals are authorised to provide intermediary servicesford) All of the above122 © INSETA - Section 1 12a

Self-Assessment Answers1. Debarment means to remove:a) a representative, under certain circumstances, fromrendering financial services to clientsb) an FSP, under certain circumstances, from renderingfinancial services to clientsc) a compliance officer, under certain circumstances, fromproviding compliance service to clientsd) All the above2. When debarring a person, the FSP must:a) ensure that unconcluded business of the representative isproperly concludedb) take immediate steps to ensure that the debarment does notprejudice the interests of the clients of the representativec) Get the permission from the FAIS Registrar in writingd) a) and b)3. May an FSP use information obtained from external sources to debara person?a) Yesb) Noc) Sometimesd) Only if the debarred person agreed.4. May the FAIS Registrar debar a person?a) Nob) Sometimesc) Yesd) Only if the debarred person agreed5. There should be documented processes in place to record:a) the CPD hours and related activities of representativesb) compliance by representatives and key individuals with theapplicable fit and proper requirementsc) the categories and products which representatives and keyindividuals are authorised to provide intermediaryservices ford) All of the above© INSETA - Section 1 12a 123

124 © INSETA - Section 1 12a

Chapter7The regulatory environment in which the FSPfunctionsThis chapter covers the following criteria:KNOWLEDGE CRITERIA:Explain in general which department and/or contact person(s) at the Regulator's officeshould be contacted with regards to the maintenance of an FSP licence. (Task 7)Explain what format of communication with the Regulator is required. (Task 7)Explain what gives rise to a profile change and when should it be submitted.(Part of Task 13)Explain the reporting obligations imposed by the Act (Part of Task 12)Explain what processes are required to remain updated with regards to other legislation,amendments, updates and requirements published that will affect the FSP. (Task 7)Describe the implication for an FSP if the Registrar publishes a notice regarding an“undesirable business practice”. (Task 7)Explain what is meant by “undesirable practices”. (Task 7)Explain the reparation measures available to the Registrar if an FSP continues withundesirable business practices. (Task 7)© INSETA - Section 1 12a 125

PurposeDuring the course of the lifespan of an FSP licence, there will becommunication with various divisions of the FAIS Regulator. This chaptergives you an understanding of the various FAIS departments and theirresponsibilities.It also explains the impact and effect of an "undesirable business practice".You need to understand your responsibilities as a key individual with regardto these requirements.7.1 COMMUNICATION WITH THE FAIS REGULATORThe FAIS Division of the FSB consists of the following departments:Registration Departmentis responsible for new licence applications, profile changes (change to any ofthe application detail that must be submitted in terms of licensing conditionsof FSPs), updating the central representative register, approval of mandatesand application forms for discretionary FSPs and Administrative FSPs, lapsingof licences, any queries relating to the status of an FSPs licence and liaisonwith the FSB‟s Finance Department relating to collection of levies.Supervision Departmentis responsible for the implementation of a risk-based approach to supervisionof financial service providers, the analysis of financial statements andcompliance reports, conducting onsite visits to FSPs and compliance officersand liaison with industry relating to changes in subordinate legislation.Compliance Departmentis responsible for dealing with complaints against FSPs that cannot bereferred to the FAIS Ombud, investigations into the affairs of FSPs andregulatory action (suspension and withdrawal of licences) and updatingdebarments on the central representative register as well as reinstatement ofrepresentatives on the central register.126 © INSETA - Section 1 12a

Enforcement Departmentis responsible for the interaction between the FAIS Division and the FSBEnforcement Committee. This interaction includes the preparation of mattersthat the registrar of Financial Services Providers deems necessary to refer forpossible administrative sanction.In support of the function of „enforcement‟, the Registrar has the authority toconduct on-site visits to verify the state of compliance.7.1.2 Profile changesYou know by now that whenever there are changes in the informationrelating to the FSP, submitted during the application, the FAIS Departmentmust be notified within 15 days of such changes – these changes are referredto as:Profile ChangesKey individuals must ensure that there are adequate processes in place tomanage completion and submission of the relevant forms. Each profilechange requires a fee to be paid to the FSB.Summary of profile change forms:Form number Description of formFSP 1Business Information of Financial Services ProviderFSP 2Licence categoriesFSP 3Directors, officers and applicable shareholdersFSP 4Key individualsFSP 5RepresentativesFSP 6Compliance officer of FSPFSP 7Operational abilityFSP 8Financial soundnessFSP 9External auditorFSP 10A Shareholders, directors or trustees of the nomineecompany or independent custodianFSP 13Application for the approval of a compliance practiceand/or officer (separate form)FSP 14AAttachments, list of all completed forms and declarationsFSP 14BCalculation of application fee if applying directly to the FSB7.2 AWARENESS OF THE REGULATORY UNIVERSE© INSETA - Section 1 12a 127

In the discussion of the purpose and ambit of the FAIS Act in Chapter 1, itwas indicated that the FAIS Act is functional and exists together with otherlegislation in relation to its purpose.Financial services are impacted by many laws relating to financial products,security-related legislation, insurance-specific legislation as well as consumerprotection legislation, to name a few. Business needs to constantly align itspractices and compliance with applicable legislation.The key individual must ensure that there are procedures and systems inplace to identify and flag changes in legislation.An example of such a process is subscription to a service provider thatspecialises in updating business with changes, alerts and updates. Industryassociations offer valuable platforms for sharing and gaining information andknowledge. It is also important to take note of any changes and informationemanating from the FSB and other regulators.Once identified, the required action must be taken to ensure compliance. Itis also important that the key individual stays up-to-date with changes andupdates in the FAIS legislation – including the subordinate legislation.Reporting obligationsFrom the above discussion a number of reporting obligations can be identified– such as profile changes and debarment. There are also other reports thatare discussed later – including the compliance report and financialstatements. The key individual must ensure that there are adequateprocesses across the business to ensure that the information needed in thesereports can be captured and submitted to the FAIS departments and theRegistrar.128 © INSETA - Section 1 12a

7.3 UNDESIRABLE BUSINESS PRACTICES7.3.1 What is an undesirable business practice?In terms of Section 34 of the FAIS Act, the Registrar may declare a businesspractice „undesirable‟ – after consultation with the FAIS Advisory Committee.This may be done for a specific FSP or a category of FSPs.Before declaring a business practice as undesirable, the Registrar must firstconsider the following:The business practice musthave, or is likely to have, adirect or indirect effectresulting in: harming the relations between FSPs orany FSP or category of FSPs, andclients or the general public OR unreasonable prejudice to clients OR deceiving any client OR unfairly affecting any client AND if allowed to continue, thepractice will defeat one or moreobjects of the FAIS Act.If the Registrar is convinced that these „requirements‟ are met, the followingmust happen:1. The Registrar must publish an intention to make the declaration inthe Gazette, and provide reasons and invite written representationsto the Registrar such representations must reach the Registrarwithin 21 days after date of publication of the intention.2. The Registrar considers the representations and decides to declarethe business practice as „undesirable‟ or not;3. The declaration must be published and the FSP concerned may notcontinue with the business practice on or after the date of publicationin the Gazette (this refers to the actual declaration, not the intentionto declare) 46 .4. If the FSP carries on with the business practice after the date ofpublication, the Registrar may inform the FSP to rectify or reinstateto the satisfaction of the Registrar, any loss or damage which was46 Sections 34(3)&(4) of the Act© INSETA - Section 1 12a 129

caused by or arose out of the carrying on of the business practiceconcerned 47 .5. The FSP who must rectify or reinstate must do so within 60 daysafter the direction was issued 48 .6. If the FSP does not adhere to the Registrar's directive, a fine notmore than R1 000 000 or imprisonment of not more than ten (10)years, or both, may be imposed in terms of Section 36 of the FAISAct.The key individual must ensure that the relevant areas and departments ofthe business are aware of a declared undesirable business practice.SummaryCommunication with the FAIS Registrar includes the following: Interaction with the Registration Department, which is responsible fornew licence, profile changes, the representative register, lapsing oflicences, queries on licences and collection of levies. Interaction with the Supervision Department, which is responsible forrisk management of FSPs, investigations, analysis of compliancereports and financial statements, on-site visits and liaison with theindustry on changes in subordinate legislation. Interaction with the Complaints Department responsible forcomplaints, investigations, regulatory action, updating debarmentsand reinstatement of debarred representatives. Interaction with the Enforcement Department responsible for theinteraction between the FAIS Division and the FSB EnforcementCommittee. This interaction includes the preparation of matters thatthe registrar of FSPs deems necessary to refer for possibleadministrative sanction. It is imperative that the business and key individuals are up-to-datewith the regulatory universe in which they operate. Key individuals must ensure that the relevant people in the businessare up to date with changes and developments in the financialservices environment. The Registrar may declare a business as undesirable. This has severeconsequences for the business.47 Section 34(5) of the Act48 Section 34(6) of the Act130 © INSETA - Section 1 12a

The Registrar will publish an intention to declare first. The FSP maythen respond.Thereafter the Registrar may publish the declaration and the FSPmust stop with the business on or after the date of publication.Failure to stop, rectify or reinstate may result in a fine of R1 millionand/or imprisonment for ten years.Self-Assessment QuestionsPlease note that the questions which follow are formative in nature. Thequestions were not developed by the FSB‟s examination bodies and as suchcannot be used as an indication of the nature/structure/level of the questionsthat you will encounter in the FSB‟s regulatory examination.1. The FAIS Supervision Department is responsible for:a) application formsb) compliance reportsc) submissions on changes in legislationd) complaints handlinge) b) and c)2. The FAIS Registration Department is responsible for:a) compliance reportsb) debarmentsc) upload of the representative registerd) application formse) c) and d)3. When deciding whether a business is an undesirable businesspractice, the Registrar must consider whether the business practicemust have, or is likely to have, a direct or indirect effect resulting in:a) harming the relations between FSPsb) unreasonable prejudice to clientsc) deceiving any clientd) All the above4. When the Registrar informs the FSP to rectify or reinstate loss ordamage, the FSP must do it:a) within 60 days after the direction was issuedb) within 90 days after the direction was issued© INSETA - Section 1 12a 131

c) within 60 days after the business was closedd) immediately5. If the FSP does not adhere to the Registrar's directive regarding anundesirable business practice, a fine of not more than:a) R10 000 000 or imprisonment of not more than ten (10)years, or both may be imposed.b) R1 000 000 or imprisonment of not more than ten (10)years, in the alternative, may be imposed.c) R1 000 000 or imprisonment of not more than ten (10)years, or both may be imposed.d) None of the above132 © INSETA - Section 1 12a

Self-Assessment Answers1. The FAIS Supervision Department is responsible for:a) application formsb) compliance reportsc) submissions on changes in legislationd) complaints handlinge) b) and c)2. The FAIS Registration Department is responsible for:a) compliance reportsb) debarmentsc) upload of the representative registerd) application formse) c) and d)3. When deciding whether a business is an undesirable businesspractice, the Registrar must consider whether the business practicemust have, or is likely to have, a direct or indirect effect resulting in:a) harming the relations between FSPsb) unreasonable prejudice to clientsc) deceiving any clientd) All the above4. When the Registrar informs the FSP to rectify or reinstate loss ordamage, the FSP must do it:a) within 60 days after the direction was issuedb) within 90 days after the direction was issuedc) within 60 days after the business was closedd) immediately5. If the FSP does not adhere to the Registrar's directive regarding anundesirable business practice, a fine of not more than:a) R10 000 000 or imprisonment of not more than ten (10)years, or both may be imposedb) R1 000 000 or imprisonment of not more than ten (10)years, in the alternative, may be imposedc) R1 000 000 or imprisonment of not more than ten (10)years, or both may be imposedd) None of the above© INSETA - Section 1 12a 133

134 © INSETA - Section 1 12a

Chapter8Obligations in the Codes of ConductThis chapter covers the following criteria:KNOWLEDGE CRITERIA:Explain the obligations and requirements when client funds or premiums are received.(Task 8)Explain the importance of disclosures. (Task 8)Discuss the impact and requirements regarding the disclosure rules on the FSP.Discuss the effect of disclosure requirements on commission with reference to line ofbusiness and specific product/policy. (Task 8)Describe the disclosure requirements regarding the FSP, product suppliers, productsuppliers acting as FSPs and financial services. (Task 8)Discuss how to ensure transparency and manage conflict of interests. (Task 8)Describe the concept of ethical conduct in the financial services environment. (Task 8)Explain the steps that must be taken by an FSP/representatives when providing advice.(Task 8)Explain the provisions of the General Code relating to: (Task 8) Complaints; risk management; insurance; advertising and termination. CH 7 S9Explain the importance of contingency planning/processes for the FSP. (Part of Task 13)Explain all processes and procedures required when handling complaints. (Part of Task 13)Explain the requirements regarding advertising and direct marketing in terms of the Act.(Part of Task 13)© INSETA - Section 1 12a 135

PurposeThe FAIS General code prescribes how and what FSPs and other role-playersmust do in order to comply with the FAIS Act. Chapter 8 introduces you tosome of these requirements. You will learn how the FSP must account formoney and funds received from clients and how to ensure adequatedisclosure to clients. The chapter also looks at ethical conduct on the financialservices industry and equips you to ensure that the required steps are takenwhen giving advice to clients.We also discuss transparency, conflict of interest, risk management,contingency planning, insurance and advertising requirements. As a keyindividual you must ensure that the direct marketing principles andrequirements are adhered to as well as the effects of termination ofagreements by clients and services by representatives.8.1 CUSTODY, CLIENT FUNDS AND PREMIUMSThe General Code 49 of the FAIS Act applies to the provision of financialservices and includes the procedures to be followed when an FSP receivesfinancial products, funds or premiums from clients and holds it in custodybefore paying it over into a bank account. These provisions are subject toany other legislation, which may be more prescriptive with regards to thecustody of financial products and funds.The key individual must ensure that there are adequate systems in place toadhere to the prescribed requirements.49 PART VIII, Section 10 of the General Code136 © INSETA - Section 1 12a

The following must be done:Separate bankaccountReceipt of fundsReceipt ofdocumentsSafeguardingThe FSP must have a separate bank account at abank, designated to receive funds and premiumsfrom clients, which is separate from any other funds,except a short term insurer that complies withSection 45 of the Short Term Insurance Act.The FSP is responsible for bank charges except thecharges that relate to deposit or withdrawal - whichthe client must pay 50 .The FSP must pay all interest accumulating in theaccount to the client or owner of the funds. 51When the FSP receives funds from a client, without abank being involved, it must issue a writtenconfirmation when the money is received. 52The money must be paid into the bank account withinone (1) day of receipt. 53When title documents are lodged with an FSP onbehalf of a client, the FSP must issue a writtenconfirmation when the documents are received,indicating description of the documents so that theycan be identified. 54If the FSP or a designated third party receives fundsor financial documents, reasonable steps must betaken to ensure that they are adequately safeguardedand that:– the funds or financial products are dealt withaccording to the client's mandate 55– the funds or financial products are easilydistinguished from the FSPs funds or assets 56– the client has easy access to an amount paidinto the separate account, less all relevantdeductions but subject to other applicablelaws. (For instance, if the funds are proceeds50 Section 10(1)(d)(iii) of the General Code51 Section 10(1)(d)(iv) of the General Code52 Section 10(1)(b) of the General Code53 Section 10(1)(d)(i) of the General Code54 Section 10(1)(a) of the General Code55 Section 10(1)(e)(i) of the General Code56 Section 10(1)(e)(ii) of the General Code© INSETA - Section 1 12a 137

of crime, money-laundering legislation mayprevent the client from accessing it.) 57Money laundering is discussed in Chapter 15.8.2 DISCLOSURE RELATING TO PRODUCT SUPPLIERS, FSPs ANDCOMMISSION8.2.1 Disclosures of product suppliers and FSP informationThe General Code, the Specific Codes for Administrative and DiscretionaryFSPs, as well as the Code of Conduct for FSPs and their representativesinvolved in forex investment business, have specific requirements regardingdisclosures, which must be made to clients.Disclosure is one of the key protection objectives of the FAIS Act. Clientsmust be able to make informed decisions and choices and must thereforereceive all the relevant information.Disclosure must be made on:product informationany commissionpersonal interest; orbenefit the representative may get as a result of the client enteringinto a transaction or buying a product.Disclosure of product supplier informationThe FSP must give clients information on product suppliers as soon aspossible, where appropriate. Oral information must be confirmed in writingwithin 30 days.57 Section 10(1)(e)(iii) of the General Code138 © INSETA - Section 1 12a

• Name, physical location, postal and telephone contact details of theproduct supplier. The contractual relationship between FSP and the product supplier (ifany), and whether the FSP has contractual relationships with otherproduct suppliers.• Names and contact details of the relevant compliance and complaintsdepartments of the product supplier. If applicable, that the FSP holds more than 10% shares or has theequivalent financial interest in the product supplier and that the FSPreceived more than 30% of total remuneration, including commissionin the last 12 months, from the product supplier; A product supplier who is also an FSP and who has an intermediaryor similar contract with another provider, must ensure that whenasked by the other provider, it provides all the required informationabout itself (product supplier) and the product, so that the (other)provider can comply with the disclosure requirements.Disclosure of FSP informationThe FSP must give clients the information below as soon as possible, whereappropriate. Oral information must be confirmed in writing within 30 days.(If a transaction was concluded)• Full business and trade names, registration number (if any), postaland physical addresses, telephone and, where applicable, cellularphone number, and Internet and e-mail addresses, in respect of therelevant business carried on, as well as the names and contact detailsof appropriate contact persons or offices.• information about the legal relationships between FSP, productsupplier and representative (if any); so that it is clear to the clientwho accepts responsibility for the actions of the FSP or representativeor the extent to which the client must accept such responsibility.• names and contact details of the relevant compliance departmentsor, in the case of a representative, such detail concerning theprovider to which the representative is contracted.• information of the financial services which the provider is authorisedto provide and of any conditions or restrictions applicable to thelicence and whether the FSP has guarantees or professionalindemnity or fidelity insurance cover or not.• whether a representative of a provider is rendering services undersupervision as defined in the Determination of Fit and Proper© INSETA - Section 1 12a 139

Requirements.the existence of a specific exemption applicable to the FSP withregard to any matter covered by the Act.Specific disclosure requirements of the Code of conduct for authorised FSPsand their representatives involved in forex investment business 58The name and address of the foreign forex services provider orclearing firm used, if applicable.The name and address of the foreign Regulator regulating the foreignforex services provider or clearing firm, and whether such provider orfirm is approved or registered by such regulator.The name and address of the foreign regulator under whosejurisdiction the dealing activity falls.Whether the foreign forex service provider or clearing firm, whichholds investments on behalf of clients, has insurance cover to coverthe risk of losses due to fraud, dishonesty and negligence by theforeign forex services provider or clearing firm and the extent of suchcover.8.2.2 Disclosures of commissionGeneral commission disclosures 59Clients must be advised of the commission payable in respect of a financialproduct or service in rand value/amounts where possible:The nature, extent and frequency of any incentive, remuneration,consideration, commission, fee or brokerages (“valuableconsideration”), which will or may become payable to the provider,directly or indirectly, by any product supplier or any person otherthan the client.Fees or commissions for which the provider may become eligible, asa result of rendering of the financial service.The identity of the product supplier or other person providing oroffering the valuable consideration.If the maximum amount or rate of the valuable consideration isprescribed by law, the provider may disclose the actual amount in58 Section 3(n)(i) to (iv) of the Forex Code59 (Section 7(1)(c)(vi) & 8(1)(d)((ix) of the General Code140 © INSETA - Section 1 12a

monetary terms or the basis for the calculation must be described ifthe amount is not determinable.Where a financial product is being replaced (the terminated product)by another financial product (the replacement product), full detailsmust be disclosed of any incentive, remuneration, consideration,commission, fee or brokerages received, directly or indirectly, by theprovider on the terminated product and the same by the provider onthe replacement product where the provider rendered financialservices on both the terminated and replacement product.Specific commission disclosure requirements of the Code of Conduct forauthorised FSPs and their representatives involved in forex investmentbusiness and for Administrative and Discretionary FSPsThe forex intermediary must disclose to a client non-cash incentivesoffered or other indirect consideration payable to the forexintermediary because of the intermediating on the client'sinvestments. 60The mandate between a client and a forex investment intermediarymust state whether the forex investment intermediary receivescommission, incentives, fee reductions or rebates from a foreignforex services provider or any other applicable institution for placinga client's funds with them. 61The mandate between a client and a discretionary FSP must statewhether the discretionary FSP receives commission, incentives, feereductions or rebates from an administrative FSP or product supplierfor placing a client‟s funds with them. 628.3 DISCLOSURE OF PRODUCT INFORMATION8.3.1 Disclosures of product suppliers and FSP informationNot only must FSPs ensure that there is adequate disclosure on productsuppliers, FSPs and commission; but there should also be adequatedisclosure with regard to the products being offered to clients. This is toensure that clients get adequate information on financial products.60 Section 3(a)(j) of the Forex Code61 Section 5(1)(h) of the Forex Code62 Section 5(1)(h) of the Discretionary Code© INSETA - Section 1 12a 141

Disclosure must include the following:Any rebate arrangements and thereafter on a regular basis (at leastannually): Provided that where the rebate arrangement is initiallydisclosed in percentage terms, an example using actual monetaryamounts must be given and disclosure in specific monetary termsmust be made at the earliest reasonable opportunity thereafter.Provided further that for the purposes of this subparagraph, „rebate‟means a discount on the administration, management or any otherfee that is passed through to the client, whether by reduced fees, thepurchase of additional investments or direct payment, and that theterm „rebate‟ must be used in the disclosure concerned, to describeany arrangement complying with this definition, and the disclosuremust include an explanation of the arrangement in line with thisdefinition.Any platform fee arrangements, which may be disclosed by informingthe client that a platform fee of up to a stated percentage may bepaid by the product supplier to the administrative financial servicesprovider concerned, rather than disclosing the actual monetaryamount.Provided that, „platform fee‟ means a payment by a product supplierto an administrative financial services provider for the administrationand/or distribution and/or marketing cost savings represented by thedistribution opportunity presented by the administrative platform,and may be structured as a stipulated monetary amount or a volumebased percentage of assets held on the platform, and that the term„platform fee‟ must be used in the disclosure concerned, to describeany arrangement complying with this definition, and the disclosuremust include an explanation of the arrangement in line with thisdefinition.Where the specific structure of the product entails other underlyingfinancial products, disclosure must be made in such a manner thatthe client can determine the net investment amount ultimatelyinvested for the benefit of the client; 63Details of any special terms or conditions, exclusions of liability,waiting periods, loadings, penalties, excesses, restrictions orcircumstances in which benefits will not be provided and details ofguaranteed minimum benefits or other guarantees. 64Is the product readily realisable or the funds accessible and any63 Section 7(1)(c)(iii)(bb)(E) of the General Code64 Section 7(1)(c)(vii) of the General Code142 © INSETA - Section 1 12a

estrictions on or penalties for early termination of or withdrawalfrom the product, or other effects, if any, of such termination orwithdrawal. 65Material tax considerations and whether cooling off rights are offeredand, if so, procedures for the exercise of such rights. 66Any material investment or other risks associated with the productincluding any risk of loss of any capital amount(s) invested due tomarket fluctuations. 67Amounts of insurance premium increases of an insurance product, forthe first five (5) years and thereafter on a five-year (5-year) basisnot more than 20 years. 68Written statement to the client, at least once a year, which identifiesthe products and states the ongoing monetary obligations of theclient, main benefits of the product, value of an investment and howmuch is accessible to the client and ongoing incentives,consideration, commission, fee or brokerage payable to the providerin respect of the product/s (except if the client knows or should haveknown that the provider does not render financial services anymoreor not to the client anymore.); 69Where a financial product is being replaced (the terminated product)by another financial product (the replacement product) held by theclient, disclosure must be made of:– the actual and potential financial implications, costs andconsequences of the replacement – including: 70o comparison of fees and charges between the twoproducts.o special terms and conditions, exclusions of liability,waiting periods, loadings, penalties, excesses,restrictions or circumstances in which benefits will notbe provided, applicable to the replacement productcompared to the terminated product.o to what extent the replacement product is readilyrealisable or the relevant funds accessible, comparedto the terminated product.o loss of rights and minimum guaranteed benefits whichwill be lost due to the replacement.65 Section 7(1)(c)(ix)(x) of the General Code66 Section 7(1)(c)(xi) & (xii) of the General Code67 Section 7(1)(c)(xiii) of the General Code68 Section 7(1)(c)(xiv) of the General Code69 Section 7(4) of the General Code70 Section 8(1)(d) (i)/(ii)/(vii)/(viii) of the General Code© INSETA - Section 1 12a 143

8.4 MANAGING TRANSPARENCY AND CONFLICT OF INTEREST8.4.1 TransparencyTransparency is a direct result of adequate disclosures. Disclosure will ensuretransparency in the relationships between clients and FSPs as well asbetween FSPs, product suppliers and representatives. Transparency startseven before a financial service has been rendered.The information about products, financial services, FSPs and productsuppliers must be transparent in all its formats. Commission and relateddisclosures add to the transparency of the services and products and it formsthe cornerstone for avoiding or disclosing possible conflict of interest. Therequirements for commission disclosures especially, apply to themanagement of conflict of interests.8.4.2 Conflict of interestConflict of interest means a situation where a provider or a representativehas an actual or potential interest that may influence the objective exercisingof obligations to the client or prevent the rendering of financial services in anunbiased and fair manner.It will therefore occur when two (2) or more interests conflict with oneanother and can render the financial service biased or inadequate.This typically presents itself where product sales are linked to incentives,monetary or other lavish rewards (such as overseas trips). The danger is thatthe representative or provider may be influenced by these considerationswithout due care to the client and his needs, to the detriment of the client.The General Code requires the following in respect of conflict of interestmanagement:When a provider(including a the existence of any personal interest inthe relevant service;Representative) renders afinancial service theprovider must disclose to or of any circumstance which gives rise toan actual or potential conflict of interest inrelation to the servicethe client: and the provider must take all reasonablesteps to ensure fair treatment of theclient.144 © INSETA - Section 1 12a

Non-cash incentives offered and/or other indirect consideration payable byanother provider, a product supplier or any other person to the providercould be viewed as a potential conflict of interest. 71The Code of Conduct for FSPs and their Representatives involved in forexinvestment business requires the following in respect of conflict of interestmanagement:avoid any conflict between their own interestsand the interests of a client and where aconflict of interest does arise, the forexA forex investmentintermediary must: 72 investment intermediary must: adequately disclose details of suchconflict to the client while maintainingthe confidentiality of other clients; or decline to act for that clientIn addition to the above, the General Code was amended in 2010 73 to includemore stringent measures relating to managing conflicts of interest.Below are a few more definitions in order to understand the impact of Section3 and 3A.Associate includes:In the case of a Natural person, the spouse (including partner, civil union partner) child (including stepchild, adopted child, out of wedlock child andspouse of child) parent or stepparent of the Natural Person (and spouse of parent) the person managing the affairs of the Natural person (and spouse ofthat person) the commercial partner of the Natural Person.In the case of a Juristic Person, an Associate is:In the event of a Company – any subsidiary or holding company ofthe company, subsidiary of the holding company and other companyof which the holding company is a subsidiary.In the event of a Close Corporation – any member of the CC.71 Sections 3(1)(b) & (c) of the General Code72 Section 3(h)(i)& (ii) of the Forex Code73 Section 3A of Board Notice 58 of 2010© INSETA - Section 1 12a 145

Where the juristic person is neither a Company nor a CloseCorporation, an Associate includes another juristic person whichwould have been a subsidiary or holding company of the JuristicPerson if there was a company.Any person who instructs and/or directs the Board or Governing Bodyof the Juristic Person.Trusts controlled or administered by the person.Financial interest includes Cash, Cash equivalent, Voucher, Gift, Service,Advantage, Benefit, Discount, Domestic/foreign travel, Hospitality,Accommodation, Sponsorship, Other incentive, Valuable consideration (somedefined benefit, such as money or performance, that is promised as part ofan agreement).Financial interest excludes an ownership interest, training (as long as it is notexclusive) on products, legal matters relating to products, general financialand industry information, 3 rd -party systems which you need but excludingtravel and accommodation in relation to the training.Third Party includes product suppliers, another provider, associate of aproduct supplier or provider, distribution channel, anyone who has anagreement with the above to provide financial interest to a provider or itsRepresentatives.Immaterial financial interest is: any financial interest which in Rand value does not exceed R1 000over a calendar year period and which is paid by the same third party, during that year and which is received by a sole proprietor, a Representative for his/herdirect benefit, a provider who for its benefit or for the benefit ofsome/all its Representatives, aggregates the immaterial financialinterest paid to its Representatives.146 © INSETA - Section 1 12a

Financial interestA provider or its representative may only receive or offer the followingfinancial interest:Commission or fees authorised under the Long-term Insurance Act,the Short-term Insurance Act or the Medical Schemes ActOther fees if those fees:– are agreed by client in writing and– may be stopped by client.Fees, remuneration for service to third party if reasonable to serviceAn immaterial financial interest subject to other lawsAnother financial interest for which a fair value was given/paymentmade by that provider or Representative when received.Important notes:The above provisions do not apply to FSPs who are in the same legal entity.This section is effective from 19 October 2010.What can't be done by the provider?A provider may not offer any financial interest to a representative of aprovider for: giving preference to the quantity of business secured for the providerto the exclusion of quality of service rendered to clients. giving preference to a specific product supplier, where arepresentative many recommend more than one product. giving preference to a specific product of a product supplier, where arepresentative may recommend more than one product.Important note:The above provisions are effective from 19 April 2011.The provisions of this section apply to all FSPs and representatives,regardless of whether or not they are part of the same legal entity.What must be disclosed?A provider/rep, must, at the first reasonable opportunity disclose, in writing,to a client any conflict of interest in respect of that client – including:© INSETA - Section 1 12a 147

what measures were taken to avoid/mitigate the conflict.any ownership interest or financial interest, except an immaterialfinancial interest, that the provider or Representative may get.any relationship/arrangement with any third party that may be aconflict, in sufficient detail so that the client can understand therelationship and the conflict.A provider/rep, must, at the first reasonable opportunity inform a client ofthe conflict of interest management policy and how it may be accessed.Conflict of interest management policy1. Every FSP must have, maintain and implement the policy, and itmust:(i) Manage conflicts of interest as well as provide: mechanisms to identify conflict. methods to avoid conflict, or reasons for conflict andhow it is mitigated. methods to disclose conflict. processes etc. to ensure compliance with the policyand consequences for non-compliance.(ii) Specify the „type and basis‟ on which a Representative willqualify for a financial interest offered and that it is notprohibited.(iii) Include a list of all associates, names of 3 rd parties who havean ownership interest in the FSP (and vice versa) as well asinclude details regarding the nature and extent of theownership interest.(iv) The Policy must be easy to understand.2. The policy must be adopted by the Board.3. Employees, Representatives and associates must be aware of policywith training and educational material.4. Providers must monitor compliance with requirements pertaining toconflicts of interest and review the policy annually.5. The policy must be published in appropriate media and be easilyaccessible.The Compliance report must include a report on the policy, including detailspertaining to implementation of the policy, monitoring compliance with thepolicy and accessibility of the policy.148 © INSETA - Section 1 12a

An FSP or representative may not avoid, limit or circumvent or attempt toavoid, limit or circumvent compliance through an associate or anarrangement involving an associate.A financial service must be rendered in accordance with thecontractual relationship and reasonable requests or instructions ofthe client, which must be executed as soon as reasonably possibleand with due regard to the interests of the client which must beaccorded appropriate priority over any interests of the provider or arepresentative.Transactions of a client must be accurately accounted for.The FSP involved must not deal in any financial product for own benefit,account or interest where the dealing is based upon advance knowledge ofpending transactions for or with clients, or on any non-public information thedisclosure of which would be expected to affect the prices of such product.These requirements include the following:A provider may not offer any financial interest to a representative ofthat provider for:(i) giving preference to the quantity of business secured for theprovider to the exclusion of the quality of the servicerendered to clients; or(ii) giving preference to a specific product supplier, where arepresentative may recommend more than one productsupplier to a client; or(iii) giving preference to a specific product of a product supplier,where a representative may recommend more than oneproduct of that product supplier to a client.Every provider, other than a representative, must adopt, maintainand implement a conflict of interest management policy that complieswith the provisions of the Act.A conflict of interest management policy must be adopted by the soleproprietor of a provider, the board of directors of a provider or, in thecase where a provider is not a company, the governing body of theprovider.A provider must ensure that its employees, representatives and,where appropriate, associates are aware of the contents of its conflictof interest management policy and provide for appropriate trainingand educational material in this regard.© INSETA - Section 1 12a 149

A provider must continuously monitor compliance with its conflict ofinterest management policy and annually conduct a review of thepolicy.A provider must publish its conflict of interest management policy inappropriate media and ensure that it is easily accessible for publicinspection at all reasonable times.A provider or representative may not avoid, limit or circumvent orattempt to avoid, limit or circumvent compliance with this sectionthrough an associate or an arrangement involving an associate.8.5 ETHICAL CONDUCT IN THE FINANCIAL SERVICES INDUSTRYEthics is the study of morality, or right and wrong behaviour. Businessesoften compile their own Codes of Ethics, which serve both as a „compass‟ forstaff and a declaration to clients, stakeholders and the public.It is often said that countries have different approaches to business ethics.One of the reasons is found in the cultural differences between countries andeven between cultural groups within a country. What is regarded as ethical inSouth Africa may be unacceptable in China. Therefore one cannot rely oncultural issues to define business ethics; the focus should rather be on thehuman moral understanding and application that transcend international andcorporate boundaries.“When ethics is applied to business we consider the implications of economicactivity on the interests of all who are part of such activity.” 74Ethical conduct in the financial services industry includes the following – butis definitely not limited to: Disclosure and transparency by FSPs when applying for licences andconducting business thereafter. Disclosure, honesty and integrity of representatives, key individualsand FSPs. Internal measures in an FSP – such as conflict of interest policy, codeof ethics. Interaction between product suppliers and FSPs should betransparent and based on mutual understanding and applications ofethical conduct.74http://www.skillsportal.co.za/contributors/dessquire/090805-business-ethics-honestycode-conduct.htmviewed on 11 October 2009150 © INSETA - Section 1 12a

Clearly defined rules, such as the FAIS Codes, which provideguidance and instructions towards ethical business conduct.Transparency and disclosure between clients and their financialadvisers.Record-keeping, as required in the FAIS Act, also contributes towardsethical conduct.An example of unethical conduct is Insider Trading.Each individual should develop and maintain an ethical compass, whichclearly defines between right and wrong behaviour, and collectively ourcompasses should be able to guard us against unethical conduct.8.6 STEPS TO BE TAKEN BY A REPRESENTATIVE WHEN GIVINGADVICE TO A CLIENTWe discussed the concept of „financial service‟ in Chapter 1.5 above. Toprovide a financial service means that a representative gives advice orprovides an intermediary service or both.The General Code prescribes the steps to be followed and the action to betaken when representatives give advice to clients.Key individuals must ensure that these requirements are met and thatrepresentatives are aware of and following these principles.The two (2) main requirements of giving advice is establishing suitability andkeeping a record of advice.We look at Suitability first.8.6.1 SuitabilityA provider other than a direct marketer, must, before providing a client withadvice do the following: 751. Take reasonable steps to get information from the client on hisfinancial situation, experience and objectives and do an analysis forthe purpose of the advice, based on information obtained.75 Section 8(1)(a) to (c) of the General Code© INSETA - Section 1 12a 151

2. Identify the financial product or products that will be appropriate tothe client‟s risk profile and financial needs, subject to the limitationsimposed on the provider under the Act or any contractualarrangement. If there is a replacement of a financial product, fulldisclosures of that fact must be given. Where a financial product isbeing replaced (the terminated product) by another financial product(the replacement product) held by the client, disclosure must bemade of the actual and potential financial implications, costs andconsequences of the replacement – including: 76 comparison of fees and charges between the two products; special terms and conditions, exclusions of liability, waitingperiods, loadings, penalties, excesses, restrictions orcircumstances in which benefits will not be provided,applicable to the replacement product compared to theterminated product; to what extent the replacement product is readily realisableor the relevant funds accessible, compared to the terminatedproduct; loss of rights and minimum guaranteed benefitswhich will be lost due to the replacement.If a client did not provide the information required in Step 1 above, or theprovider did not do an analysis because there was not enough time, theprovider must inform the client that it was not done and must make sure theclient understands: 77a full analysis in respect of the client was not done.there may be limitations on the appropriateness of the adviceprovided.the client should take particular care to consider on his own whetherthe advice is appropriate considering the client‟s objectives, financialsituation and particular needs.If a client elects to conclude a transaction that differs from thatrecommended by the provider, or elects not to follow the advice furnished, orelects to receive more limited information or advice than the provider is ableto provide: 7876 Section 8(1)(d) (i)/(ii)/(vii)/(viii) of the General Code77 Section 8(4) of the General Code78 Section 8(4)(b) of the General Code152 © INSETA - Section 1 12a

the provider must alert the client as soon as reasonably possible ofthe clear existence of any risk to the client; andmust advise the client to take care to consider if any product selectedis appropriate to the client‟s needs, etc.8.6.2 Recording the adviceA provider must, subject to and in addition to the duties to keep records,maintain a record of the advice furnished to a client, including thefollowing: 791. A brief summary of the information and material on which the advicewas based.2. The financial products that were considered.3. The financial product or products recommended with an explanationof why the product or products selected, is or are likely to satisfy theclient‟s identified needs and objectives.4. Where the financial product or products recommended is areplacement product, the following must be recorded: 80 Comparison of fees, charges, special terms and conditions,exclusions of liability, waiting periods, loadings, penalties,excesses, restrictions or circumstances in which benefits willnot be provided, between the terminated product and thereplacement product; and the reasons the replacement product was considered to bemore suitable to the client's needs than keeping or modifyingthe terminated product.5. The record of advice needs only be maintained if, as far as theprovider knows, a transaction or contract is concluded by the clientas a result of the advice given. 816. A provider, except a direct marketer, must give the client a copy ofthe record of advice in writing. 828.6.3 Recording the advice for forex investment businessA forex investment adviser must, subject to and in addition to the duties tokeep records, maintain a record of the advice furnished to a client, including:79 Sections 9(1)(a) to (c) of the General Code80 Section 9(1)(d) of the General Code81 ibid82 Section 9(2) of the General Code© INSETA - Section 1 12a 153

1. A brief summary of the information and material on which the advicewas based.2. The financial product that was considered.3. A description of the particular forex investment that wasrecommended and an explanation of why a forex investment is likelyto satisfy the client's identified needs and objectives.4. A forex investment adviser must maintain records recording theinvestments owned by each client individually.5. The agreement between the forex investment adviser and any forexinvestment intermediary must provide for providing a written report.8.7 COMPLAINTS HANDLINGThe General Code prescribes the requirements for complaints handling.GENERAL OBLIGATIONS OF FSP 83 request clients who want to complain to do so inwriting and attach relevant documentation; maintain records of complaints for five (5) years; handle complaints from clients in a timely and fairmanner;A FSP MUST take steps to investigate and respond promptly tocomplaints; and where such a complaint is not resolved to theclient‟s satisfaction, advise the client of any furthersteps which may be available to the client in termsof the Act or any other law.SPECIFIC OBLIGATIONS OF FSP The internal complaint resolution system and procedures of an FSPmust include the following: 84 Written version of the complaints resolution system andprocedures plus all updates to it. Access to the procedures by clients at branches, through electronicmedia and announcements that it is available through publicmedia or communication to existing clients.83 Section 16(2) of the General Code84 Section 19(1) and 19(2) of the General Code154 © INSETA - Section 1 12a

Include the following in the written complaints policy:– Duties of the FSP and rights of clients;– Clear summary of the provisions of the Act which will applywhenever the client, after dismissal of a complaint by theprovider, wishes to pursue further proceedings before theOmbud;– Name, address and contact details of the Ombud forFinancial Services Providers (FAIS Ombud). We discuss therole and power of the Ombud for Financial ServicesProviders (FAIS Ombud) in Chapter 16.Acknowledge complaints received in writing, with communicationdetails of contact staff and record complaints internally.After receipt and recording, the complaint must be forwarded tothe relevant staff and provision must be made that:– the complaint receives proper consideration.– appropriate management controls are available to exerciseeffective control and supervision of the considerationprocess.– the client is informed of the results of the considerationwithin the required time: Provided that if the outcome isnot favourable to the client, full written reasons must befurnished to the client within the required time, and theclient must be advised that the complaint may within six(6) months be pursued with the Ombud whose name,address and other contact particulars must simultaneouslybe provided to the client.Where a complaint is resolved in favour of a client, the providermust ensure that a full and appropriate level of redress is offered tothe client without any delay.8.8 OTHER PROVISIONS OF THE GENERAL CODE8.8.1 Risk managementThe risk management principles are generally the same across the financialservices industry. The FAIS General Code addresses the concept of riskmanagement in general terms 85 , not prescribing specific requirements, butensuring that the FSP takes notice and ensures that the general requirements85 Sections 11 and 12 of the General Code© INSETA - Section 1 12a 155

are addressed in the business-specific risk management models with specificreference to operational risk management.FSPs should ensure that they use resources, procedures and appropriatetechnological systems, that can be expected to reasonably eliminate the riskof clients, other providers and representatives suffering financial lossthrough: 86theftfraudother dishonest actspoor administrationnegligenceprofessional misconduct; orblameworthy oversights.The specific control objectives include that the internal control procedures ofa business must be structured to provide assurance that: 87the relevant business can be carried on in an orderly and efficientmannerfinancial and other information used or provided by the provider willbe reliable; andall applicable laws are complied with.8.8.2 Contingency planningOne of the questions in the compliance report 88 (which we discuss later whenlooking at the role of compliance officers) relates specifically to the existenceof business continuity planning in order to ensure that clients will be servicedif the business is terminated for any reason.The FSB feels strongly about the fact that FSPs must have adequatecontingency measures in place, especially where the FSP is a sole proprietor.This topic was discussed in the July 2008 edition of the FSB FAIS newsletter.The insert reads as follows:86 Section 11 of the General Code87 Section 12 of the General Code88 Question 8.9.2156 © INSETA - Section 1 12a

"One of the areas of concern is the business approach and businesscontinuity plans of „small‟ FSPs. 29% of FSPs visited operate and areregistered as sole proprietors. During the visits to these FSPs, it becameevident that the majority of sole proprietors have not made plans for theirown retirement/future of the business. This poses a real threat to therelevant FSP and the FSB. The above is also true for other „small‟ FSPs suchas close corporations, but they will be able to sell the business, or appointother people on their behalf should they wish to.It is important to take note of the following in case of the passing away orany other limiting factor of a key individual:a) Sole proprietorsThe sole proprietorship is attached to the key individual. If the key individualpasses away or any situation occurs that will lead to the key individual notbeing able to perform his/her duties in terms of the FAIS Act, the licence willbe lapsed and the business will cease to exist. The FSB needs to be informedof the above situation or of the passing away of the key individual. Thelicence cannot be transferred to another person. The license can thereforenot be inherited by anyone. The sole proprietor can make an arrangementwith another FSP to take over his client book in the case of the abovecircumstances occurring and clients must be notified of this transfer.b) Close corporations and companiesA close corporation is a legal entity. The business is therefore not attached tothe key individual. In a close corporation with more than one key individualthe passing away or occurrence of any situation that will lead to the keyindividual not being able to perform his/her duties in terms of the FAIS Actwill not have any effect on the status of the FSP. Where the close corporationonly has one key individual and one of the above circumstances occurs thebusiness will continue to exist. For this business to continue as an authorisedFSP, a new key individual will have to be appointed and authorised as suchby the FSB. It is important to take note that the FSP is not allowed toperform any regulated function until such time as the new key individual isapproved by the FSB. The same principle applies to companies."© INSETA - Section 1 12a 157

8.8.3 Insurance 89One of the risks for consumers in the provision of financial services in relationto the FAIS defined financial products is the recourse they have when the FSPfails in one way or another.Will they get their investment money back if there was product or institutionfailure? The General Code 90 states that the Registrar may require providers tohave suitable guarantees, professional indemnity or fidelity insurance coverin place. The General Code was amended in September 2009 to require (forproviders excluding representatives) specific cover for professional indemnityand fidelity insurance.New FSPs (authorised after 21 September 2009) must comply with theinsurance requirements within six (6) weeks of authorisation.The following is a summary of the insurance cover requirements, effectivefrom 21 September 2009.WHO? BY WHEN? WHAT?Category I or IV provider 91who does not receive orBY21 SEPTEMBERhave in force, in respect ofthe clients:hold clients‟ financial 2010 suitable guarantees of aproducts or funds onminimum R1 million ORbehalf of clients on 21 suitable professionalSeptember 2009 MUSTindemnity cover of aminimum of R1 million.Category I or IV provider 92who does receive or holdBY21 SEPTEMBERhave in force, in respect ofthe clients:clients‟ financial products 2010 suitable guarantees of aor funds on behalf ofminimum R1 million ORclients on 21 September suitable professional2009 MUSTindemnity and fidelityinsurance cover of aminimum amount of R1million.89 Section 13 of the General Code90 Section 13 of the General Code91 Section 3(a) of BN 123 of 200992 Section 3(b) of BN 123 of 2009158 © INSETA - Section 1 12a

WHO? BY WHEN? WHAT?Category II provider 93who does not receive orBY21 MARCH 2010hold clients' financialproducts or funds onbehalf of clients on 21September 2009 MUSTCategory II provider 94 BYwho does receive or hold 21 MARCH 2010clients' financial productsor funds on behalf ofclients on 21 September2009 MUSTCategory IIA provider 95 By 21 MARCHwho does not receive or 2010hold clients' financialproducts or funds onbehalf of clients on 21September 2009 MUSTCategory IIA provider 96 BY 21 MARCHwho does receive or hold 2010clients' financial productsor funds on behalf ofclients on 21 September2009 MUSThave in force, in respect ofthe clients: suitable guarantees of aminimum R1 million suitable professionalindemnity cover of aminimum of R1 million.have in force, in respect ofthe clients: suitable guarantees of aminimum R5 million OR suitable professionalindemnity and fidelityinsurance cover of aminimum amount of R5million RESPECTIVELY.have in force, in respect ofthe clients: suitable guarantees of aminimum amount of R5million OR suitable professionalindemnity cover of aminimum of R5 million.have in force, in respect ofthe clients: suitable guarantees of aminimum R5 million OR suitable professionalindemnity and fidelityinsurance cover of aminimum amount of R5million RESPECTIVELY.93 Section 3(d) of BN 123 of 200994 Section 3(e) of BN 123 of 200995 Section 3(f) of BN 123 of 200996 Section 3(g) of BN 123 of 2009© INSETA - Section 1 12a 159

WHO? BY WHEN? WHAT?Category III provider 97 BY 21 MARCH have in force, in respect ofwho receives or holds 2010the clients:clients' financial products suitable guarantees of aor funds on behalf ofminimum amount of R5clients on 21 Septembermillion OR2009 MUST professional indemnity andfidelity insurance cover ofa minimum of R5 million,RESPECTIVELY.8.8.4 AdvertisingThe General Code requires that FSPs or representatives must adhere tocertain advertising principles 98 . These principles are discussed below.Advertisements must not contain any statement, promise or forecast which isfraudulent, untrue or misleading. 99Advertisements Performance Data, must include references to theirwhich includesource and date.Advertisements Illustrations, forecasts or hypothetical data must:which include show support through clearly-stated basicassumptions with a reasonable prospect ofbeing met under current circumstances. make it clear that they are not guaranteed andare provided for illustrative purposes only. show dependence on performance of underlyingassets or variable market forces, whereapplicable.Advertisementswhich includeA warning statement about risks involved in buying orselling a financial product, must clearly be identifiedas a warning statement;Advertisementswhich includeInformation about past performance must also have awarning that past performances are not necessarilyindicative of future performances.If the investment value of a financial product mentioned in the advertisementis not guaranteed, there must be a warning that no guarantees are provided.97 Section 3(h) of BN 123 of 200998 Section 14 of the Code99 Section 14(1)(a) to (c) of the General Code160 © INSETA - Section 1 12a

Where a provider advertises a financial service by telephone 100An electronic, voice-logged record of all communications must bemaintained.If no financial service is rendered as a result of the advertisement,the record need not be kept for longer than 45 days. A copy of all theelectronic records must be provided on request by the client or theRegistrar within seven (7) days of the request.If the basic details of the product supplier/provider are mentioned inthe telephone conversation, then detailed disclosures of the name,physical location, postal and telephone details of product suppliers,conditions or restrictions and full business details of providers as wellas information on providers‟ compliance departments, as discussedabove are not required. However, if the promotion results in therendering of a financial service, the full details required by the Codeare provided to the client in writing within 30 days of the relevantinteraction with the client.Where a provider advertises a financial service by means of a publicradio service, the advertisement must include the business name ofthe provider as well as the fact that the provider is anauthorised/licensed FSP, where applicable. 1018.8.5 Direct marketingThe General Code requires that direct marketers adhere to certain advertisingprinciples 102 .Providing financial service 103When a direct marketer provides a financial service to or on behalf of a client,it must provide the client with the following information at the firstreasonable opportunity:The business or trade name of the direct marketer (if the directmarketer is a representative, the information must be about the FSPwho the marketer acts for).Confirmation if the direct marketer is an authorised FSP including thelicence categories and applicable restrictions (if the direct marketer is100 Section 14(2) of the General Code101 Section 14(3) of the General Code102 Section 15 of the Code103 Section 15 (1) (a) to (e) of the General Code© INSETA - Section 1 12a 161

a representative, the information must be about the FSP who themarketer acts for).Telephone contact details of direct marketer (unless the contact wasinitiated by the client) - if the direct marketer is a representative, theinformation must be about the FSP who the marketer acts for.Telephone contact details of the Compliance Department of the directmarketer.Whether the direct marketer holds professional and indemnityinsurance.Providing advice 104When a direct marketer provides advice to clients in respect of a product, itmust at the first reasonable opportunity:make enquiries to establish whether the financial product or productsconcerned will be appropriate, in relation to the client's risk profileand financial needs, and circumstances;and provide the following information to the client where appropriate:(i) business or trade name of the product supplier;(ii) legal status and relationship with product supplier;(iii) the following information on the product:a) Name, class or type of financial product concerned;b) Nature and extent of benefits to be provided;c) Manner in which the benefits are calculated,specifically the manner in which the value ofunderlying assets in the investment is determined;d) Client's monetary obligations and the manner ofpayment;e) Existence of cooling rights and the procedures toexercise the rights;f) Any material investment or other risks associatedwith the product.Take reasonable steps to find out if the financial product underdiscussion is a wholly or partial replacement for an existing productand advise client of the costs and financial implications, beforefinalisation (refer to the discussion around disclosure on replacementproducts above).104 Section 15 (2) (a) to (c) of the General Code as amended by BN 43 of 2008162 © INSETA - Section 1 12a

Before concluding the transaction 105Before concluding the transaction, and if a contract is concluded, the directmarketer must provide the client with certain information. If the informationwas provided orally, it must be confirmed within 30 days.The following information must be provided:1. Telephone contact details of the compliance department of theproduct supplier.2. To what extent the product is readily realisable or the fundsconcerned are accessible, where appropriate.3. Details of manner in which benefits will be paid.4. Any restrictions on or penalties for early termination or withdrawalfrom the product, or other effects, if any, of the termination orwithdrawal.5. Charges and fees to be levied against the product including theamount and frequency thereof and where the product has aninvestment component, the net investment amount ultimatelyinvested for the benefit of the client.6. Commission, consideration, fees, charges or brokerages payable tothe direct marketer by the client, or by the product supplier or by anyother person.7. On request, the past investment performance of the product, whereapplicable, over periods and at intervals which are reasonable withregard to the type of product involved.8. Consequences of non-compliance with monetary obligations assumedby the client and any anticipated or contractual escalations, increasesor additions.9. In the case of an insurance product in respect of which provision ismade for increase of premiums, abbreviated disclosures of suchcontractual increases.10. Concise details of any special terms and conditions, exclusions,waiting periods, loadings, penalties, excesses, restrictions orcircumstances in which benefits will not be provided.11. Any guaranteed minimum benefits or other guarantees whereappropriate.12. That recordings of telephone discussions (where applicable) will bemade available to the client on request.105 Section 15 (3) (a) to (l) of the General Code© INSETA - Section 1 12a 163

Record of advice 106A direct marketer must give the client a record of advice (where appropriate).Recording of callsA direct marketer must record all telephone conversations with clients in thecourse of direct marketing and must have appropriate procedures andsystems in place to store and retrieve such recordings. Records of advicegiven telephonically need not be put in writing, but a copy of the voiceloggedrecords must be provided to the client or Registrar within 30 days, ifthey request it.Provide information 107A direct marketer must ensure that information regarding the productsupplier, the FSP and the record of advice which had not yet been given tothe client before the transaction was concluded, must be provided to theclient in writing, within 30 days after the transaction was concluded.8.9 TERMINATIONThe General Code 108 addresses the requirements when clients want toterminate contractual agreements as well as when the FSP or representativeterminate their business operations and or services.8.9.1 Client wants to terminate agreementSubject to the record-keeping obligations of the General Code and alsomindful of any contractual obligations, a provider must, with immediateeffect, allow a request from a client for voluntary termination of anagreement with a provider or in relation to a financial service.The provider must take reasonable steps to ensure that the clientunderstands the implications of the request for termination.106 Section 15 (4) of the General Code as amended by BN 43 of 2008107 Section 15 (6) (a) to (c) of the General Code108 Section 20 of the General Code164 © INSETA - Section 1 12a

8.9.2 Provider terminates businessA provider (other than a representative) who stops operating as such, mustnotify all affected clients immediately.The provider must also, if appropriate, take reasonable steps, in consultationwith clients and product suppliers, to ensure that any outstanding business iscompleted promptly or transferred to another provider.8.9.3 Representative stops to operate as suchWhere a representative stops acting as representative for an FSP, theprovider must take reasonable steps, in consultation with clients and productsuppliers (as required), to notify all affected clients and ensure that anyoutstanding business is completed promptly or transferred to anotherprovider.Waiver of rightsSection 21 of the General Code prohibits a provider from inducing orrequesting a client to waive any of the rights or benefits which the GeneralCode provides.This also includes that even if a client waives such a right or benefit, the FSPis not allowed to recognise, accept or act on such a waiver.Any waiver of rights or benefits (under the General Code) is null and void.SummaryThe General Code prescribes the manner in which client funds mustbe held in custody, which includes a separate bank account, writtenconfirmation of money received and documents received, as well asadequate safeguarding of funds and documents.Adequate disclosures form the cornerstone of financial service.Disclosure of information relating to the product supplier, the FSP,commission, and product information must be done in the prescribedmanner.Transparency is a direct result of adequate disclosure.Conflict of interest must be managed carefully and there must bedisclosure of any real or potential conflict of interest, which may© INSETA - Section 1 12a 165

influence the objective exercising of obligations to the client orprevent the rendering of financial services in an unbiased and fairmanner.Ethical conduct in the financial services industry begins with theindividual taking responsibility for his actions and following therequirements for complying with the legislations.There are certain steps to be taken when giving advice to clients.These steps include:– establishing the suitability of products and services; and– recording the advice given.Although risk management is undefined in the General Code, itincludes elimination of risk to clients through theft, fraud, otherdishonest acts, poor administration, negligence, professionalmisconduct or blameworthy oversights.Contingency planning is required in order to ensure that clients willbe serviced if the business is terminated for any reason.FSPs must meet certain insurance requirements.The General Code prescribes the principles applicable to advertisingand this includes adequate warnings about products in certaincircumstances.Direct marketing is prevalent in the SA financial services industry andit is important that there are adequate measures to ensure thatclients get all the information they need, to make informed decisions.The General Code requires that direct marketers adhere to certainadvertising principles. The gist of these principles is to ensure thatthere is adequate disclosure to clients and prospective clients.Disclosure includes the steps to be taken when a direct marketerprovides advice for or on behalf of someone else, product informationand information about the product supplier.The manner in which complaints must be handled is prescribed in theGeneral Code and there is an onus on the FSP to ensure that theinternal complaints resolution processes include:– a written complaints policy, accessible to clients;– acknowledgement of complaints;– appropriate redress and investigation.Clients have certain rights to terminate agreements with FSPs.FSPs must ensure that there are adequate steps taken whenrepresentatives terminate their arrangements with the FSPs, in orderto protect clients.166 © INSETA - Section 1 12a

Self-Assessment QuestionsPlease note that the questions which follow are formative in nature. Thequestions were not developed by the FSB‟s examination bodies and as suchcannot be used as an indication of the nature/structure/level of the questionsthat you will encounter in the FSB‟s regulatory examination.1. Which of the following requirements are NOT applicable to Custody ofClient Funds and Premiums?a) The bank account must be designated to receive funds andpremiums from clientsb) The account may contain other funds of the FSPc) The FSP is responsible for bank charges except deposit orwithdrawal chargesd) The FSP must have a separate bank account at a bank2. Which of the following disclosure requirements must be adhered to?a) A representative need not disclose that he is renderingservices under supervisionb) Representatives need not disclose detail about the legalrelationships between the FSP, product supplier andrepresentativec) There must be adequate disclosures on the product supplierThe disclosure must include the name, physical location,postal and telephone contact details of the product supplierd) All the above3. Which of the following requirements are NOT applicable when an FSPreceives money from a client without a bank being involved?a) The FSP must pay the money into the bank account within amonth of receiptb) The FSP must pay the money into the bank account withinone (1) day of receiptc) The FSP must issue a written confirmation when the money isreceivedd) None of the above© INSETA - Section 1 12a 167

4. What needs to be disclosed to clients in terms of commissionsreceived by representatives?a) Any fees or commission that the provider may earn as aresult of the rendering of the financial service, must bedisclosedb) Where the maximum commission amount or rate isprescribed by law, it must state that the amount is notdeterminablec) The forex intermediary must disclose to a client only cashrelatedincentives offered or other indirect considerationpayable to the forex intermediary because of theintermediating on the client's investmentsd) Remuneration, also known as valuable consideration, which ispayable to a provider must be disclosed but not the identityof the product supplier who is paying it5. Where a financial product is being replaced by another financialproduct held by the client:a) only disclosure of the potential financial implications must bemadeb) only disclosure of the actual financial implications must bemadec) only disclosure of the costs and consequences of thereplacement must be maded) Disclosures must be made of the actual and potentialfinancial implications6. The General Code states that:a) where a provider advertises a financial service by means of apublic radio service, the advertisement need not include areference to the fact that the provider is an authorised orlicensed FSPb) the FSP should ensure that they use resources, proceduresand appropriate technological systems that can be expectedto reasonably eliminate the risk of clients, other providersand representatives suffering financial loss through theft,fraud, other dishonest acts, poor administration, negligence,professional misconduct or blameworthy oversightsc) the FAIS registrar may not prescribe the guarantee orprofessional indemnity amounts that providers need to havein placed) All the above168 © INSETA - Section 1 12a

7. When a provider (including a representative) renders a financialservice, the provider must disclose to the client:a) the existence of any circumstance which gives rise to anactual or potential conflict of interest in relation to the serviceb) his experience and qualificationsc) the existence of any personal interest in the relevant serviced) a) and c)8. The two main requirements of giving advice are:a) ensuring the client trusts you.b) establishing suitabilityc) keeping a record of adviced) b) and c)9. The advertising principles in the General Code include the following:a) Performance Data must include references to their sourceand dateb) Illustrations, forecasts or hypothetical data must showdependence on performance of underlying assets or variablemarket forces, where applicablec) A warning statement about risks involved in buying or sellinga financial product, must clearly be identified as a warningstatementd) All of the above10. When a client wants to terminate an agreement, a provider:a) may, after referring it to the compliance officer, allow arequest from a client for voluntary termination of anagreementb) must request reasons from a client for voluntary terminationof an agreementc) must, with immediate effect, allow a request from a client forvoluntary termination of an agreementd) is under no obligation to consider such a request© INSETA - Section 1 12a 169

Self-Assessment Answers1. Which of the following requirements are NOT applicable to Custody ofClient Funds and Premiums?a) The bank account must be designated to receive funds andpremiums from clientsb) The account may contain other funds of the FSPc) The FSP is responsible for bank charges except deposit orwithdrawal chargesd) The FSP must have a separate bank account at a bank2. Which of the following disclosure requirements must be adhered to?a) A representative need not disclose that he is renderingservices under supervisionb) Representatives need not disclose detail about the legalrelationships between the FSP, product supplier andrepresentativec) There must be adequate disclosures on the product supplier.The disclosure must include the name, physical location,postal and telephone contact details of the product supplierd) All the above3. Which of the following requirements are NOT applicable when an FSPreceives money from a client without a bank being involved?a) The FSP must pay the money into the bank account within amonth of receiptb) The FSP must pay the money into the bank account withinone (1) day of receiptc) The FSP must issue a written confirmation when the money isreceivedd) None of the above4. What needs to be disclosed to clients in terms of commissionsreceived by representatives?a) Any fees or commission that the provider may earn as aresult of the rendering of the financial service must bedisclosedb) Where the maximum commission amount or rate isprescribed by law, it must state that the amount is notdeterminable170 © INSETA - Section 1 12a

c) The forex intermediary must disclose to a client only cashrelatedincentives offered or other indirect considerationpayable to the forex intermediary because of theintermediating on the client's investmentsd) Remuneration, also known as valuable consideration, which ispayable to a provider must be disclosed but not the identityof the product supplier who is paying it5. Where a financial product is being replaced by another financialproduct held by the clienta) only disclosure of the potential financial implications must bemadeb) only disclosure of the actual financial implications must bemadec) only disclosure of the costs and consequences of thereplacement must be maded) Disclosure must be made of the actual and potential financialimplications6. The General Code states that:a) where a provider advertises a financial service by means of apublic radio service, the advertisement need not include areference to the fact that the provider is an authorised orlicensed FSPb) the FSP should ensure that they use resources, proceduresand appropriate technological systems that can be expectedto reasonably eliminate the risk of clients, other providersand representatives suffering financial loss through theft,fraud, other dishonest acts, poor administration, negligence,professional misconduct or blameworthy oversightsc) the FAIS registrar may not prescribe the guarantee orprofessional indemnity amounts that providers need to havein placed) All the above7. When a provider (including a representative) renders a financialservice, the provider must disclose to the client:a) the existence of any circumstance which gives rise to anactual or potential conflict of interest in relation to the serviceb) his experience and qualificationsc) the existence of any personal interest in the relevant serviced) a) and c)© INSETA - Section 1 12a 171

8. The two main requirements of giving advice are:a) ensuring the client trusts youb) establishing suitabilityc) keeping a record of adviced) b) and c)9. The advertising principles in the General Code include the following:a) Performance Data must include references to their sourceand dateb) Illustrations, forecasts or hypothetical data must showdependence on performance of underlying assets or variablemarket forces, where applicablec) A warning statement about risks involved in buying or sellinga financial product, must clearly be identified as a warningstatementd) All of the above10. When a client wants to terminate an agreement, a provider:a) may, after referring it to the compliance officer, allow arequest from a client for voluntary termination of anagreementb) must, request reasons from a client for voluntary terminationof an agreementc) must, with immediate effect, allow a request from a client forvoluntary termination of an agreementd) a provider is under no obligation to consider such a request172 © INSETA - Section 1 12a

Chapter9Oversee and manage the compliancefunctionThis chapter covers the following criteria:KNOWLEDGE CRITERIA:Explain the requirements for approval of a compliance officer by the Registrar. (Task 9)Describe the role and function of a compliance officer. (Task 9)Explain why it is important for the compliance officer to be/act independent from themanagement of the FSP. (Task 9)Explain what internal audit and control functions are required to enable the CO to functionin a manner ensuring that no actual or potential conflicts of interests arise as regards theduties and functions of other employees. (Task 9)Demonstrate understanding of the content of the compliance report in order to be able tosign it off. (Task 9)Explain what the compliance function requirements are within the FSP. (Task 9)© INSETA - Section 1 12a 173

PurposeThis chapter introduces you to the compliance function. As a key individualyou need to ensure that the compliance function is adequately resourced andequipped to meet the legislative requirements.You will get an understanding of the approval process of compliance officersas well as the role and functions of compliance officers. You will have to signoff the compliance report, so it is important to understand the basicrequirements of the function and obligations.9.1 APPROVAL OF COMPLIANCE OFFICERSOne of the role players in the FAIS Act is the compliance officer. An FSP mustappoint a compliance officer to fulfil the functions required by the FAIS Act 109 .Key individuals must oversee and manage the compliance functions althoughthe compliance officer must be objective and must act independently fromthe management of an FSP. (We discuss this in more detail further on in thischapter.)The FAIS Act 110 requires the following in respect of compliance officers andcompliance arrangements:1. An FSP with more than one key individual or one or morerepresentatives must appoint a compliance officer to monitorcompliance with the Act (subject to any FAIS Regulations). 1112. Compliance officers must be approved by the Registrar 112 ;3. The FSP must establish and maintain procedures for compliance withthe Act; and 1134. Compliance officers or FSPs must submit compliance reports to theRegistrar. 114109 Section 17 of the FAIS Act110 Ibid111 Section 17(1)(a) of the Act112 Chapter IV of the Financial Advisory and Intermediary Services Regulations, 2003,Section 17(2)(a) of the Act113 Section 17(3) of the Act114 Section 17(4) of the Act174 © INSETA - Section 1 12a

As with key individuals, the FSP appoints compliance officers and theRegistrar approves the appointments. One of the functions of the keyindividual is to ensure that a compliance officer is approved by the Registrarin terms of the specific FSP licence/s.9.1.1 Requirements for the approval of compliance officers:Board Notice 127: New approval processOne of the functions of the Key Individual is to ensure that a complianceofficer is approved by the Registrar in terms of the specific FSP licence/s.On 9 September 2010, the FSB published various amendments to regulationspertaining to compliance officers.Some of the material changes relate to the approval of compliance officers.Compliance officers are now approved in two phases.Board Notice 127 of 2010 sets out the qualifications, experience and criteriafor approval of compliance officers.„Phase I approval‟ pertains to approval by the Registrar of anapplicant‟s qualifications, experience and personal character qualitiesof honesty and integrity.„Phase II approval‟ pertains to the approval granted by the Registrarto an applicant to render compliance services to a specific FSP.Important definitions in Board Notice 127:„applicant‟ means the natural person applying to the Registrar for approval asa compliance officer, including the natural person appointed by thecompliance practice to render compliance services in respect of a particularprovider.„compliance officer‟ means −(i) a natural person appointed to render compliance services, including anatural person appointed by a compliance practice; or(ii) a compliance practice appointed to render compliance services,and approved, on application, by the Registrar for such purpose.© INSETA - Section 1 12a 175

„compliance practice‟ means a company, close corporation or partnership thatappoints one or more natural persons to render compliance services inrespect of a particular provider and such natural persons are approved by theRegistrar for that purpose as compliance officers.„compliance services‟ means the performance by a compliance officer offunctions contemplated in section 17 of the Act;„external compliance officer‟ means a compliance officer other than aninternal compliance officer and includes a compliance practice.„generic recognised compliance qualification‟ means a qualification recognisedby the Registrar that addresses knowledge, skills and competence that arebroadly applicable to the rendering of compliance services;„internal compliance officer‟ means a compliance officer that is a naturalperson in the permanent employ of a financial services provider and thatrenders compliance services in respect of that particular provider or anotherfinancial services provider that is a subsidiary holding company or subsidiaryof the holding company of the first-mentioned provider.9.1.2 The application processIn line with BN127, no person may render compliance services withouthaving obtained Phase I and Phase II approval (except persons to whom aninternal compliance officer has delegated – see discussion on delegationbelow).Phase I approvalAn applicant must: have a qualification on the list of recognised compliancequalifications. have passed the regulatory examination. have at least three years‟ experience in performing a compliance orrisk management function. meet the requirement in respect of honesty and integrity. have at least one year‟s experience in performing a compliance orrisk management function in respect of the specific category ofproviders the applicant wants to render services to. not an unrehabilitated insolvent. have adequate communication facilities.176 © INSETA - Section 1 12a

Additional requirements for Phase I approval for external compliance officers:Fixed business addressOperational ability.Phase II approvalFor this phase, the applicant must:have Phase I approval.have adequate resources to ensure efficient rendering of complianceservices.have direct access to and demonstrable support from seniormanagement of the FSP.have the ability to render services independently and objectively.have the ability to avoid conflict of interest.have the ability to keep records and assist provider in compilingcompliance risk management strategy.be able to liaise directly with Registrar.have the ability to conduct regular reviews.The following additional requirements must be met in order for Phase IIapproval to be obtained. You will note that these requirements relate to theability of the compliance officer/compliance practice to conduct site visits anddiffer for external and internal compliance officers:External compliance officer:where the compliance service will be rendered in respect of categoryI and IV FSPs, the applicant must show the ability to conduct regularvisits as follows: not less than quarterly visits to the businesspremises, units or branches of the FSP. In respect of visits torepresentatives of FSP – not less than twice a year.where the compliance service will be rendered in respect of categoryII, IIA and/or III FSPs the applicant must have the ability to conductmonthly visits to business premises, business units and branches ofFSP and any representatives.© INSETA - Section 1 12a 177

Internal compliance officer:where the compliance service will be rendered in respect of categoryI and IV FSPs, the applicant must have the ability to conduct annualvisits to business premises, units and branches of FSP and anyrepresentatives.where the compliance service will be rendered in respect of categoryII, IIA and/or III FSPs the applicant must have the ability to conductquarterly visits to business premises, units and branches of the FSPand any representatives.9.1.3 Delegation of the rendering of a compliance serviceAs mentioned above, no person or compliance practice may rendercompliance services without having obtained Phase I and II approval. This issubject to one exception: an internal compliance officer may delegate therendering of compliance services but only on the following conditions:such other person must be a natural person in the employ of the FSP,ANDmust comply with the Phase I requirements unless the person will docompliance monitoring in terms of documented procedure and willexercise no judgement, ORBe an approved compliance practice.The internal compliance officer must still oversee such person and remainsaccountable for the service rendered. The internal compliance officer mustalso maintain a register of the names of persons to whom the rendering ofthe compliance service has been delegated.As with representatives and key individuals, there are transitionalarrangements that apply to compliance officers already approved prior to theimplementation of the new amendments. In this regard, existing complianceofficers do NOT have to meet the qualification requirement and will have tocomplete the Regulatory Exam within three years of publication of the BoardNotice.9.1.4 Board Notice 126: the rendering of compliance services undersupervisionBN 126, also published in September 2010, has introduced the option forcompliance services to be rendered under supervision. The requirement is,178 © INSETA - Section 1 12a

though, that the supervisee must already have the relevant qualification, butthe experience and Regulatory Exam requirements may be gained undersupervision.The supervisor must be an approved compliance officer and the Board Noticealso makes provision for direct and ongoing supervision. The timeframes arethe same as those applicable to representatives, as follows:„direct supervision‟ occurs on a daily to weekly basis.„ongoing supervision‟ occurs on a fortnightly to monthly basis.A compliance officer or practice that allows for services to be rendered undersupervision must have the operational ability to monitor such services andmeet the requirements in respect of the supervisor as above. The supervisormust ensure that the supervisee is monitored on both a direct and ongoingbasis.Supervision periodA person cannot render compliance services under supervision for more thanthree years from the date that the person is approved as a supervisee.Supervision in respect of different categories on FSPsCategories I and IV FSPs:The supervisee may not conduct unaccompanied monitoring duringthe first year under supervision.During the second and third year, the supervisee may not sign offcompliance reports and may not complete the annual compliancereport on behalf of an FSP.Categories II, IIA and III FSPs:The supervisee may not conduct unaccompanied monitoring duringthe first two years under supervision.During the third year the supervisee may not sign off compliancereports and may not complete the annual compliance report onbehalf of an FSP.© INSETA - Section 1 12a 179

9.1.5 Withdrawal of a compliance officer‟s approvalRegulations pertaining to withdrawal of the Approval of a compliance officerare addressed both in Section 17 of the Act as well as in Board Notice 127 of2010.Section 17 of the Act provides that the registrar may at any time withdrawthe approval if satisfied that the compliance officer:(i)(ii)has contravened or failed to comply with any provision of this Act; orno longer complies with the criteria and guidelines.The Registrar may publish the withdrawal of approval and the reasonstherefore by notice in the Gazette or by means of any other appropriatepublic media.Key individuals must ensure that there are adequate provisions in theappointment or other contractual arrangements with compliance officers tostate that approval by the FAIS Registrar is a prerequisite for employment asthe FAIS compliance officer within the business.9.2 THE ROLE AND FUNCTIONS OF A COMPLIANCE OFFICER9.2.1 The compliance functionAn FSP must ensure that a compliance function exists or is established aspart of the risk management framework of the business. This function mustbe supervised by an approved compliance officer as required by the Act, ormanaged and controlled by the FSP alone (where the FSP has one keyindividual and no representative). 115Compliance officers are responsible for the compliance functions in relation tothe particular categories and subcategories in terms of the FSP licence, forwhich they are approved by the Registrar.The FSP/key individual is responsible for ensuring that the appointed FAIScompliance officer has adequate resources available to meet all thecompliance requirements of the FAIS Act.115 Section 5(1) of FAIS Regulations180 © INSETA - Section 1 12a

The legislation 116 also requires that the "compliance function must beexercised with such diligence care and degree of competency as mayreasonably be expected from a person responsible for such function".The General Code requires specific control measures, which we discussedunder "Risk Management". The internal control procedures include theestablishment of a compliance function as part of the risk managementframework of the business.The compliance officer must provide the FSP with written reports on thecompliance-monitoring duties and must also make recommendations to theFSP as and when required in relation to the compliance or monitoringfunctions.It is possible for the FSP to outsource the compliance function – in otherwords not having to appoint a fulltime employee to act as compliance officer.Care must be taken to ensure that the outsourced compliance practice hasadequate staff, resources, skills, etc. and that the approval requirements aremet.Remember the establishment of the compliance function is the responsibilityof the FSP/key individual and it includes the appointment of a compliancepractice.9.2.2 The duties of a compliance officerThe compliance officer must: monitor compliance with the Act 117 supervise the compliance function 118 make recommendations to the provider as regards any aspect of therequired compliance or monitoring functions (Regulations Ch IVparagraph 5); 119 submit reports to the Registrar as required by the Act. 120116 Part IV, Section 5(2) of the FAIS Regulations 2003, GG 25092117 Section 17(1)(a) of the Act118 (Regulations Ch IV paragraph 5)119 ibid120 Section 17(4) of the Act© INSETA - Section 1 12a 181

One of the main functions of a compliance officer is to monitor compliance byall the role players, with the FAIS Act.What does "monitor" mean?In compliance terms, monitoring is to:1. identify and improve weak/vulnerable areas in business;2. ensure that the compliance controls in business are effective andimplemented;3. constantly test/review the integrity of the compliance controls.As discussed above an internal compliance officer approved by the Registrarmay not delegate the compliance monitoring function, unless certainprescribed conditions are met 121The monitoring duties of the compliance officer must be performed within thescope and application of the categories and subcategories for which the FSPis licensed.The Act also requires compliance officers to „supervise‟.In essence this means that the FSP is responsible for the establishment of thecompliance function, including all the control requirements and thecompliance officer is responsible for all the related compliance functions. 122The compliance officer must in effect only ensure that the requirements ofthe Act are met through the procedures, which the FSP (key individual) mustestablish – hence the requirement for the compliance officer to "supervise".There must be adequate measures in place to ensure that non-complianceissues identified by the compliance officer are rectified.Written reports to FSPThe compliance officer also has to submit written reports to the FSP oncompliance issues relating to the business and make recommendations asrequired. This should enable both FSP (key individual) and compliance officerto assess compliance with the FAIS Act and to identify and implementremedial steps where required.121 BN 127 OF 2010122 Section 17(3) of the Act182 © INSETA - Section 1 12a

Annual Report to RegistrarThe compliance officer‟s report of the FSP must also include reporting anyirregularity or suspected irregularity in the conduct of the FSP business ofwhich the compliance officer is aware and that the compliance officer regardsas material, to the Registrar. This must also be done if the services of thecompliance officer have been terminated by the FSP. 123The reporting duties of a compliance officer in terms of the FAIS Act go widerthan just compliance with the FAIS Act and include reporting on the FICA aswell.In addition to these „formal‟ reports, compliance officers must report anymaterial breach by the FSP to the FAIS Registrar – at any time.9.2.3 Avoid conflict of interestOne of the Phase I requirements for approval of a compliance officer by theRegistrar, is the avoidance of conflict of interest between the duties ofcompliance officer with the duties of other employees, internal audit andcontrol and functions of representatives.Why is this required?The functions and role of a compliance officer require that such person mustbe able to monitor, supervise and report on the functions of the FSP andrepresentatives. If there are conflicts of interests across the functions, thecompliance officer will not be able to perform the function objectively, nor toidentify and report on instances of non-compliance or irregularities.Another requirement is that the compliance officer must have direct access tosenior management and must have the "demonstrable" support of seniormanagement.The functions of internal audit and compliance should also be separated asthe scope of the functions is quite different.Internal auditors do not „monitor‟ or „supervise‟ FAIS-related functions -compliance officers do that.123 Section 17(3) read with S19(4) of the Act.© INSETA - Section 1 12a 183

Internal auditors normally audit compliance findings and related processesand report accordingly. If the two (2) functions are conflicted or the lines areblurred, then neither of the functions will be able to operate independentlyand objectively.The primary goal of internal audit is to evaluate the company‟s riskmanagement, internal control and corporate governance processes andensure that they are adequate and are functioning correctly.The internal audit function is normally responsible to and report to the Boardof Directors.Key individuals are responsible for ensuring that there is no conflict ofinterest between the role and functions of compliance officers and otheremployees.9.2.4 Compliance reportsThe FSP is responsible to sign off the compliance report, which has to besubmitted to the Registrar on an annual basis. There are different compliancereports for the different licence categories and the reports also differ betweenFSPs with and those without compliance officers.Compliance report for Category I provider, with a compliance officerKey individuals must be familiar with the content of the report so that theywill have an understanding of what they sign off.In this section we discuss the above compliance report, which is in the formatof questions to be answered, so that a key individual can have a high leveloverview of the content and requirements. 124124 BN 47 of 2009184 © INSETA - Section 1 12a

SECTION 1:GENERAL1. Information on conditions and restrictions regarding the FSPlicence. Information on any changes in business information. Information on the financial products in respect of which theFSP renders financial service. Instructions to other FSPs. Information about other Regulators.2. Information about the Group Structure – provide organogram/s3. Key individuals Information about approval and replacement of keyindividuals. Information about the fit and proper status of key individuals.4. Representatives Information about number and competency ofrepresentatives. Information about representatives‟ compliance with theGeneral Code and debarment. Information about Juristic representatives.5. Insurance cover Information about the insurance cover of the FSP.6. Compliance function Questions around the establishment of the compliancefunction in the FSP business.7. Maintenance of records Information about the record-keeping procedures and policiesof the FSP.8. General Code of Conduct Information about how the FSP manages conflicts ofinterests. Information on incentives and disclosure. Information on direct marketing procedures. Information about the furnishing of advice and recordkeepingof advice.© INSETA - Section 1 12a 185

Information about the FSPs adherence to the requirementsfor custody of financial products and funds.Information about the FSPs adherence to the RiskManagement requirements in the General Code.Information about the advertising practices of the FSP.Information about the complaints-handling procedures of theFSP.Information about the FSPs procedures to comply with therequirements of the General Code in respect of termination ofagreements or business.Information about the procedures to avoid waiver of rights byclients.9. Money-laundering control proceduresInformation about compliance with anti money-launderingrequirements as per FICA 125 .10. Financial soundnessInformation about the solvency and accounting procedures of theFSP.11. MonitoringInformation about the type of monitoring and monitoringmethodology/sample.SECTION 2 OF THE COMPLIANCE REPORT FOREX FSPs12. Information about the duties/obligations of the Forex FSP.SECTION 3 OF THE COMPLIANCE REPORT HEALTH SERVICE BENEFITS13. Information about the accreditation in terms of the Medical SchemesAct 126 .Signing the reportThe last part of the compliance report requires completion by the complianceofficer as well as a key individual. By co-signing with the compliance officer,the key individual states that the information is correct and that the reportwill be sent to the Registrar.125 Financial Intelligence Centre Act No 38 of 2001126 Act 131 of 1998186 © INSETA - Section 1 12a

Some of the information required in the report is acquired through monitoringfor the period under review. The monitoring should be done by thecompliance officer/compliance function and reliance should not be placed onother monitoring conducted by other areas, such as Internal Audit or otherrisk management functions.Compliance report for Category I provider, without a compliance officerThe compliance report 127 is very similar to the one to be completed by an FSPwith a compliance officer but the submission date is different. The maindifferences are:The report requires information about the group structure of the FSPas well as any SLAs with other FSPs.The report requires information about the staff complement of theFSP and, in particular, the names and roles of staff who assist theFSP in providing financial service.SummaryThe FAIS Act stipulates that FSPs must appoint compliance officers incertain circumstances.Compliance officers are appointed by the FSP and approved by theFSB.Board Notice 127, published in September 2010, now makesprovision for a new process for the approval of compliance officer.Board Notice 126, published in September 2010, makes provision forthe rendering of compliance services under supervision in specificcircumstances.The duties of compliance officers include:– monitoring compliance with the Act– supervising the compliance function– making recommendations to the provider as regards anyaspect of the required compliance or monitoring functions.(Regulations Ch IV paragraph 5)– submitting reports to the Registrar as required by the Act.Compliance officers must avoid a conflict of interest with otherbusiness units and must have direct access to senior management.127 BN 46 of 2009© INSETA - Section 1 12a 187

Compliance reports must be submitted to the Registrar and thecompliance officer is required to report on all aspects of the FAISbusiness.Self-Assessment QuestionsPlease note that the questions which follow are formative in nature. Thequestions were not developed by the FSB‟s examination bodies and as suchcannot be used as an indication of the nature/structure/level of the questionsthat you will encounter in the FSB‟s regulatory examination.1. Compliance officers are appointed:a) by the FSP and approved by the FSBb) and approved by the FSBc) and approved by the FSPd) None of the above2. The duties of a compliance officer include:a) monitoring compliance with the FAIS Actb) appointing key individualsc) supervising the compliance functiond) a) and c)3. The compliance report requires the following information:a) Information about how the FSP manages conflicts of interestsb) Information about the FSPs adherence to the riskmanagement requirements in the General Codec) Information about the advertising practices of the FSPd) All the above4. The primary goal of internal audit is to:a) ensure compliance with the FAIS Actb) ensure compliance with all legislationc) only evaluate the company‟s risk management, internalcontrol and corporate governance processesd) evaluate the company‟s risk management, internal controland corporate governance processes and ensure that theyare adequate and are functioning correctly188 © INSETA - Section 1 12a

Self-Assessment Answers1. Compliance officers are appointed:a) by the FSP and approved by the FSBb) and approved by the FSBc) and approved by the FSPd) None of the above2. The duties of a compliance officer includea) monitoring compliance with the FAIS Actb) appointing key individualsc) supervising the compliance functiond) a) and c)3. The compliance report requires the following information:a) Information about how the FSP manages conflicts of interestsb) Information about the FSPs adherence to the riskmanagement requirements in the General Codec) Information about the advertising practices of the FSPd) All the above4. The primary goal of internal audit is to:a) ensure compliance with the FAIS Actb) ensure compliance with all legislationc) only evaluate the company‟s risk management, internalcontrol and corporate governance processesd) evaluate the company‟s risk management, internal controland corporate governance processes and ensure that theyare adequate and are functioning correctly© INSETA - Section 1 12a 189

190 © INSETA - Section 1 12a

Chapter10Maintenance and management of the FSPlicensing conditionsThis chapter covers the following criteria:KNOWLEDGE CRITERIA:Explain the impact of licensing conditions on an FSP. (Task 10)Describe the implications for the FSP if the licensing conditions regarding products andservices are not met. (Task 10)Explain what licensing conditions regarding products and services must be met. (Task 10)Discuss the requirements around the display of licences. (Task 10)Explain what changes must be reported. (Task 10)Explain what the implication is for an FSP if a key individual leaves the employ of the FSP.(Task 10)Describe the conditions under which suspensions, withdrawals and reinstatements ofauthorisation may be imposed. (Task 10)Describe the conditions under which reinstatements of authorisation may be imposed.(Task 10).Explain what the implications are for a key individual and/or FSP if an accreditation issuspended or withdrawn or lapsed in terms of the Medical Schemes Act, 1998, or anyother enabling legislation such as the Banks or Insurance legislation. (Task 10)Explain what the offences are under FAIS. (Part of Task 13)Describe what actions will lead to the Registrar imposing civil remedies and penaltiesunder FAIS. (Task 10)Describe what civil remedies and penalties the Registrar may impose under FAIS. (Task10)Explain what levies are payable to the Registrar and when this should be paid. (Task 10)Explain the relationship between different industry players. (Task 10)Describe the interrelationships between FSPs in terms of co-responsibility.© INSETA - Section 1 12a 191

PurposeThe application process for an FSP licence was discussed in Chapter 5. TheRegistrar will include certain conditions on every FSP licence and it is part ofthe management function of a key individual to ensure that these conditionsare met.Chapter 10 looks at these conditions and unpacks the requirements that arecontained in typical conditions. You will also gain an understanding of theeffect and meaning of suspensions, withdrawals and reinstatements of theauthorisation to carry on business as an FSP.The various offences as defined in the FAIS Act, as well as the civil remediesand anti-money-laundering controls are also discussed.It is important to know how the FAIS levies are calculated.10.1 LICENSING CONDITIONS AND RESTRICTIONS10.1.1 The impact of licensing conditions on an FSPA FSP FAIS licence also carries conditions.There are standard conditions and there are conditions specifically applicableto the FSP licence. Specific conditions include reference to the categories forwhich the FSP is authorised, as well as any other applicable conditions aboutthe fit and proper status of the key individuals who need to obtain certainqualifications within a certain period of time from the date of licensing theFSP. The licensing conditions may also include exemptions applicable to theFSP.FSPs must adhere to the conditions and must also ensure that there areadequate systems and processes in the business to ensure compliance withthe conditions. Where representatives (and key individuals) work acrossvarious (sub) products and Licence Categories, there must be internalcontrols to ensure that the financial service (or management and oversight)they provide correspond with the specific licence conditions and restrictions.192 © INSETA - Section 1 12a

A FSP may request additional product categories to be added to its licenceand it may also have more than one licence because the structure of thebusiness may be such that products are grouped together, which makes itlogical to have a specific licence for that part of the business. The FAIS Actrequires that a certified copy of the FSP licence must be displayed in aprominent and durable manner within every business premises of the FSP. 12810.1.2 Different types of conditionsThere are a few standard conditions that appear in each licence – forexample:"I. The licence authorises the licensee to carry on business in respect offinancial advisory and/or intermediary services as ordinary financial servicesprovider/discretionary FSP administrative FSP in respect of the followingfinancial product/products:________2. Further conditions/restrictions:1. The financial services provider must inform the Registrar in writing, byfacsimile or in an appropriate electronic format, within 15 days after the changehas taken place, of any change in respect of business information of thefinancial services provider as provided in Form FSP1, FSP3, FSP4, FSP9, FSP10,FSP10A or FSP11, respectively, of the Application Form which was submitted bythe provider for purposes of obtaining a licence, and in particular relating to theprovider's representatives, auditor, compliance officer or any foreign clearingfirm or foreign forex service provider involved (if any) and nominee company orindependent custodian involved or the shareholders, directors or trustees of anysuch company or custodian (if any).2. The financial services provider must at all times during the currency of theprovider's licence maintain the services of any key individual or key individualsmentioned in the information submitted on the said Application Form, and mustas regards changes in respect of such information relating to a key individual,or appointment of a new key individual, of the provider, in addition to actingalso in such cases in accordance with the procedure and time limit set out inCondition 1, also ensure full compliance with Section 8(4)(b) of the Act, theprovisions of which must be regarded as included in this Condition.3 The financial services provider must within 15 days of the datecontemplated in Section 7 of the Act, submit a copy of the register kept interms of Section 13(3) of the Act to the Registrar, and must thereafter inaccordance with the procedure and time limit set out in Condition 1, inform theRegistrar of any change effected to the details as contained in that register.4. The financial services provider must not in any manner change the name of128 Section 8(8) of the FAIS Act© INSETA - Section 1 12a 193

the financial services business as reflected on the licence concerned, or carry onany financial services business under such a changed name, unless- (a) theprovider has fully complied with the provisions of any other law than the Actwhich regulates such change of business name if any); (b) the provider hasfully disclosed to the Registrar the details of such compliance with such otherlaw; (c) the Registrar is satisfied that such change of name is otherwise lawfuland has approved such change of name; and (d) the Registrar has issued to theprovider an appropriately amended licence under the provisions of Section8(5)(b)Q) of the Act.5. The financial services provider must at all times ensure that any financialproduct in respect of which the provider intends to render a financial service,qualifies as a financial product contemplated in the Act and is or will be lawfullyissued by the relevant product supplier by virtue of an authority, approval orright granted to such supplier under a law as contemplated in the definition of'product supplier' in Section 1 (1) of the Act."3. Applicable exemptions (if any):”10.1.3 Managing the licensing conditionsCondition 1 – Reporting changesIf there are certain changes, the FSP must have procedures in place toensure that the Registrar can be advised (of the change) within 15 days afterthe change – there are designated forms to be used for this purpose.The changes include: any change in the name of thebusiness any change in the trading name orany division of the business any change in the type of any change in the businessbusiness (conversion to a closecorporation, partnership, etc)contact details (address,telephone, fax and email) any change in the contact person any change in the financial yearend(address, telephone, fax andemail) any change in the bank details any change in nominee companyor independent custodian involved any change in the contact personresponsible for dealing with thepayment of fees, penalties andlevies any change in shareholders194 © INSETA - Section 1 12a

any change in directors any change in members any change in foreign clearing any change of compliance officerfirm or foreign forex serviceprovider involved any change in auditor any change in the representativesCondition 2 – Reporting changes relating to key individualsThis condition requires that there must be a key individual appointed in termsof a licence at all times and that the key individual's details and changes inpersonal circumstances of key individuals that affect his honesty and integrityare maintained and updated.In the example of licensing conditions we see that Condition 2 stipulates thatthe FSP must inform the Registrar if and when there are changes to theapproved key individual position(s). This means that when a key individualleaves the employment of the FSP, the necessary profile change must bedone WITHIN 15 DAYS of the change.In addition, Section 8(4)(b) of the FAIS Act requires that when a keyindividual leaves the employ, or is replaced, or there are changes in theperson's personal circumstances of a key individual which makes him nolonger fit and proper, the key individual must not be allowed to take part inthe conduct or management or oversight of the licensee‟s business in relationto the rendering of financial services.Condition 3 - Submit representative registerA newly authorised FSP must submit the representative register within 15days of authorisation. Thereafter updates to the register must be sent to theRegistrar within 15 days.Condition 4 – Change of business nameIf there is a change in the name of the business, the requirements ofCondition 4 (above) must be met – which are the following:Ensure that the name change is not in conflict with any other law andcomplies with other applicable laws (such as the Companies Act orthe Banks Act in relation to banks).© INSETA - Section 1 12a 195

Disclose compliance with other applicable laws to the Registrar.If the Registrar is satisfied that the change of name is lawful and hasapproved the change of name, the Registrar will be issued an amendedlicence.Only when the amended licence is issued may the FSP continue/start withproviding financial service under that name.Condition 5 – Only deal with authorised FSPsThis condition requires that the FSP must have internal controls andprocedures in place to ensure that any financial product regarding which theFSP wants to render a financial service, qualifies as a financial product asrequired by the Act and is lawfully issued by the relevant product supplier.Only financial products of product suppliers whose products are authorised byan authority, or by approval or rights granted under an appropriate law (forinstance the Insurance Acts) may be sold by FSPs.10.2 SUSPENSION, WITHDRAWAL AND REINSTATEMENT OFAUTHORISATIONThe Registrar may suspend or withdraw a FAIS licence, subject to certainconditions. The licence may also be reinstated, subject to certain conditions.Suspension or withdrawal of a licence 12910.2.1 Reasons for suspension or withdrawalThe Registrar may suspend or withdraw any licence if the Registrar issatisfied on the basis of available facts and information that the licensee: 130no longer meets the requirements of Section 8 of the Actdidn't disclose all required information upon applying for a licence orsubmitted false or misleading informationfailed to comply with any provision/s of the FAIS Act129130Section 9(2) of the FAIS ActSection 9(2) of the Act196 © INSETA - Section 1 12a

still owes levies, penalties or administrative sanctions to the FSB andhasn't paid it.Process of suspension or withdrawal1. The Registrar may consult a regulatory authority(like the Registrar of Banks) AND2. The Registrar must inform the FSP of the intentionand provide opportunity to respond.Beforesuspensionorwithdrawalofa FAISlicenceThe Registrar must inform the FSP of the following:The intended period of the suspensionAny terms to be attached to the suspensionincluding:a. prohibiting new business and protection of clientinterest regarding unconcluded business;b. terms to facilitate lifting of the suspension.The Registrar must consider responses received anddecide accordingly – to suspend/withdraw or not andadvise the FSP.If the licence is suspended or withdrawn, the Registrar MUST publish thesuspension/withdrawal plus reasons and applicable terms in the Gazette andMAY publish in related media if required.10.2.2 Urgent suspension or withdrawalNotwithstanding the fact that the Registrar must follow certain proceduresbefore suspension or withdrawal, the Registrar may do certain things on anurgent basis if there are reasonable grounds that the public or clients may besubstantially prejudiced.If such grounds exist, the Registrar:may provisionally suspend or withdraw a licence. The Registrar mustinform the licensee of the grounds and the period as well as allow thelicensee a reasonable opportunity to respond thereto and to provide© INSETA - Section 1 12a 197

easons why the provisional suspension or withdrawal should be liftedor why the period and terms should be changed. 131may publish the provisional suspension or withdrawal in the Gazetteand if necessary, by means of any other appropriate public media. 132The Registrar must consider a response received from the licensee and maydecide to:lift the provisional suspension or withdrawal; or make it final. 133The licensee must be advised accordingly and notification must happen in theGazette and other media if necessary. 134If a licence is suspended or withdrawn, the licensee is not authorised to actas an FSP.10.2.3 Debarment following suspension of withdrawalIf a licence has been withdrawn in terms of Section 9 of the Act (which dealswith suspension and withdrawal of licences), the person is debarred for aperiod specified by the Registrar from applying for a new licence and theRegistrar may change the period if there are good grounds for the change. 13510.2.4 Registrar may consult a regulatory authorityBefore suspending or withdrawing a licence, the Registrar may consult "anyregulatory authority". This implies that the FAIS Registrar may (and should)consult another regulator if the FSP concerned is also authorised or licensedfor business under that regulator.In the diagram above we used the example of the FAIS Registrar consultingthe Registrar of Banks in the event of a possible suspension or withdrawal ofa bank-related FSP licence. It may be critical for the FAIS Registrar to consultanother applicable regulator (such as the Insurance Registrar) becausesuspension or withdrawal of an FSP licence may have dire consequences inthe financial services industry.131 Section 9(3)(a) of the Act132 Section 9(3)(b) of the Act133 Section 9(4)(a) of the Act134 Section 9(3)(b) of the Act135 Sections 9(5) & (6) of the Act198 © INSETA - Section 1 12a

10.2.5 Accreditation under Medical Schemes Act 1998Section 8(7) of the FAIS Act, which was discussed above, has certainimplications in respect of the certain requirements for FSPs that are alsoaccredited under the Medical Schemes Act.If an accredited Medical Schemes FSP loses its accreditation in terms of theMedical Schemes Act, the FAIS Licence will also be deemed to be suspendedor withdrawn.Similarly, if the accredited (FAIS) FSPs licence is suspended or withdrawn interms of the FAIS Act, it will also lose its accreditation in terms of the MedicalSchemes Act.The conditions under which a licence can be reinstated and reinstatements ofauthorisation may be imposed.We mentioned above that the Registrar must inform the licensee of thegrounds for suspension of withdrawal of a licence.The licensee must be given a reasonable opportunity to respond thereto andto provide reasons why the provisional suspension or withdrawal should belifted or why the period and terms should be changed.The registrar must, within a reasonable time after receipt of any responsereceived consider the response, and may thereafter decide to-lift the provisional suspension or withdrawal; orrender the suspension or withdrawal final,and must inform the licensee accordingly.The Registrar must make known the terms of and reasons for the finalsuspension or withdrawal, or the lifting thereof, by notice in the Gazette and,if necessary, in any other appropriate public media.Once the licensee meets the outstanding requirements (such as payment oflevies) the Registrar may reinstate the licence. If the Registrar has setspecific conditions and the licensee meets the conditions to the satisfaction ofthe Registrar, the licence may be reinstated.Section 34 of the Constitution makes provision that anyone may approach acourt to have a dispute resolved by a court or another independent and© INSETA - Section 1 12a 199

impartial tribunal or forum. This implies that a FSP whose licence has beenwithdrawn may also approach the Court for reinstatement.10.3 OFFENCES10.3.1 OffencesWhen a person commits the offences listed below and is convicted by a court,the court may impose a fine of a maximum of R1 000 000 or a prisonsentence of a maximum of ten (10) years or both. 136The offences, which carry the above penalties, are the following:1. Contravention of or failure to comply with the following Sections inthe Act:Failure to get a licence to operate asan FSP – s.7(1).Conducting financial services-relatedbusiness with a person who is notlicensed for such services and theconditions and restrictions, allow thespecific services or the person is arepresentative as described in the Act– s.7(3).Failure to display a FAIS licence, Failure to ensure that directors,– or to refer to the licence in trustees or partners (excluding keybusiness documentation, individuals) meet the fit and properadvertisements and other honesty and integrity requirementspromotional material– or failure to notify theor failure to have the licenceRegistraravailable when proof isor give the Registrar therequested or when requiredrequired information withinto enter into a business15 days of changes in respectrelationship with the licenseeof these persons –– s.8(8).s.8(10)(a).136 Section 36 of the FAIS Act200 © INSETA - Section 1 12a

Failure to ensure that a Failure to ensure that therepresentative acts on behalfof an authorised FSP or anexempted FSPFSPs representatives and keyindividuals of representativesare fit and proper or failure– and failure to ensurethat a representativeto comply with therequirements forprovides adequatereappointment afterinformation to provehis/heragreement/mandatewith an FSPor failure to ensure that a debarreddebarment as well as failureto ensure thatrepresentatives comply withapplicable codes and laws onconduct of business –representative's reappointments.13(2).meets the requirements of the Act –s.13(1).Failure to debar a representative asdescribed in s. 14(1).Failure to submit compliance reportsto the Registrar – s.17(4).Failure to maintain and keep records Failure to have the financialas required in s. 18.statements audited and reportedwithin four (4) months as required ins. 19(2).Failure by an external auditor toreport any irregularity/suspectedirregularity in the conducts of theaffairs of the FSP as required in s.19(4).Carrying on with business as an FSP Failure to rectify the effects of anafter the Registrar declared the undesirable practice within 60 days ofbusiness an undesirable practice –s.34(4).being ordered to do so by theRegistrar – s.34(6).Deliberately making a misleading, false or deceptive statement, or concealsany material fact with regard to anything relating to the Act. S.36(b)Giving an appointed auditor or compliance officer information which is false,misleading or conceals any material fact in the execution of duties imposedby this Act. s.36(c)Pretending to be an appointed or mandated representative of a licensed FSPwhen providing financial services to clients. s.36(d)© INSETA - Section 1 12a 201

10.3.2 Civil remediesRestrainingorderPaymentorder The Registrar may approach any court with jurisdictionfor a restraining order against a person if the Registrarhas reason to believe a person has or is going tocontravene or not comply with any provision of the FAISAct. The court may also order that the person takesappropriate remedial steps to rectify the consequencesof the actions or omissions, including any prejudice orpotential prejudice to clients. 137The Registrar may also approach a court and take legal actionagainst a person who contravened or did not comply with anyprovision of the FAIS Act for payment of: money as compensation to anyone who suffered lossesas a result of the non-adherence or non-compliancewith the Act. a penalty for punitive purposes (as punishment) asdetermined by the court. interest payment. the legal fees incurred by the Registrar – as decided bythe Court. 138 ; and the balance of the funds must be distributed to thosewho suffered losses.It is important to ensure that there are procedures and processes in place toavoid actions that can be regarded as offences and/or that may give rise tocivil remedies and/or fines being imposed under FAIS.10.3.3 Anti-money-laundering controlsThere is an obligation on FSPs who are accountable institutions as defined inthe Financial Intelligence Centre Act 139 (FIC) to have all the necessarypolicies, procedures and systems in place to ensure full compliance with theFIC Act and other applicable anti‐money-laundering or terrorist financinglegislation. 140137 Section 33(1) of the Act138 Section 33(2) of the Act139 Act 38 of 2001140 Paragraph 8(1)(e) of Board Notice 106 of 2008202 © INSETA - Section 1 12a

The FAIS Act does not have specific penalties for non-compliance with the FICAct requirements BUT the FIC Act imposes severe penalties for noncompliance.Therefore the FIC Act penalties will apply if an FSP does not comply with theFAIS requirements in respect of the FIC Act. We discuss the FIC Act in moredetail later.10.3.4 Administrative penaltiesLate submissionWhere a person does not submit a return, information or document to theRegistrar as required by the FAIS Act, that person is liable – in addition toother legal action instituted by the Registrar – to pay a fine of up to R1 000(or as determined by the Registrar) per day for every day that the return,information or document is late, plus interest. 141Penalties relating to the Ombud for Financial Services Providers (FAISOmbud)If a person does something in relation to the Ombud for Financial ServicesProviders (FAIS Ombud) or in relation to an investigation by the Ombud thatcould be regarded as contempt of court by a court, the person is guilty of anoffence and liable on conviction to a penalty, which could have been imposedby a court.A person who anticipates a determination of the Ombud and does somethingto influence the determination or who wilfully interrupts any proceedings ofthe Ombud, is guilty of an offence and liable on conviction to a fine or toimprisonment for a period not exceeding one year.141 Section 41 (2)(9a) of the FAIS Act© INSETA - Section 1 12a 203

10.4 LEVIES PAYABLE IN TERMS OF THE FAIS ACT10.4.1 Levies to the FSBThe FSB raises levies in terms of the legislation that it oversees. The FAIS Actalso allows the Registrar (FSB) to raise levies in respect of authorised FSPs.The levies are based on a formula that takes into account the number of keyindividuals and representatives of each licence. The formulae differ betweenthe various categories.Let's look at an example of a levy calculation based on the 2010 142structures:levyFor a Category I FSP the calculation uses the base amount of R2 550 PLUS „A‟× R400.„A‟ is the total number of key individuals of the financial services providerapproved by the Registrar plus the total number of representatives appointedby the FSP, less key individuals that are also appointed as representatives, asat 31 August of the levy year. 143If the FSP has three (3) key individuals (who are also reps) and 15representatives, the calculation will be R2 550 PLUS (15 × 400) = R8 550subject to a maximum of R1 110 000.Where there are multiple FSPs in one legal entity, the key individuals andrepresentatives of the different FSPs are regarded as belonging to one FSPand only one levy is paid.An example is a large insurance company that has different subsidiaries eachwith its own FSP licence, but part of the group. The group will pay one levy inrespect of all the representatives and key individuals operating in therespective licences where licences span across one legal entity.The levies are payable by a certain time each year – normally on or before 30October of the levy year. Failure to pay the levies is an offence in terms ofFAIS and the FSP licence may be withdrawn or suspended.142 BN 28 of 2010143 Section 15(2) of BN 74 of 2009204 © INSETA - Section 1 12a

The key individual must ensure that there are adequate systems andprocedures in place to account for the number of key individuals andrepresentatives in the FSP to pay both the FSB and the Ombud for FinancialServices Providers (FAIS Ombud) levies.10.4.2 Levies to the Ombud for Financial Services Providers (FAIS Ombud)Authorised FSPs, regardless of product categories, which they are licensedfor, pay annual levies to the Ombud for Financial Services Providers (FAISOmbud), calculated as follows – using the 2009 levy structures:The base amount of R581 PLUS „A‟ × R218.„A‟ is the total number of key individuals of the financial services providerapproved by the Registrar, plus the total number of representativesappointed by the FSP, less key individuals who are also appointed asrepresentatives, as at 31 August of the levy year. 144Using the same example as above, if the FSP has three (3) key individuals(who are also Reps) and 15 representatives, the calculation will be:R581 PLUS (15 × R218) =R3 851 subject to a maximum of R158 270.As with the FSB levies, where there are multiple FSPs in one legal entity, thekey individuals and representatives of the different FSPs are regarded asbelonging to one FSP and only one levy is paid – same as discussed above.10.5 INTERRELATIONSHIPS BETWEEN FSPs AND CO-RESPONSIBILITIESIn terms of Section 7(3) of the FAIS Act, FSPs are only allowed to conductFAIS-related business with other authorised FSPs. Similarly, FSPs may onlyprovide financial services in respect of products of product suppliers thathave been authorised under applicable legislation.The key individual must ensure that the FSP has procedures to ensure that, ifthe provider does any financial services-related business with any other FSP,such other provider is properly authorised.144 Section 16(2) of BN 74 of 2009© INSETA - Section 1 12a 205

Any contravention of or failure to comply with Section 7(3) of the FAIS Act, isan offence subject to penalties. This section requires that every authorisedFSP or representative may only conduct financial services-related businesswith a person rendering financial services, if that person has, where lawfullyrequired, been issued with a licence for the rendering of such financialservices and the conditions and restrictions of that licence authorises therendering of those financial services, or if that person is a representative asdescribed in the Act.SummaryFSPs must adhere to the conditions and key individuals must ensurethat there are adequate systems and processes in the business toensure compliance with the licence conditions.The licensing conditions create certain obligations for FSPs and theseconditions must be complied with on a continuous basis.A FAIS licence may be withdrawn or suspended by the Registrarunder certain conditions.The FAIS Act describes the various offences and when offences arecommitted, a court may impose a fine of R1 million and/orimprisonment of ten (10) years.The Registrar has certain civil remedies, which include gettingrestraining orders or payment orders.There are certain anti-money laundering controls built into the FAISAct and FSPs must comply as such.The FAIS Act also allows the Registrar (FSB) to raise levies in respectof authorised FSPs.Authorised FSPs, regardless of product categories pay annual leviesto the Ombud for Financial Services Providers (FAIS Ombud).There is a responsibility on FSPs to only conduct FAIS-relatedbusiness with other authorised FSPs.206 © INSETA - Section 1 12a

Self-Assessment QuestionsPlease note that the questions which follow are formative in nature. Thequestions were not developed by the FSB‟s examination bodies and as suchcannot be used as an indication of the nature/structure/level of the questionsthat you will encounter in the FSB‟s regulatory examination.1. Which of the following statements is TRUE?a) The FAIS Act requires that a certified copy of the FSPs licencemust be displayed in a prominent and durable manner at thehead office/s of the FSPb) An FSP may request additional product categories to beadded to its licencec) Standard conditions are specifically applicable to insuranceFSP licencesd) FSPs may not have more than one licence2. Before suspension of a FAIS licence, the Registrar must inform the:a) FSP of the intended period of suspensionb) FSP of any terms attached to the suspensionc) Advisory Committeed) a) and b)3. Urgent suspension or withdrawal of a licence may only happen:a) after the Registrar has obtained a court orderb) after the Registrar has consulted with all the partiesc) if there are reasonable grounds that the public or clients maybe substantially prejudicedd) None of the above4. The FAIS offences include, failure to:a) get a licence to operate as an FSPb) have the licence available when proof is requestedc) debar a representative as described in Section 14(1)d) All the above5. The civil remedies include:a) restraining and payment ordersb) only restraining ordersc) only payment ordersd) None of the above© INSETA - Section 1 12a 207

Self-Assessment Answers1. Which of the following statements is TRUE?a) The FAIS Act requires that a certified copy of the FSPs licencemust be displayed in a prominent and durable manner at thehead office/s of the FSPb) An FSP may request additional product categories to beadded to its licencec) Standard conditions are specifically applicable to insuranceFSP licencesd) FSPs may not have more than one licence2. Before suspension of a FAIS licence, the Registrar must inform:a) the FSP of the intended period of suspensionb) the FSP of any terms attached to the suspensionc) the Advisory Committeed) a) and b)e) a) and c)f) Only c)3. Urgent suspension or withdrawal of a licence may only happen:a) after the Registrar has obtained a court orderb) after the Registrar has consulted with all the partiesc) if there are reasonable grounds that the public or clients maybe substantially prejudicedd) None of the above4. The FAIS offences include, failure to:a) get a licence to operate as an FSPb) have the licence available when proof is requestedc) debar a representative as described in Section 14(1)d) All the above5. The civil remedies include:a) restraining and payment ordersb) only restraining ordersc) only payment ordersd) None of the above208 © INSETA - Section 1 12a

Chapter11Lapsing an FSP licenceThis chapter covers the following criteria:KNOWLEDGE CRITERIA:Discuss the effect of voluntary sequestration, winding-up or closure of a business on itslicensing status. (Task 11)Explain the reasons why a licence can be suspended or withdrawn. (Task 11)Discuss what recourse the FSP has in such a case where a licence wassuspended/withdrawn. (Task 11)Discuss the reasons why an FSP would lapse a licence. (Task 11)Describe how lapsing a licence differs from suspension or withdrawals. (Task 11)© INSETA - Section 1 12a 209

PurposeAs a key individual, you need to understand when and how the FSP licencemay lapse or be surrendered to the FAIS Registrar.Chapter 11 takes you through these requirements and creates anunderstanding of the differences in the processes.11.1 LAPSING OF A FAIS LICENCE11.1.1 Lapsing a FAIS licenceA licence of a NATURAL person may lapse in the following instances:An FSP who is a NATURAL person maylapse a FAIS licence IF:The licensee (FSP) ISFINALLY SEQUESTRATEDThe licensee (FSP) DIESThe licensee (FSP) becomes permanently UNABLE toCARRY ON BUSINESS because of PHYSICAL orMENTAL ILLNESS210 © INSETA - Section 1 12a

A licence of ANY FSP may lapse in the following instances: 145The licensee (FSP) is FINALLY LIQUIDATED or DISSOLVEDThe BUSINESS of the licensee (FSP) has become DORMANTIn ANY OTHER CASE where the licensee VOLUNTARILY ANDFINALLY SURRENDERS THE LICENSE TO THE REGISTRARThe Registrar must be advised in writing by the licensee, any key individualof the licensee, or another person in control of the affairs of the licensee, ofthe lapsing of a licence and the reasons therefore and the Registrar MAYpublish the lapsing of a licence by notice in the Gazette and, if necessary inany other appropriate public media announcement.11.1.2 Difference between lapsing and suspension or withdrawal of a licenceSuspension or withdrawal of a FAISlicenceSuspension or withdrawal of a licenceis initiated by the Registrar followingactions or omissions by the FSP.The Registrar may allowreinstatement of a suspended licenceunder certain conditions.After withdrawal of a licence, theperson will be debarred fromapplying for a new licence.This is slightly different to debarmentas it is applicable to honesty andintegrity requirements.There are implications for accreditedFSPs under the Medical Schemes Act(discussed above) as the FSP willlose the accreditation if the FAISlicence is suspended or withdrawnand vice versa.Lapsing of a FAIS licenceLapsing of a licence is initiated by theFSP following an event, which gavereason for the lapse.There are no provisions in the Act forthe reinstatement of a lapsed licence.There are no requirements fordebarment in terms of lapsing alicence.Accreditation in terms of the MedicalSchemes Act (where applicable) alsodeemed to have lapsed.145 Section 11 of the FAIS Act© INSETA - Section 1 12a 211

11.2 EFFECT OF VOLUNTARY SEQUESTRATION, WINDING-UP ORCLOSURE OF A BUSINESS ON ITS LICENSING STATUSSection 38 of the FAIS Act states that:NOApplication for voluntary surrender of an estate broughtbefore a court in terms of Section 3 of the Insolvency Act 1NOSpecial resolution relating to the winding-up, as provided forin Section 349 of the Companies Act 1 , and registered interms of that ActNOWritten resolution relating to the winding-up, as provided forin Section 67 of the Close Corporations Act, and registered interms of that SectionNOVoluntary closure of businessBy any authorised FSP, or representative of such provider, and no specialresolution in terms of the constitution of such a provider or representative,which is not a company, to close its business, have legal forceUNLESSUNLESSa copy or notice of the intended process has been lodgedwith the RegistrarANDthe Registrar has declared to the FSP or representative bynotice, that the Registrar is satisfied with thearrangements that have been made to meet all liabilitieswith regard to transactions entered into with clients priorto sequestration, winding-up or closure, as the case maybeORThe Registrar may declare that the application, resolutionor closure is contrary to the FAIS Act and that it has nolegal effect.212 © INSETA - Section 1 12a

It is clear from the above that the FSP must get the „approval‟ of theRegistrar before sequestration, winding-up or closure of the business willbecome effective and legal. Such approval will only be given if the Registraris satisfied that there are arrangements in place to meet obligations toclients. Until such time, the business of the FSP will be regarded as „ongoing‟and the FSP cannot rely on any protection or remedies available under therelevant legislation.Summary An FSP who is a natural person may lapse a licence if the FSP isfinally sequestrated, dies or becomes permanently unable to carry onbusiness because of physical or mental illness. Any other FSP may lapse a licence if it is finally liquidated or thebusiness is dissolved, or became dormant or the FSP voluntarily andfinally surrenders the licence to the Registrar. The FSP must get the "approval" of the Registrar beforesequestration, winding-up or closure of the business will becomeeffective and legal. Such approval will only be given if the Registrar issatisfied that there are arrangements in place to meet obligations toclients. Until such time, the business of the FSP will be regarded as "ongoing"and the FSP cannot rely on any protection or remedies availableunder the relevant legislation.Self-Assessment QuestionsPlease note that the questions which follow are formative in nature. Thequestions were not developed by the FSB‟s examination bodies and as suchcannot be used as an indication of the nature/structure/level of the questionsthat you will encounter in the FSB‟s regulatory examination.1. A natural person may lapse a FAIS Licence:a) only if the licensee is finally sequestratedb) only with permission from the FAIS Registrarc) if the licensee is finally sequestratedd) if the licensee diese) if the licensee becomes permanently unable to carry onbusiness because of physical or mental illnessf) c), d), and e)© INSETA - Section 1 12a 213

2. A licence of ANY FSP may lapse:a) if the licensee is finally liquidated or dissolvedb) if the business of the licensee has become dormantc) in any other case where the licensee voluntarily and finallysurrenders the licence to the Registrard) All the above3. Which of the following statements is TRUE?a) Suspension or withdrawal of a licence is initiated by theRegistrar following actions or omissions by the FSPb) Lapsing of a licence is initiated by the FSB following an eventthat gave reason for the lapsec) There are provisions in the Act for the reinstatement of alapsed licenced) There are severe implications in terms of other legislationwhen a FAIS licence lapses4. Which of the following statements is FALSE?a) The Registrar may allow reinstatement of a suspendedlicence under certain conditionsb) There are no implications in terms of other legislation when aFAIS licence lapsesc) The Registrar must be advised in writing by the licensee, ofthe lapsing of a licence and the reasons therefore and theRegistrar may not publish any detail about the lapsingd) The Registrar must be advised in writing by the licensee, ofthe lapsing of a licence and the reasons therefore and theRegistrar may publish the lapsing of a licence by notice in theGazette5. Before sequestration, winding-up or closure of an FSP business willbecome effective and legal under the following condition/s:a) The FSP must lodge the necessary documentation with theFAIS Registrarb) The FSP must get the „approval‟ of the Registrarc) The court must agree to adequate distribution of assetsd) a) and b)214 © INSETA - Section 1 12a

Self-Assessment Answers1. A Natural person may lapse a FAIS Licence:a) only if the licensee is finally sequestratedb) only with permission from the FAIS Registrarc) if the licensee is finally sequestratedd) if the licensee diese) if the licensee becomes permanently unable to carry onbusiness because of physical or mental illnessf) c), d), and e)2. A licence of ANY FSP may lapse:a) if the licensee is finally liquidated or dissolvedb) if the business of the licensee has become dormantc) in any other case where the licensee voluntarily and finallysurrenders the licence to the Registrard) All the above3. Which of the following statements is TRUE?a) Suspension or withdrawal of a licence is initiated by theRegistrar following actions or omissions by the FSPb) Lapsing of a licence is initiated by the FSB following an eventthat gave reason for the lapsec) There are provisions in the Act for the reinstatement of alapsed licenced) There are severe implications in terms of other legislationwhen a FAIS licence lapses4. Which of the following statements is FALSE?a) The Registrar may allow reinstatement of a suspendedlicence under certain conditionsb) There are no implications in terms of other legislation when aFAIS licence lapsesc) The Registrar must be advised in writing by the licensee, ofthe lapsing of a licence and the reasons therefore and theRegistrar may not publish any detail about the lapsingd) The Registrar must be advised in writing by the licensee, ofthe lapsing of a licence and the reasons therefore and theRegistrar may publish the lapsing of a licence by notice in theGazette© INSETA - Section 1 12a 215

5. Before sequestration, winding-up or closure of an FSP business willbecome effective and legal under the following condition/s:a) The FSP must lodge the necessary documentation with theFAIS Registrarb) The FSP must get the "approval" of the Registrarc) The court must agree to adequate distribution of assetsd) a) and b)216 © INSETA - Section 1 12a

Chapter12Record-keeping obligations of the FSPThis chapter covers the following criteria:KNOWLEDGE CRITERIA:Explain the record-keeping obligations as imposed by the FAIS Act. (Task 12)Explain the record-keeping requirements in terms of Section 18 of the FAIS Act and theGeneral Code of Conduct. (Task 12)Explain the requirements regarding the maintenance of records in terms of the FAIS Act.(Task 12)Explain in what format the records should be stored and retrieved in accordance with theindustry standard. (Task 12)Explain what the security requirements for these records are in terms of confidentialityand access to records. (Task 12)Understand the requirements regarding records and the maintenance thereof in terms ofthe Act and other applicable legislative requirements, including the FIC Act. (Task 12)© INSETA - Section 1 12a 217

PurposeIn Chapter 12 you will find the requirements relating to record-keeping – asrequired by the FAIS Act as well as the FAIS General Code. It is importantthat key individuals manage and oversee the record-keeping processes andsystems of the FSPs, as failure to do so may constitute an offence under theAct.12.1 RECORD-KEEPING OBLIGATIONS UNDER THE FAIS ACT12.1.1 Record-keeping obligations in terms of the FAIS ActThe FSP, (and by implication it will be part of the management duties of akey individual) must ensure that records are kept for a minimum of five (5)years – except if the Registrar allowed specific exemptions in this regard.Section 18 of the FAIS Act requires that certain records be kept for five (5)years (unless the Registrar granted an exemption in this regard).These records include the following:1. Records of known premature cancellations of transactions or financialproducts by clients of the FSP2. Records of complaints received and information on whether thecomplaints have been resolved3. Records of ongoingcompliance with theKey individuals must ensure continuedfitness and propriety and changes in therequirements of Section 8 information of key individuals,of the FAIS Act.representatives, directors, members,trustees or partners of the FSP, as thecase may be.4. Records of instances of non-compliance with the Act as well as reasonsfor non-compliance.218 © INSETA - Section 1 12a

5. Records of ongoing compliance byrepresentatives asrequired by Section 13(1)and (2) of the Act.Representatives must have the necessarydocumentation to confirm that theyrepresent the FSP in terms of a mandateor contract and that the FSP acceptsresponsibility for the activities of therepresentative accordingly.There must be adequate processes andsystems in place to ensure continuedfitness and propriety of key individuals andrepresentatives.FSPs must ensure that their Risk Management models include internal controlstructures, procedures and controls with disaster recovery and back‐upprocedures on electronic data, where applicable.12.1.2 Record-keeping obligations in terms of the FAIS General CodeIn addition to the record-keeping requirements in terms of the FAIS Act itself,the FAIS General Code has the following requirements:1. The FSP must have adequatesystems and procedures in placeto record verbal and writtencommunications relating to theprovision of financial services toclients. 146 The records must bekept in accordance with therequirements of Section 18.2. The FSP must be able to retrievethe records and other materialdocumentation relating to clientsor financial services.Telephonic conversations regardingthe provision of financial servicesmust be recorded and the recordskept for five (5) years, subject topoint 8 below. 147When the Registrar needs access torecords of clients and/or financialservices provided (such as the recordof advice) this must be producedwithin the required time periods.146 Sections 3(2)(a)(b) of the General Code147 Section 14(2)(a) of the General Code read with Section 18 of the Act© INSETA - Section 1 12a 219

3. The records and documentation This requirement is also part of themust be kept safe fromRisk Management systems anddestruction.procedures that must be in place interms of Section 11 of the GeneralCode. 148 FSPs have obligations toensure that documentation must bekept safe from destruction and it isimportant that the FAIS Actrequirements are included in thesearrangements. This is also coveredin Section 18 of the Act, which wediscussed above.In order to keep records „safe fromdestruction, the records should bekept in storage that is secure fromthe risk of fire, flood and relateddamages.4. The records must be kept for five (5) years after the termination of theproduct (to the knowledge of the FSP) or for the same period after afinancial service was provided.5. Record-keeping may beThe General Code makes provisionoutsourced as long as the records that FSPs may outsource theirare available for inspection withinseven (7) days of such a requestby the Registrar. 149record-keeping to third parties. Thecondition is that the FSP is able tomeet all the requirements regardingrecord-keeping and retrieval ofrecords if the function isoutsourced. These requirementsshould therefore be included in theagreements between the FSP andthird party to enable the FSP tomeet the legislative requirements.148 In addition to Section 3(2)(a)(iii) of the General Code149 Section 3(2)(c) of the General Code220 © INSETA - Section 1 12a

6. It is permissible to keep recordsin an appropriate electronic orrecorded format, as long as it isThere must be provision in thesystems and procedures for an FSPto access and convert voice-loggedaccessible and can easily be records to a written format ifconverted to a written or printableformat.required. In certain instances clientsmust be given a copy of the voicerecording if the request comesbefore the FSP could convert it towritten format. See point 9 below.7. The FSP must ensure that there are records of the advice given toclients.TELEPHONIC RECORDS8. If an FSP advertises a financial service by telephone, an electronic,voice-logged record of all communications must be maintained. If nofinancial service is provided within 45 days of the telephonicadvertisement, the record may be discarded. 1509. Clients must be able to get copies of the telephonic advertisementrecords within seven (7) days of request. 15112.1.3 Confidentiality of client informationA FSP may not: 152disclose any confidential information acquired or obtained from a clientUNLESS:the client consented in writing beforehand; ordisclosure of the information is required in public interest; ordisclosure is required in terms of any law.The compliance officer must determine and report whether procedures havebeen implemented to ensure that confidential information is not improperlydisclosed.The FSP must have procedures and internal controls in place that ensure thatclient information is securely filed and that such information is not availableto any unauthorised person.150 Section 14(2)(a) of the General Code151 Section 14(2)(b) of the General Code152 Section 3(3) of the General Code© INSETA - Section 1 12a 221

The Registrar has certain powers in terms of the Act to disclose informationrelating to representatives, key individuals and FSPs (such as debarment,licence withdrawals, etc.) and such disclosure is not a contravention of therequirements of the General Code.12.2 RECORD-KEEPING OBLIGATIONS UNDER THE FINANCIALINTELLIGENCE CENTRE ACT AND OTHER LEGISLATION12.2.1 Record-keepingA FSP must have and be able to maintain the operational ability to fulfil theresponsibilities imposed by the FAIS Act, including compliance with the FICAct. 153 (We discussed some aspects relating to the FIC Act in Chapter 10above.)Section 22 of FICA requires accountable institutions that establish a businessrelationship or conclude a transaction with a client, to keep records of asingle transaction or of additional transactions concluded in the course of abusiness relationship.It also prescribes full particulars and details of the information that must bekept as records.The documents used to identify and verify clients as well as recordsof all transactions must be retained for a period of at least five (5)years from the date on which the business relationship wasterminated.In terms of Section 24 (1), the record-keeping obligation may be outsourcedto a third party provided the accountable institution is given free and easyaccess to these records. Note that outsourcing this function to a third partydoes not discharge the accountable institution from the record-keepingresponsibility.Section 24(2) states that the accountable institution will still be held liable forthe third party‟s failure to comply with this obligation.153 BN 106 of 2008222 © INSETA - Section 1 12a

Section 24(3) stipulates that if the accountable institution appoints a thirdparty to keep records on its behalf, then particulars of the third party keepingrecords on behalf of the accountable institution must be provided to the FIC.The full particulars and details of the information which must befurnished to the FICA regarding the third party carrying out therecord-keeping, obligation is prescribed under Regulation 20.As in the FAIS Act, records may be kept manually or electronically.Other record-keeping requirementsIn addition to what is discussed above, the following FAIS Act sections referto record-keeping:Section 8: − application for authorisationSection 13:− qualifications of reps and duties of FSPsSection 19:− accounting and auditing requirements.Section 8 of Board Notice 106 deals with the operational ability of an FSP/keyindividual and stipulates certain record-keeping requirements.An FSP must have general administration processing, accounting transactionsand risk control measurements in place to ensure accurate, complete andtimeous processing of data, information reporting and the assurance of dataintegrity.© INSETA - Section 1 12a 223

SummaryThe FAIS Act requires stringent record-keeping arrangements.The following records need to be kept:– Records of known premature cancellations of transactions orfinancial products by clients of the FSP.– Records of complaints received and information on whetherthe complaints have been resolved.– Records of ongoing compliance with the requirements ofSection 8 of the FAIS Act.– Records of instances of non-compliance with the Act as wellas reasons for non-compliance.– Records of ongoing compliance by representatives asrequired by Section 13(1) and (2) of the Act.In addition, the General Code has additional record-keepingrequirements. This includes:– The ability to retrieve records;– Adequate systems to record verbal and writtencommunications relating to the provision of financial servicesto clients;– The records and documentation must be kept safe fromdestruction;– The records must be kept for five (5) years after thetermination of the product (to the knowledge of the FSP) orfor the same period after a financial service was provided;– When record-keeping is outsourced but the records must beavailable for inspection within seven (7) days of a request.The FICA requires FSPs to keep records of a single transaction or ofadditional transactions concluded in the course of a businessrelationship.224 © INSETA - Section 1 12a

Self-Assessment QuestionsPlease note that the questions which follow are formative in nature. Thequestions were not developed by the FSB‟s examination bodies and as suchcannot be used as an indication of the nature/structure/level of the questionsthat you will encounter in the FSB‟s regulatory examination.1. The FSP, (and by implication it will be part of the management dutiesof a key individual), must ensure that records are kept:a) for a minimum of five (5) yearsb) for a minimum of three (3) yearsc) until the transaction or financial service is terminatedd) All the above2. Records that must be kept in terms of the FAIS Act include recordsof:a) known premature cancellations of transactions or financialproducts by clients of the FSPb) complaints received and information on whether thecomplaints have been resolvedc) ongoing compliance with the requirements of Section 8 of theFAIS Actd) All the above3. Requirements for record-keeping in terms of the FAIS General Codeinclude the following:a) Adequate systems and procedures to record verbal andwritten communications relating to the provision of financialservices to clientsb) Safekeeping of records from destructionc) Retrieval of the records and other material documentationrelating to clients or financial servicesd) All the above© INSETA - Section 1 12a 225

4. Section 22 of the FICA requires accountable institutions that establisha business relationship or conclude a transaction with a client, tokeep records of a single transaction or of additional transactionsconcluded in the course of a business relationship.a) Trueb) False5. In terms of Section 24 (1) of the FIC Act, the record-keepingobligation may not be outsourced to a third party.a) Trueb) False226 © INSETA - Section 1 12a

Self-Assessment Answers1. The FSP, (and by implication it will be part of the management dutiesof a key individual), must ensure that records are kept:a) for a minimum of five (5) yearsb) for a minimum of three (3) yearsc) until the transaction or financial service is terminatedd) All the above2. Records that must be kept in terms of the FAIS Act include recordsof:a) known premature cancellations of transactions or financialproducts by clients of the FSPb) complaints received and information on whether thecomplaints have been resolvedc) ongoing compliance with the requirements of Section 8 of theFAIS Actd) All the above3. Requirements for record-keeping in terms of the FAIS General Codeinclude the following:a) Adequate systems and procedures to record verbal andwritten communications relating to the provision of financialservices to clientsb) Safekeeping of records from destructionc) Retrieval of the records and other material documentationrelating to clients or financial servicesd) All the above4. Section 22 of the FICA requires accountable institutions that establisha business relationship or conclude a transaction with a client, tokeep records of a single transaction or of additional transactionsconcluded in the course of a business relationship.a) Trueb) False5. In terms of Section 24 (1) of the FIC Act, the record-keepingobligation may not be outsourced to a third party.a) Trueb) False© INSETA - Section 1 12a 227

228 © INSETA - Section 1 12a

Chapter13Manage the FSP infrastructureThis chapter covers the following criteria:KNOWLEDGE CRITERIA:Describe what the operational ability requirements are that the FSP must meet. (Task 13)Explain what the requirement regarding financial soundness implies for the FSP. (Task 13)Explain the requirements in terms of monthly management accounts. (Task 13)Explain all processes and procedures required when handling complaints. (Task 13)Explain the requirements regarding advertising and direct marketing in terms of the Act.(Task 13)© INSETA - Section 1 12a 229

PurposeManaging the infrastructure of an FSP is part of the key individual'smanagement and oversight responsibilities. Chapter 13 highlights a few ofthese responsibilities. You will gain a better understanding of the operationalability that FSPs must have and maintain, as well as the financial soundnessrequirements, which must be met.13.1 OPERATIONAL ABILITY REQUIREMENTS OF THE FSPApplicants must have operational ability before they will be authorised to actas FSPs. Once an FSP is authorised, the key individual must ensure thatthese abilities are maintained and managed.The operational ability requirements for FSPs are listed in Board Notice 106,in Section 8 under Part VIII. These apply to FSPs (sole proprietors included)and not to representatives.These requirements include the following:AN FSP MUST HAVE:a fixed business address.adequate access to communication facilities - at least a fulltimetelephone or cell phone service, typing and document duplicationfacilities.adequate storage and filing systems for the safe‐keeping of records,business communications and correspondence.an account with a registered bank including, where required by theAct, a separate bank account for client funds.where the FSP is an accountable institution as defined in the FICA, allthe necessary policies, procedures and systems to ensure fullcompliance with FICA and other applicable anti‐money laundering orterrorist-financing legislation.An FSP that utilises any third party to render administrative or systemfunctions in relation to the rendering of financial services on its behalf musthave a detailed service level agreement, specifying the agreed services, time230 © INSETA - Section 1 12a

standards, roles and responsibilities and any penalties that might beapplicable in place.An FSP must ensure that internal control structures, procedures and controlsare in place, which include at the least, the following:a) segregation of duties and roles and responsibilities where suchsegregation is appropriate from an operational risk mitigationperspective;b) application of logical access security;c) access rights and data security on electronic data, where applicable;d) physical security of the providers assets and records, whereapplicable;e) documentation relating to business processes, policies and controlsand technical requirements;f) system application testing, where applicable;g) disaster recovery and back-up procedures on electronic data, whereapplicable;h) appropriate training for all key individuals and/or representativesregarding the requirements of the Act;i) training for all key individuals and/or representatives regarding thegiving of advice and/or rendering of intermediary services by theprovider; andj) a business continuity plan.An FSP must ensure that the necessary system controls and compliancemeasures are in place to manage and monitor the relevant system(s) in use.An FSP must record all financial and system procedures to ensure that theFSP is able to report in terms of applicable accounting requirements.An FSP must have general administration processing, accounting transactionsand risk control measurements in place to ensure accurate, complete andtimeous processing of data, information reporting and the assurance of dataintegrity.An applicant must, if and to the extent required by the Registrar, maintain inforce suitable guarantees or professional indemnity insurance or fidelityinsurance cover to cover the risks of losses due to fraud, dishonesty ornegligence.© INSETA - Section 1 12a 231

A key individual, in respect of an FSP, must have and be able to maintain theoperational ability to fulfill the responsibilities imposed by the Act on FSPs,including oversight of the financial services (regarding the giving of adviceand rendering of intermediary services) provided by the representatives ofthe FSP.13.2 FINANCIAL SOUNDNESS REQUIREMENTS OF THE FSP13.2.1 Financial soundnessAnother requirement for applicants (of an FSP licence) is that they must meetcertain financial soundness requirements before they will be authorised to actas FSPs. (Applies to FSPs only – not to representatives.)The financial soundness requirements are as follows:1. A FSP must not be an unrehabilitated insolvent or under liquidationor in provisional liquidation.2. A Category I FSP that does not hold client assets or receivepremiums or money must AT ALL TIMES have assets (excludinggoodwill, other intangible assets and investments in related parties)that exceed the FSPs liabilities (excluding loans validly subordinatedin favour of all other creditors).3. A Category 1 FSP that holds client assets or receive premiums ormoney must AT ALL TIMES: have assets (excluding goodwill, other intangible assets andinvestments in related parties) that exceed the FSPs liabilities(excluding loans validly subordinated in favour of all othercreditors); maintain current assets which are at least sufficient to meetcurrent liabilities; and maintain liquid assets equal to or greater than 4/52 weeks ofannual expenditure.The importance for this type of FSP is to ensure that there are adequatesystems and procedures in place so that these requirements are met AT ALLTIMES – not only on application for a licence. The risk lies in the fact thatthe FSP holds or receives clients‟ money, therefore the more stringentrequirement to meet current and liquid asset ratios.232 © INSETA - Section 1 12a

4. A Category II and IV FSP must AT ALL TIMES: have assets (excluding goodwill, other intangible assets andinvestments in related parties) that exceed the FSPs liabilities(excluding loans validly subordinated in favour of all othercreditors). maintain current assets which are at least sufficient to meetcurrent liabilities; and maintain liquid assets equal to or greater than 8/52 weeks ofannual expenditure.5. A Category IIA and III FSP must AT ALL TIMES: have assets (excluding goodwill, other intangible assets andinvestments in related parties) that exceed the FSPs liabilities(excluding loans validly subordinated in favour of all othercreditors) BY AT LEAST R3 MILLION; maintain current assets which are at least sufficient to meetcurrent liabilities; and maintain liquid assets equal to or greater than 13/52 weeksof annual expenditure.Where an FSP has multiple licences, the most onerous financial soundnessrequirements must be met.13.2.2 Monthly management accountsSection 19 of the FAIS Act requires FSPs to meet certain accounting andaudit requirements.One of the requirements is full and proper accounting records, whichmust be updated monthly.Another requirement is the submission of annual financial statementsreflecting the financial position of the business for the financial year.Financial statementsAs from 1 May 2009, all authorised FSPs should submit their annual financialstatements within four months after their financial year-end. This means thatFSPs who use accounting officers or auditors must ensure that they submittheir documentation timeously to the accounting officer or auditor, and agreeon a time-frame for completion of the financial statements with them. Itremains the responsibility of the FSP and Key Individual to ensure that thesereports are submitted within the prescribed period.© INSETA - Section 1 12a 233

The financial statements can either be hand delivered/posted to the FSB orthey can be submitted using the online reporting system.There are a number of documents that together form the set of financialstatements.Section 19(1) (a) & (b) - Accounting and audit requirements.Section 19 (2) External Auditors Report.Section 19 (3) Audit Report.SummaryManaging the infrastructure within the FSP is part of the keyindividual's responsibilities.In order to meet the licensing requirements, FSPs must have theoperational ability to render financial services. Once licensed, theserequirements must be maintained.In order to get an FSP licence, applicants must demonstrate that theymeet the financial soundness requirements. These requirements areongoing during the lifespan of an FSP licence. The General Codestipulates the asset values that must be maintained at all times forthe different product categories.Self-Assessment QuestionsPlease note that the questions which follow are formative in nature. Thequestions were not developed by the FSB‟s examination bodies and as suchcannot be used as an indication of the nature/structure/level of the questionsthat you will encounter in the FSB‟s regulatory examination.1. The operational ability requirements for FSPs include:a) a fixed business addressb) adequate storage and filing systems for the safe‐keeping ofrecords, business communications and correspondencec) an account with a registered bank including, where requiredby the Act, a separate bank account for client fundsd) All the above234 © INSETA - Section 1 12a

2. The financial soundness requirements for FSPs include the following:a) An FSP must not be an unrehabilitated insolvent or underliquidation or in provisional liquidationb) A Category 1 FSP that holds client assets or receivespremiums or money must at the time of the financial audithave assets (excluding goodwill, other intangible assets andinvestments in related parties) that exceed the FSPs liabilities(excluding loans validly subordinated in favour of all othercreditors)c) A Category 1 FSP that holds client assets or receivespremiums or money must AT ALL TIMES maintain liquidassets equal to or greater than 8/52 weeks of annualexpenditured) All the above3. Section 19 of the FAIS Act requires FSPs to meet certain accountingand audit requirements which includes, full and proper accountingrecords, which must be updated:a) annuallyb) quarterlyc) monthlyd) None of the above© INSETA - Section 1 12a 235

Self-Assessment Answers1. The operational ability requirements for FSPs include:a) a fixed business addressb) adequate storage and filing systems for the safe‐keeping ofrecords, business communications and correspondencec) an account with a registered bank including, where requiredby the Act, a separate bank account for client fundsd) All the above2. The financial soundness requirements for FSPs include the following:a) An FSP must not be an unrehabilitated insolvent or underliquidation or in provisional liquidationb) A Category 1 FSP that holds client assets or receivespremiums or money must at the time of the financial audithave assets (excluding goodwill, other intangible assets andinvestments in related parties) that exceed the FSPs liabilities(excluding loans validly subordinated in favour of all othercreditors)c) A Category 1 FSP that holds client assets or receivepremiums or money must AT ALL TIMES maintain liquidassets equal to or greater than 8/52 weeks of annualexpenditured) All the above3. Section 19 of the FAIS Act requires FSPs to meet certain accountingand audit requirements which includes, full and proper accountingrecords, which must be updated:a) annuallyb) quarterlyc) monthlyd) None of the above236 © INSETA - Section 1 12a

Chapter14Auditing and accounting requirementsThis chapter covers the following criteria:KNOWLEDGE CRITERIA:Describe what the auditing and accounting requirements are for an authorised FSP.(Task 14)Explain the financial record-keeping requirements the FSP must adhere to. (Task 14)© INSETA - Section 1 12a 237

PurposeChapter 14 introduces you to the auditing and accounting requirements thatan FSP must adhere to. We look at the maintenance of accounting recordsand preparation of financial statements as prescribed by section 19 of theFAIS Act. There is an onus on the auditor to report irregularities or similarsuspicions to the Registrar.14.1 AUDITING AND ACCOUNTING REQUIREMENTSSection 19 of the FAIS Act stipulates the accounting and audit requirementsthat an FSP must adhere to, which are:Sec 19(1) states that unless exempted, an FSP must do the following withregard to the FAIS business under its licence:Accountingrecords Maintain full and proper accounting records on acontinuous basis, brought up to date monthly. 154Financial Prepare annual financial statements which shows: 155statements (i) the financial position of the entity at its financialyear-end;(ii) the results of operations, the receipt and paymentof cash and cash equivalent balances;(iii) all changes in equity for the period then endedand any(iv) additional components required in terms of SouthAfrican Generally Accepted Accounting Practicesissued by the Accounting Practices Board orInternational Financial Reporting Standards,issued by the International Accounting StandardsBoard or a successor body; and(v) a summary of significant accounting policies andexplanatory notes on the matters referred to inparagraphs (i) to (iii).154 Section 19(1)(a) of the Act155 Section 19(1)(b)(i) to (iv) of the Act238 © INSETA - Section 1 12a

Sec 19(2) requires that the FSP must have the financial statements auditedin accordance with auditing pronouncements as defined in Section 1 of theAuditing Professions Act, 156 by an external auditor approved by the Registrar.Audited The financial statements must: 157financialstatements(i) fairly represent the state of affairs of the provider‟sbusiness;(ii) refer to any material matter which has affected or islikely to affect the financial affairs of the provider; and(iii) be submitted by the FSP, to the Registrar, within four(4) months after financial year-end, or as allowed bythe Registrar.Sec 19(3) requires FSPs who hold money and/or assets on behalf of theirclients to maintain full and proper accounting records of these, and to submit an audited report together with the financial statements(that is, within four (4) months of financial year-end), in theprescribed format. (We discussed the requirements of the GeneralCode regarding custody of financial products in Chapter 8.1.)Audited financial The report must include the following: 158statements 1. The amount of money and financial products atyear-end held by the provider on behalf of clients;2. That such money and financial products werethroughout the financial year kept separate fromthose of the business of the authorised financialservices provider, and report any instance of noncomplianceidentified in the course of the auditand the extent thereof; and3. any other information required by the Registrar.NOTE 159 : The aim of the Section 19(3) Report is to ensure that clients‟ assetsand or monies held by a provider are protected from unauthorised use andkept separate from the provider‟s business funds and also, to detect any noncompliancewith the Act in respect of those monies and assets.156 Act No 26 of 2005157 Section 19(2)(b) of the Act158 Section 19(3)(a) to (c) of the Act159 Ibid© INSETA - Section 1 12a 239

Sec 19(4) states that: the auditor of an authorised FSP must report to and inform the Registrar in writing of any irregularity or suspectedirregularity in the conduct or the affairs of the authorised FSPconcerned of which the auditor became aware in performing functions asauditor and which, in the opinion of the auditor, is material.Sec 19(5) provides that: if the FSP terminates the services of its auditor, the auditor mustprovide what the auditor believes to be the reasons for thetermination. if the auditor would have submitted a report in terms of s.19(4),such report must still be submitted.The FSB, on its website, provides detail on the type of financial statements tobe submitted as follows:In terms of section 19, all financial statements must be audited. TheRegistrar, however, exempted certain providers from the audit requirements.The following financial statements must be submitted:Category II, IIA, III and IV FSPs: audited financial statementsCategory I FSPs: Companies: audited financial statements. Sole proprietors and close corporations that do not receive clientfunds or premiums: unaudited financial statements. Sole proprietors and close corporations that do receive client funds orpremiums: audited financial statements.14.2 FINANCIAL RECORD-KEEPINGSection 19 (1) of the FAIS Act requires that the FSP keeps the accountingrecords updated on a monthly basis. We discussed this above.Part of the key individual's responsibilities is to ensure that there areadequate processes and procedures in place to facilitate an infrastructure toupdate the monthly management accounts and to report on it.240 © INSETA - Section 1 12a

It is also important to ensure that the processes and procedures allow theauditing firm/accounting officer to be organisationally independent from theFSP (or the group of which is it part of) and able to maintain an objectiveframe of mind in accomplishing its responsibilities.Section 19(4) requires an auditor to inform the Registrar in writing of anyirregularities or suspected irregularities in the affairs of the FSP.SummaryFSPs must ensure that the principles relating to accounting andauditing are adhered to.Accounting records must be updated monthly, as required by Section19 of the FAIS Act.Financial statements must be prepared to reflect:– the financial position of the entity at its financial year-end.– results of operations, receipt and payment of cash and cashequivalent balances.– additional GAAP requirements.– summary of significant accounting policies and explanatorynotes.The auditor of an FSP must:– report to and inform the Registrar in writing of anyirregularity or suspected irregularity in the conduct or theaffairs of the authorised FSP concerned of which the auditorbecame aware in performing functions as auditor and which,in the opinion of the auditor, is material.Self-Assessment QuestionsPlease note that the questions which follow are formative in nature. Thequestions were not developed by the FSB‟s examination bodies and as suchcannot be used as an indication of the nature/structure/level of the questionsthat you will encounter in the FSB‟s regulatory examination.1. Section 19 of the FAIS Act stipulates the accounting and auditrequirements which an FSP must adhere to.a) Trueb) False© INSETA - Section 1 12a 241

2. The financial statements must:a) fairly represent the state of affairs of the provider‟s businessb) refer to any material matter which has affected or is likely toaffect the financial affairs of the providerc) be submitted by the FSP, to the Registrar, within four (4)months after financial year-end, or as allowed by theRegistrard) All the above3. Sec 19(3) requires FSPs who hold money and/or assets on behalf oftheir clients to:a) maintain full and proper accounting records of theseb) submit an audited report together with the financialstatements (that is, within six (6) months of financial yearend),in the prescribed formatc) submit an audited report in the prescribed format before thefollowing financial year-end4. The aim of the Section 19(3) Report is to ensure that clients‟ assetsand/or monies held by a provider are:a) protected from unauthorised useb) kept included in the provider‟s business fundsc) invested according to the provider's instructionsd) All the above242 © INSETA - Section 1 12a

Self-Assessment Answers1. Section 19 of the FAIS Act stipulates the accounting and auditrequirements which an FSP must adhere to.a) Trueb) False2. The financial statements musta) fairly represent the state of affairs of the provider‟s businessb) refer to any material matter which has affected or is likely toaffect the financial affairs of the providerc) be submitted by the FSP, to the Registrar, within four (4)months after financial year-end, or as allowed by theRegistrard) All the above3. Sec 19(3) requires FSPs who hold money and/or assets on behalf oftheir clients to:a) maintain full and proper accounting records of theseb) submit an audited report together with the financialstatements (that is, within six (6) months of financial yearend),in the prescribed formatc) submit an audited report in the prescribed format before thefollowing financial year-end4. The aim of the Section 19(3) Report is to ensure that clients‟ assetsand/or monies held by a provider are:a) protected from unauthorised useb) kept included in the provider‟s business fundsc) invested according to the provider's instructionsd) All the above© INSETA - Section 1 12a 243

244 © INSETA - Section 1 12a

Chapter15The impact of FICA on the FSPThis chapter covers the following criteria:KNOWLEDGE CRITERIA:Explain what FICA governs and requires. (Task 15)Describe how the FSP is impacted by FICA. (Task 15)Explain what actions should be taken by the FSP in regard to FICA. (Task 15)© INSETA - Section 1 12a 245

PurposeThe FIC Act imposes certain responsibilities on FSPs that are „accountableinstitutions‟. Supervisory bodies, such as the FSB are empowered through theAct to enforce compliance with money laundering legislation. This chapter willtake you through the impact of FIC on the FSP and the reporting and recordkeepingduties required by the FIC Act. It does not include a comprehensiveanalysis of the Act.We also look briefly at other applicable anti-money laundering legislation.15.1 THE SCOPE OF THE FINANCIAL INTELLIGENCE CENTRE ACTOne of the objectives of the FICA is to introduce control measures to assistthe detection and investigation of money laundering activities. The primarypurpose of the FIC Act is to combat money laundering.Money laundering refers to any act that obscures the illicit nature or theexistence, location or application of proceeds of crime.Simply put, money laundering is the processing of proceeds of criminalactivities to disguise their origin.Money laundering happens throughout the financial services sector and it isimportant that:financial advisers and intermediaries know with whom they are doingbusinessthe paper trail of transactions through the financial system can beidentified and preserved; andpossible money laundering transactions are identified and reported.The FICA introduced the following control measures. Institutions must:be able to establish and verify the identity of their clientskeep certain recordsreport certain information; andimplement measures that will assist them in complying with the FICA,such as training of staff.246 © INSETA - Section 1 12a

The FICA does not empower the Financial Intelligence Centre (FIC) tosupervise the accountable institutions.The supervisory functions are performed by all supervisory bodies listedunder Schedule 2.Each supervisory body is responsible for enforcing compliance with moneylaundering legislations by the accountable institutions under its regulation orsupervision. Therefore the FSB is responsible for enforcing compliance byauthorised FSPs.The FICA provides for:the establishment and operation of the FIC (Financial IntelligenceCentre) and MLAC (Money Laundering Advisory Council).creation of money laundering control obligations for specific personsand institutions.regulation of access to information.15.2 THE IMPACT OF THE FICA ON FSPsPlease note that we only discuss the most pertinent aspects of the FIC Actand not the full ambit of the Act. You need to ensure that you are familiarwith the general concepts addressed by the FIC Act.The FICA creates four (4) money laundering control obligations for allaccountable institutions as follows:1. Duty to identify and verify clients;2. Duty to keep records of business relationships and transactions;3. Reporting duties and obligations to give and allow access toinformation; and4. Adoption of measures designed to promote compliance byaccountable institutions.In terms of these requirements, an FSP who is an accountable institution asdefined in the FICA, must have in place all the necessary policies, proceduresand systems to ensure full compliance with that Act and other applicableanti-money laundering or terrorist financing legislation.© INSETA - Section 1 12a 247

Accountable institutionsThe FIC Act requires “accountable institutions” to verify client details andreport suspicious transactions.For our purposes, the following institutions are included in Schedule 1 of theAct:FINANCIAL INTELLIGENCE CENTRE ACT, 2001SCHEDULE 1: LIST OF ACCOUNTABLE INSTITUTIONS1. A practitioner who practises as defined in section 1 of the AttorneysAct, 1979 (Act 53 of 1979).2. A board of executors or a trust company or any other person thatinvests, keeps in safe custody, controls or administers trust propertywithin the meaning of the Trust Property Control Act, 1988 (Act 57 of1988).3. An estate agent as defined in the Estate Agency Affairs Act, 1976(Act 112 of 1976).4. An authorised user of an exchange as defined in the SecuritiesServices Act, 2004 (Act 36 of 2004).5. A manager registered in terms of the Collective Investment SchemesControl Act, 2002 (Act 45 of 2002), but excludes managers who onlyconduct business in Part VI of the Collective Investment SchemesControl Act (Act 45 of 2002).6. A person who carries on the „business of a bank‟ as defined in theBanks Act, 1990 (Act 94 of 1990).7. A mutual bank as defined in the Mutual Banks Act, 1993 (Act 124 of1993).8. A person who carries on a „long-term insurance business‟ as definedin the Long-Term Insurance Act, 1998 (Act 52 of 1998).9. A person who carries on a business in respect of which a gamblinglicence is required to be issued by a provincial licensing authority.10. A person who carries on the business of dealing in foreign exchange.11. A person who carries on the business of lending money against thesecurity of securities.12. A person who carries on the business of a financial services providerrequiring authorisation in terms of the Financial Advisory andintermediary Services Act, 2002 (Act 37 of 2002), to provide adviceand intermediary services in respect of the investment of anyfinancial product (but excluding a short-term insurance contract orpolicy referred to in the Short-term Insurance Act, 1998 (Act 53 of248 © INSETA - Section 1 12a

1998) and a health service benefit provided by a medical scheme asdefined in section 1(1) of the Medical Schemes Act, 1998 (Act 131 of1998).13. A person who issues, sells or redeems travellers‟ cheques, moneyorders or similar instruments.14. The Postbank referred to in section 51 of the Postal Services Act,1998 (Act 124 of 1998).15. [deleted by amendment Notice No. 1104 dated 26 November 2010]16. The Ithala Development Finance Corporation Limited.17. [deleted by amendment Notice No. 1104 dated 26 November 2010]18. [deleted by amendment Notice No. 1104 dated 26 November 2010]19. A person who carries on the business of a money remitter.Reporting InstitutionsThe FIC Act also requires „reporting institutions‟ to verify client details andreport suspicious transactions.According to Schedule 3 of the Act, the following are seen as reportinginstitutions:A person who carries on the business of dealing in motor vehiclesA person who carries on the business of dealing in Kruger rands.It is therefore imperative that FSPs have adequate staff training in place andhave proper systems and procedures which assist them in complying with theFAIS Act requirement to comply with the FICA. Banks and insurancecompanies, for instance, are regarded as accountable institutions in terms ofthe FICA.The key individual must also ensure that there are adequate systems in placeto provide for the FICA exemptions.The compliance report requires information relating to an FSPs adherence tothe FAIS General Code with regard to "the necessary policies, procedures andsystems to ensure full compliance with FICA and other applicable anti‐moneylaundering or terrorist financing legislation". This includes client identification,identification and reporting of suspicious transactions and risk-rating ofclients.© INSETA - Section 1 12a 249

The four (4) money laundering control obligations in more detail:1. IDENTIFICATION OF NEW CLIENTSSection 21(1) of the FICA requires accountable institutions: to identify new clients and verify their particulars before any transaction may be concluded or any businessrelationship is established with them unless they qualify forExemption 2.(Exemption 2 stipulates that an accountable institution may accept amandate from a prospective client and proceed to establish a businessrelationship or conclude a single transaction with that client.)2. VERIFICATION OF NEW CLIENTS The Money Laundering Control Regulations prescribe theidentification and verification requirements for clients ofaccountable institutions, ranging from SA citizens and residents,foreign nationals, corporations, South African companies, CloseForeign companies, Partnerships and Trusts. The information obtained from legal persons such as companies,close corporations, and trusts must be verified by comparing itagainst the registration documents of these legal entities. The identification procedures in respect of the legal personsreferred to above must also be extended to directors,shareholders, members and trustees. Documents serving toconfirm their authority to act on behalf of these legal entities mustalso be obtained.3. IDENTIFICATION AND VERIFICATION OF EXISTING CLIENTSSection 21(2) of the FICA requires a similar process for existingclients as for new clients.It also states that if an accountable institution had established abusiness relationship with a client before the FICA took effect, itmay not conclude further transactions in the course of thatbusiness relationship, unless prescribed steps are taken to ensurethe identities of the clients are established and verified – therewas a period of time granted for compliance with this requirement.250 © INSETA - Section 1 12a

ADDITIONAL MEASURES WHEN A PERSON REPRESENTS OR ACTSON AUTHORITY OF ANOTHER Regulation 17 states that if a person wants to establish a businessrelationship or to conclude a single transaction with anaccountable institution on behalf of another person, theaccountable institution must, in addition to the normalidentification and verification requirements, obtain from thatperson information which provides proof of that person‟s authorityto act on behalf of the client. Information that can be obtained includes Mandate, Power ofattorney, etc.VERIFICATION IN THE ABSENCE OF CONTACT PERSON(NON-FACE-TO-FACE CLIENTS) Regulation 18 stipulates that if the accountable institutionobtained identification and verification information from a naturalor legal person without contact in person with such a naturalperson or representative of that legal person, the accountableinstitution must take reasonable steps to establish the existenceand verify the identity of that natural person or legal person. Authorised FSPs are encouraged to establish procedures fordealing with non-face-to-face clients and must incorporate theminto their main client acceptance procedure manual.15.3 RECORD-KEEPING AND REPORTING OBLIGATIONS UNDERTHE FICA AND OTHER LEGISLATION15.3.1 Record-keepingSection 22 of the FICA requires accountable institutions:who establish a business relationshipor conclude a transaction with a client,to keep records of a single transaction or of additional transactionsconcluded in the course of a business relationship.It also prescribes full particulars and details of the information that must bekept as records.© INSETA - Section 1 12a 251

The documents used to identify and verify clients as well as records of alltransactions must be retained for a period of at least five (5) years from thedate on which the business relationship was terminated.In terms of Section 24 (1):the record-keeping obligation may be outsourced to a third partyprovided the accountable institution is given free and easy access tothese records. Note that outsourcing this function to a third partydoes not discharge the accountable institution from the recordkeepingresponsibility.Section 24(2) states that:the accountable institution will still be held liable for the third party‟sfailure to comply with this obligation.Section 24(3) stipulates that:if the accountable institution appoints a third party to keep recordson its behalf, thenparticulars of the third party keeping records on behalf of theaccountable institution must be provided to the FIC.The full particulars and details of the information which must be furnished tothe FIC regarding the third party carrying out the record-keeping obligation isprescribed under Regulation 20.As in the FAIS Act, records may be kept manually or electronically.15.3.2 Reporting dutiesThe duty to report suspicious and unusual transactions is imposed on allpersons who carry on business, are in charge of or manage a business, or areemployed by the business.252 © INSETA - Section 1 12a

Suspicious or unusual based reportingThe FICA requires all business organisations, their managers and employeesof such businesses to identify and report suspicious and unusual transactionsto the FIC. 160Failure to file such a report amounts to an offence that carries a penalty.Reporting formatRegulation 22 of the FICA deals with the reporting format. It states thatsuspicious transaction reporting can be Internet based or by a methoddeveloped by the FIC.Full particulars of the information to be contained in the SuspiciousTransaction Reports (STR) is prescribed under Regulation 23.Reporting periodRegulation 24 of the FICA deals with the reporting period.The report must be sent to the FIC as soon as possible, but no later than five(5) days after the suspicious transaction was determined.Protection of persons filing STR'sIn terms of Section 38, persons filing STR's are guaranteed protection againstcriminal and civil liability for complying in good faith with the provisions ofthe FICA.STRs are confidential documents for use by the FIC staff only.In terms of Section 33, an accountable institution may continue with thereported transaction unless the FIC specifically orders such a person not toproceed with the transaction.REPORTS MUST NOT BE SENT TO THE FSB OR THE FAIS DEPARTMENT – ITMUST BE SENT TO THE FIC.160 Section 29© INSETA - Section 1 12a 253

In an FSB FAIS Newsletter, the FSB suggested the following measures topromote compliance with the FICA requirements. 161Formulation and implementation of internal rulesSection 42 of the FICA requires accountable institutions to formulate andimplement internal rules concerning:client identification and verification record-keepingsteps taken to determine and report such other matters as may besuspicious transactionsprescribed from time to timeInternal rules must be made available to every employee involved intransactions to which FICA apply, and on request, a copy thereof must bemade available to the FIC and relevant supervisory bodies.Training of employeesThe FICA requires accountable institutions to provide training to itsemployees to enable them to comply with the provisions of FICA and internalrules applicable to them. 162Note that FICA does not prescribe the format of training required. Bothformal training and FICA awareness campaigns are recognised. Thesemethods are both designed to raise the level of awareness of employeesregarding their obligations.As in the FAIS Act, record of training attended must be kept as proof.Appointment of a compliance officerSection 43(2) of the FICA requires accountable institutions to appoint aperson with a responsibility to ensure compliance by:the accountable institution with its employees of the accountableobligations under FICA.institution with the provisions of FICAas well as internal rules applicable tothem161 Volume 6, June 2008162 Section 43(1)254 © INSETA - Section 1 12a

15.3.3 Other applicable anti-money laundering legislationOther applicable legislation which apply and with which an FSP must complywith in terms of money laundering control measures, include:Prevention of Organised Crime Act 163 (POCA)Objectives of POCA:To criminalise racketeering and create offences relating to activitiesof criminal gangsTo criminalise money laundering and create a number of seriousoffences in respect of laundering and racketeeringTo create a general reporting obligation for businesses coming intopossession of suspicious propertyTo create a mechanism for criminal confiscation of proceeds of crimeand for civil forfeiture of proceeds.Money laundering offences under POCAPOCA creates the following money laundering offences: Offences involving proceeds of all forms of crime; and Offences involving proceeds of a pattern of racketeeringThe Act includes a number of offences 164 − which are: receiving or keeping property derived from racketeering(swindling/committing fraud), and uses or invests any part of thatproperty in acquisition of any interest in, or the establishment oroperation or activities of, any enterprise; and receive property from an enterprise, knowing (or should have known)that the property results from racketeering.163 Act No 121 of 1998164 Section 2 of the Act© INSETA - Section 1 12a 255

Protection of Constitutional Democracy against Terrorist and RelatedActivities Act 165The following are offences under the Act: Offence of terrorism and offences associated or connected withterrorist activities Offences associated or connected with terrorist activities Offences associated or connected with financing of specified offences Offences relating to harbouring or concealment of personscommitting specified offences Duty to report presence of person suspected of intending to commitor having committed an offence and failure to so report Offences relating to hoaxes Threat, attempt, conspiracy and inducing another person to commitan offence.SummaryThe FIC Act requires certain supervisory oversight, regarding FICAcompliance, by the FAIS Registrar.The FIC Act introduced certain (money laundering) control measures.Institutions must:– establish and verify the identity of their clients;– keep certain records;– report certain information; and– implement measures that will assist compliance with theFICA.The FICA does not empower the Financial Intelligence Centre (FIC) tosupervise the accountable institutions.The four (4) money laundering controls are:1. identification of new clients;2. verification of clients;3. identification; and4. verification of existing clientsFSPs (accountable institutions) are required to keep records of asingle transaction or of additional transactions concluded in thecourse of a business relationship.165 Act No 33 of 2004256 © INSETA - Section 1 12a

Identification and verification documentation as well as records oftransactions must be kept for five (5) years from the date on whichthe business relationship was terminated.The duty to report suspicious and unusual transactions is imposed onall persons who carry on business, are in charge of or manage abusiness, or are employed by the business.Self-Assessment QuestionsPlease note that the questions which follow are formative in nature. Thequestions were not developed by the FSB‟s examination bodies and as suchcannot be used as an indication of the nature/structure/level of the questionsthat you will encounter in the FSB‟s regulatory examination.1. Consider the following statements carefully and then choose thestatement that is TRUE.a) One of the objectives of the FIC Act is to introduce controlmeasures to assist the detection and investigation of creditgrantingactivities.b) The FAIS compliance report requires information relating toan FSPs adherence to the FAIS General Code with regard to"the necessary policies, procedures and systems to ensurefull compliance with FICA and other applicable anti‐moneylaundering or terrorist financing legislation".c) The FIC Act empowers the Financial Intelligence Centre tosupervise the accountable institutions.d) In terms of the FIC Act, accountable institutions are requiredto obtain statements from customers suspected to belaundering money.2. Which of the following apply to the FIC Act?a) Persons filing suspicious transaction reports are notguaranteed protection against criminal and civil liability forcomplying in good faith with the provisions of FICA and musttherefore take care not to be identified.b) The reports required under the FIC Act for FAIS purposesmust be sent to the FAIS department at the FSB.c) Accountable institutions must have and implement internalrules that include client identification and verification and© INSETA - Section 1 12a 257

steps to be taken to determine and report suspicioustransactions.d) The FICA requires only financial institutions, their managersand employees of such businesses to identify and reportsuspicious and unusual transactions to the Financialintelligence Centre.3. Section 21(1) of the FICA requires accountable institutions to:a) identify new clientsb) verify the particulars of new clientsc) verify the marital status of clientsd) a) and b)4. Section 21 (2) states that if an accountable institution hadestablished a business relationship with a client before the FICA tookeffect, it may not conclude further transactions in the course of thatbusiness relationship, unless prescribed steps are taken to ensure theidentities of the clients are established and verified – there was aperiod of time granted for compliance with this requirement.a) Trueb) False5. Section 22 of the FICA requires accountable institutions that establisha business relationship or conclude a transaction with a client, tokeep records of a single transaction or of additional transactionsconcluded in the course of a business relationship.a) Trueb) False258 © INSETA - Section 1 12a

Self-Assessment Answers1. Consider the following statements carefully and then choose thestatement that is TRUE.a) One of the objectives of the FIC Act is to introduce controlmeasures to assist the detection and investigation of creditgrantingactivitiesb) The FAIS compliance report requires information relating toan FSPs adherence to the FAIS General Code with regard to"the necessary policies, procedures and systems to ensurefull compliance with FICA and other applicable anti‐moneylaundering or terrorist-financing legislation"c) The FIC Act empowers the Financial Intelligence Centre tosupervise the accountable institutionsd) In terms of the FIC Act, accountable institutions are requiredto obtain statements from customers suspected to belaundering money2. Which of the following apply to the FIC Act?a) Persons filing suspicious transaction reports are notguaranteed protection against criminal and civil liability forcomplying in good faith with the provisions of FICA and musttherefore take care not to be identifiedb) The reports required under the FIC Act for FAIS purposesmust be sent to the FAIS Department at the FSBc) Accountable institutions must have and implement internalrules that include client identification and verification andsteps to be taken to determine and report suspicioustransactionsd) The FICA requires only financial institutions, their managersand employees of such businesses to identify and reportsuspicious and unusual transactions to the Financialintelligence Centre© INSETA - Section 1 12a 259

3. Section 21(1) of the FICA requires accountable institutions to:a) identify new clientsb) verify the particulars of new clientsc) verify the marital status of clientsd) a) and b)4. Section21 (2) states that if an accountable institution had establisheda business relationship with a client before the FICA took effect, itmay not conclude further transactions in the course of that businessrelationship, unless prescribed steps are taken to ensure theidentities of the clients are established and verified – there was aperiod of time granted for compliance with this requirement.a) Trueb) False5. Section 22 of the FICA requires accountable institutions that establisha business relationship or conclude a transaction with a client, tokeep records of a single transaction or of additional transactionsconcluded in the course of a business relationship.a) Trueb) False260 © INSETA - Section 1 12a

Chapter16The role and power of the Ombud forFinancial Services ProvidersThis chapter covers the following criteria:KNOWLEDGE CRITERIA:Explain what the role and powers of the Ombud are. (Task 16)Discuss the obligations of the FSP/key individual in respect of an investigation conductedby the FSB and Ombud for Financial Services Providers (FAIS Ombud). (Task 16)© INSETA - Section 1 12a 261

PurposeChapter 16 is the last part of this study material and introduces you to therole and power of the Ombud for Financial Services Providers (FAIS Ombud).The Ombud for Financial Services Providers (FAIS Ombud) can also act as theStatutory Ombud. We look at the function of the Ombud, the power he hasand the obligations of an FSP when the Ombud investigates a complaint.16.1 THE ROLE OF THE OMBUD FOR FINANCIAL SERVICESPROVIDERS (FAIS OMBUD)The FAIS Act 166financial services.makes provision for the appointment of an Ombud forThe function of the Ombud for Financial Services Providers (FAIS Ombud) is:to resolve disputes relating to the rendering of financial services byproviders where they have either:failed to comply with the FAIS Act; orwhere as a result of either wilful or negligent conduct by the provider,the client has suffered or will potentially suffer prejudice or damage.The objective of the Ombud office is to provide a fair, unbiased, reasonable,economical and expeditious relief to the ordinary person in the street at nocharge. 167The Ombud for Financial Services Providers is a body created through law.There are other voluntary ombudsmen created by the financial servicesindustry who also deal with financial disputes – such as the Ombudsman forBanking services.Since 1 April 2005, the Ombud for Financial Services Providers was grantedthe authority to act as Statutory Ombud in terms of the Financial OmbudSchemes Act 2004 (Act No. 37 of 2004) (“FSOS Act”).166 Sections 20 to 32 of the FAIS Act167 Section 20(3) of the Act262 © INSETA - Section 1 12a

This means that the Ombud for Financial Services Providers can deal withcomplaints where there is uncertainty over jurisdiction and where the othervoluntary ombudsmen do not have jurisdiction.The following fundamental principles apply to the role of the Ombud forFinancial Services Providers:The Ombud for Financial Services Providers acts independently andobjectively and takes no instructions from any person regarding theexercise of authority.The services rendered by the Ombud are not to be construed asbeing similar to those of a professional legal adviser and are confinedto the investigation and determination of complaints in terms of theAct and the Rules.16.2 THE POWER OF THE OMBUD FOR FINANCIAL SERVICESPROVIDERSThe Ombud for Financial Services Providers is mandated to investigate andadjudicate complaints by clients against FSPs and representatives.These complaints could relate to a number of areas of non-compliance withthe various codes of conduct promulgated under the FAIS Act and where afinancial service has been rendered negligently and where someone haswilfully committed misconduct whilst rendering a financial service.The FAIS Act requires that when adjudicating a complaint, the Ombud forFinancial Services Providers must consider the contractual or other legalrelationship between the parties and ultimately do what is equitable in thecircumstances.Compensation could vary from:ordering the complainant to be placed in the position in which hewould have been had it not been for the misconduct of therepresentative orit could be to simply correct a misunderstanding.It all depends on the circumstances of the particular case.© INSETA - Section 1 12a 263

The Ombud for Financial Services Providers can officially accept acomplaint for investigation if the complaint relates to a financialservice that was rendered on or after 30 September 2004. 168The complaint must not constitute a monetary claim in excess ofR800 000.00 for a particular kind of financial prejudice or damage,unless the respondent has agreed in writing to this limitation beingexceeded, or the complainant has abandoned the amount in excessof R800 000.00. 169If a case cannot be settled through mediation or conciliation, theOmbud for Financial Services Providers or the Deputy Ombud forFinancial Services Providers may issue a determination.A determination has the same legal effect as a judgment of a court.16.3 OBLIGATIONS OF THE FSP REGARDING INVESTIGATIONS BYTHE FSB AND OMBUD FOR FINANCIAL SERVICESPROVIDERSThe management and oversight duties include the management of processesto ensure that the business cooperates in the case of an investigation by theOmbud or the FSB.FSPs must try to resolve complaints and disputes with clients first and if thereis no agreement or settlement, the client can approach the Ombud. The FSPmust provide adequate contact details of the Ombud to clients (Refer to thediscussion in 8.7 above, relating to complaints handling.)The Ombud will typically consider a complaint in the following circumstances:If the complainant alleges that a Financial Services Provider or itsrepresentative has:contravened or failed to comply with the provisions of the FAIS Actand as a result thereof the complainant has suffered or is likely tosuffer financial prejudice or damage;wilfully or negligently rendered a financial service to the complainantwhich has caused prejudice or damage to the complainant or which islikely to result in such damage;treated the complainant unfairly.168 Section 27(3)(a)(i) & 4(a)(iii) of BN 81 of 2003169 Section 4(c) of BN 81 of 2003264 © INSETA - Section 1 12a

In terms of the FSOS Act, the Ombud can entertain a complaint relating toany agreement with, or a financial service or product of a financial institutionwhere it is alleged that a client has suffered or potentially will suffer financialprejudice or harm.Procedures when investigating a complaint1. The complainant completes a complaint form and submits it to theoffice of the Ombud for Financial Services Providers. The Ombud mayinsist that the complaint be referred to and dealt with by the FSPfirst.2. The Ombud must inform every other interested party to thecomplaint that they have received it. 1703. All parties must be provided particulars to enable them to respond tothe complaint. 1714. All parties must be afforded opportunity to submit a response to thecomplaint. 1725. The Ombud may implement any procedure, including mediation thathe deems appropriate and may allow any party the right of legalrepresentation in considering the complaint. 1736. The Ombud may require the respondent (FSP/representative) todiscuss the complaint and provide any relevant information that theOmbud may require.7. The Ombud will, in the first instance, explore any reasonableprospects of resolving a complaint, by a conciliated settlementacceptable to all parties. 1748. He may make a recommendation to speedily resolve a complaint andrequire the parties to confirm in writing whether or not they acceptthe recommendation. 1759. Where the parties accept the recommendation, the recommendationwill have the effect of a final determination by the Ombud ascontemplated in Section 28(1) of the FAIS Act. 17610. The Ombud may dismiss the complaint if he is of the view that theoffer made by the FSP is fair. 177170 Section 27(4)(a) of the Act)171 Section 27(4)(b) of the Act172 Section 27(4)(c) of the Act173 Section 27(5)(a) of the Act174 Section 27(5)(b) of the Act175 Section 27(5)(c) of the Act.176 Ibid177 Section 7(b)(ii) of BN 81 of 2003© INSETA - Section 1 12a 265

11. If the complainant is unhappy with the Ombud's determination hemay appeal to the Appeal Board, provided, the Ombud grants leaveto appeal.Note: If the Ombud refuses leave to appeal, the applicant must beadvised in writing of such refusal. The applicant may within onemonth of such refusal apply to the chairperson of the board of appealfor leave to appeal against the determination, and advises theOmbud in writing accordingly.12. Where a matter has not been settled or a recommendation has notbeen accepted by the parties, the Ombud shall make a determinationwhich may include: 178a) dismissing the complaint; orb) upholding the complaint, wholly or partially.13. The complainant may be awarded an amount as fair compensationfor any financial prejudice or damage suffered. 17914. A direction may be issued that the authorised financial servicesprovider, representative or other party concerned take such steps inrelation to the complaint as the Ombud deems appropriate and just.15. A determination or final decision of the board of Appeal, as the casemay be, is regarded as a civil judgment that shall be recorded by theclerk of the court or Registrar of the High Court, as the case maybe. 18016. A warrant of Execution may be issued in the case of a determinationor final decision of the board which amounts to a monetary awardand may be executed by the Sheriff of the Court after the expirationof a period of two (2) weeks after the date of the determination orfinal decision of the board, as the case may be. 181The key individual must ensure that there are adequate processes in placeand that staff are informed and trained with regard to the handling ofcomplaints submitted to the Ombud and any investigations by the Ombud'soffice.If a person does something in relation to the FAIS Ombud or in relation to aninvestigation by the Ombud, which could be regarded as contempt of court bya court, the person is guilty of an offence and liable on conviction to a penaltywhich could have been imposed by a court.178 Section 28(1)(b) of the Act179 Section 12(a) of BN 81 of 2003180 Section 28(5) of the Act181 Section 28(6) of the Act266 © INSETA - Section 1 12a

A person who anticipates a determination of the Ombud and does somethingto influence the determination or who wilfully interrupts any proceedings ofthe Ombud, is guilty of an offence and liable on conviction to a fine or toimprisonment for a period not exceeding one year.Case fees, costs and interestThe Ombud may, when accepting a complaint in terms of section 27(5) of theAct, require the respondent to pay a case fee to the Office not exceedingR1 000.The case fee is non-refundable irrespective of the outcome of the matter.Payment of a case may be enforced by the Office as a final determination bythe Ombud.When making a final determination in terms of section 28 of the Act, theOmbud may grant costs against the respondent or, in the circumstancescontemplated by section 28(2)(b)(iii), against the complainant, in either casein favour of the other party to the complaint or in favour of the Office. Anycosts awarded by the Ombud must be quantified by the Ombud with dueregard to the nature of the complaint, the time spent on the complaint, theexpense and inconvenience caused to a party, the conduct of a party inresolving the complaint and any other factor deemed by the Ombud to beappropriate.Any award of interest and costs forms part of the relevant final determinationof the Ombud.SummaryThe Ombud for Financial Services Providers (FAIS Ombud) and theStatutory Ombud are one and the same entity.The main objective of the Ombud for Financial Services Providers(FAIS Ombud) is to resolve disputes relating to the rendering offinancial services by providers where they have either failed tocomply with the FAIS Act, acted negligently - causing the client tosuffer, or the client will potentially suffer some form of prejudice ordamage.The FAIS Act requires that when adjudicating a complaint, theOmbud for Financial Services Providers (FAIS Ombud) must consider© INSETA - Section 1 12a 267

the contractual or other legal relationship between the parties andultimately do what is equitable in the circumstances.There are certain procedures for a client to lodge a complaint withthe Ombud for Financial Services Providers (FAIS Ombud) and theFSP must assist the client with the required information.Self-Assessment QuestionsPlease note that the questions which follow are formative in nature. Thequestions were not developed by the FSB‟s examination bodies and as suchcannot be used as an indication of the nature/structure/level of the questionsthat you will encounter in the FSB‟s regulatory examination.1. The function of the Ombud for Financial Services Providers (FAISOmbud) is to resolve disputes relating to the rendering of financialservices by providers:a) where they have failed to comply with the FAIS Actb) where as a result of either wilful or negligent conduct by theprovider the client has sufferedc) where as a result of either wilful or negligent conduct by theprovider the client will potentially suffer prejudice or damage.d) All the above2. The Ombud for Financial Services Providers (FAIS Ombud) ismandated to investigate and adjudicate complaints by clients againstFSPs and representatives.a) Trueb) False3. When investigating a complaint:a) the Ombud may implement any procedure includingmediation which he deems appropriate and may allow anyparty the right of legal representation in considering thecomplaintb) the Ombud may not dismiss the complaint, even if he is ofthe view that the offer made by the FSP is fairc) if the complainant is unhappy with the Ombud'sdetermination, he may appeal to the FSB provided, theOmbud gives permissiond) All the above268 © INSETA - Section 1 12a

4. Where a matter has not been settled or a recommendation has notbeen accepted by the parties, the Ombud shall make a determinationwhich may include dismissing the complaint or upholding thecomplaint, wholly or partially.a) Trueb) False© INSETA - Section 1 12a 269

Self-Assessment Answers1. The function of the Ombud for Financial Services Providers (FAISOmbud) is to resolve disputes relating to the rendering of financialservices by providers:a) where they have failed to comply with the FAIS Actb) where as a result of either wilful or negligent conduct by theprovider the client has sufferedc) where as a result of either wilful or negligent conduct by theprovider the client will potentially suffer prejudice or damage.d) All the above2. The Ombud for Financial Services Providers (FAIS Ombud) ismandated to investigate and adjudicate complaints by clients againstFSPs and representatives.a) Trueb) False3. When investigating a complainta) The Ombud may implement any procedure includingmediation which he deems appropriate and may allow anyparty the right of legal representation in considering thecomplaint.b) The Ombud may not dismiss the complaint, even if he is ofthe view that the offer made by the FSP is fairc) If the complainant is unhappy with the Ombud'sdetermination he may appeal to the FSB, provided theOmbud gives permissiond) All the above4. Where a matter has not been settled or a recommendation has notbeen accepted by the parties, the Ombud shall make a determinationwhich may include dismissing the complaint or upholding thecomplaint, wholly or partially.a) Trueb) Falsei Section 2(b)(iii) of Board Notice 122 of 2003 read together with Section 8(1)(i) and (ii) ofthe Act270 © INSETA - Section 1 12a