Background: Level 1 Regulatory Examinations
The Financial Advisory and Intermediary Services Act, 37 of 2002, (“the FAIS Act”), came into effect on 30 September 2004. The objective of the FAIS Act is to:
- Protect consumers, and
- Professionalise the financial services industry.
The Act requires all financial advisors and intermediaries (providers) to meet specific competence requirements. At the time, the competence requirements consisted of experience and qualifications. To assist industry participants, the initial qualification requirements required to obtain a licence to act as a provider were “reduced” from full qualification requirements to skills programmes (or credit requirements) to assist those in the industry that did not have any formal qualification and who had to commence with studies as a result of the promulgation of the FAIS Act. However, the intention was always to gradually increase the qualification requirements to the requirement that providers must have full qualifications.
As a result thereof, the Determination for Fit and Proper Requirements for Financial Services Providers, 2003, had to be reviewed. The FSB embarked on a very intensive consultation process with the industry regarding the competency requirements. A “blank slate” approach was followed. In other words, the existing Fit and Proper requirements were set aside completely and industry stakeholders were invited to provide input as to what requirements would be appropriate, reasonable and “workable for them”. Input was also obtained as to what would be a practical and effective way in which to implement the requirements, and what those requirements should be? The consultation process with stakeholders commenced in October 2006 and continued until September 2008. The consultation was open to any provider, individual, industry associations, professional body etc. Participants were mostly product experts, professional bodies, industry associations, providers, representatives from larger corporate companies, and even training providers that specialised within the financial services industry.
Regulatory examination – It is accepted international practice and standard to set professional examinations for professions. The FAIS regulatory examinations are, therefore, not unique. The purpose of the regulatory examination is to set a minimum standard in terms of the following:
- Knowledge and understanding regarding the role and responsibilities of a key individual or a representative under the FAIS Act. Although the FAIS Act has been in operation since 2004, it was generally accepted that the level of knowledge, awareness and understanding of the responsibilities imposed by the FAIS Act on providers was lacking. This led to non-compliance with the provisions of the FAIS Act for example; providers did not furnish clients with the necessary information as required by the FAIS Act.
- Providers are further under the misconception that ensuring compliance with the legislation is the responsibility of the compliance officer. This is not the case – the key individual is responsible to ensure compliance with the FAIS Act and representatives also have specific responsibilities in respect thereof. The compliance officer is responsible for the monitoring of compliance only.
- It was agreed that a once-off regulatory examination should address the problems referred to above, and would ensure that all providers have a proper understanding of their specific regulatory roles. The exams would be compulsory for everyone rendering financial services to clients. This was also seen as part of the objective to professionalise stakeholders in the industry and to have confidence that providers know and understand the legislation that governs their industry.