Introduction to FAIS

FAIS stands for financial advisory and intermediary Services Act. This act regulates all the financial
services and their representatives who give advice or provide intermediary services to clients
regarding certain financial products.

The act was endorse (promulgated) on the 15th of November 2002 and became effective on the
30th of September 2004.

Advice

• Means any recommendation, guidance or proposal of a financial nature furnished, by any

means or medium, to any client or group of client.
• in respect of the Purchase of any financial product; or
• in respect of investment in any financial product.
Advice does not include

Factual advice given merely

• on the procedure for entering to a transaction in respect of any financial product

• in relation to the description of a financial product.
• in answer to routine administration queries.
• orby the displaying or distribution of promotional material.
Intermediary service

• Means any act other than the furnishing of advice, performed by a person for or on
behalf of a client or product supplier
• They deal with keeping the client’s information in Safe custody,
• By maintaining or servicing a financial product purchased by a client from a product
supplier or in which the client invested.
• Collecting premiums or other moneys payable by the client to a product supplier in respect
of a financial product.
• Receiving, submitting or processing the claims of a client against a product supplier.

1. FINANCIAL SECTOR CONDUCT AUTHORITY (FSCA)

The Financial Sector Conduct Authority forms part of the National Treasury structure of
government. The name FSCA replaced Financial Services Board (FSB) on 1 April 2018 as per
Financial Sector Regulation Act. The FSCA has various departments that handle different financial
matters. Of which one of them is FAIS Department

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2. COMMISSIONER

• The name Commissioner replaced Registrar on 1 April 2018 as per Financial Regulator Act.
• The executive (CEO) of FSCA is appointed as the FAIS Commissioner.

HE/SHE DEALS WITH THE FOLLOWING

• The processing of all new license applications,

• Updating the central representative register
• Suspension and Withdrawal of and an FSP license
• Lapsing of licenses,
• Debarments related to regulatory action
• Updating debarments on the central representative register
• The major duty of the Commissioner formerly as the FAIS Commissioner is to protect clients
and maintain the integrity of the financial services sector.

3. FINANCIAL SERVICES PROVIDER

• an FSP is defined as any person, other than a representative, who as a regular feature of the
business of such person furnishes advice, or renders any intermediary service, or both.
• This could be an entity such as a large corporate who is also a product supplier or even an
independent brokerage who operates as an SMME (Small, medium, micro enterprise).
• An FSP should apply for a license in order to be authorized to render financial services hence
authorized FSP means that the person has been granted permission to operate as an FSP.
For the license to be granted by the Commissioner

4. PRODUCT SUPPLIER
This refers to a person or company that issues a financial product by virtue of authority, approval,
or right granted to such a person under any law, including the Companies Act.

5. COMPLIANCE OFFICER

• The FSP appoints the Compliance officer, the Registrar (Commissioner) approves the
Compliance Officer
An applicant (Compliance Officer) must

• An FSP shall ensure that a compliance function exist or is establish as part of the risk
management framework of the business
• Hold a qualification on the list of recognised compliance qualifications
• Pass RE5
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 • Have at least three years’ experience in performing a compliance or risk management
functions
• Have at least one year experience in performing a compliance or risk management
functions in respect of a specific category
• Compliance Officer may delegate his/ her work to another person provided they have the
same qualification
• The internal compliance officer must have appropriate oversight of such other person
• The internal compliance officer remains accountable for the rendering of compliance
services
• In order for a Compliance officer to be appoint by an FSP, the FSP must have more than one
KI or one or more REPs
• Compliance must report to the provider on at least the following

a) Adequacy and effectiveness on activities, system policies, controls and procedures

b) Risk and deficiencies that have been identified
c) Remedies undertaken or to be undertaken

6. FAIS OMBUDSMANS

• Act, in a procedurally fair, informal, economical, and expeditious manner

• The complaint must not constitute a monetary claim in excess R800 000,00
• The Ombud may when accepting a complaint require the respondent to pay a case fee not
exceeding a R1000, 00.
• The Ombud must decline to investigate any complaint which relates to an act or omission
which occurred on or after the date of commencement.
• Where the complainant was unaware of occurrence of the act or omission the period of
three years commence on the date on which the complainant became aware.
• If an appeal lodged the Ombud must send a copy of the final decision of the board of appeal
to any such clerk
• The Ombud may dismiss the complaint on the basis

a) Complaint does not have any reasonable prospect of success

b) The respondent (FSP) has made an offer which is fair and reasonable and still open for
acceptance
c) A decision has been made in the courts proceeding
d) The case is pending in the court proceeding

7. KEY INDIVIDUAL(KI)

• These are natural people within the FSP who are either managing or overseeing the
activities of the FSP relating to financial services (for example a manager, team leader or
supervisor of a distribution unit in an FSP)

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 • All key individual appointments must be approved by the FSCA and any change to their
profile must be reported to the FSCA.

• Any FSP other than a sole proprietor must appoint one or more natural persons as a key
individual (s). In the event of sole proprietor FSP, the sole proprietor must be appointed as
key individual.

• Key Individuals in Category I must on the date of approval have at least one year’s practical
experience in the management and oversight of a financial services provider providing
services in the same subcategories. The KI must also hold a recognized qualification at the
date of approval as well as be found competent in the level 1 Regulatory Examination for
Key Individuals (RE1) and have the required class of business training.

• Any authorisation to the key individual will be withdrawn in the event that the KI no longer
meets the fit and requirements according to the FAIS Act 37 of 2002 [Section 6A].

8. REPRESENTATIVE

• There are two types of representatives namely: a representative who is a natural person and
a juristic representative

• A representative means any person, including a person employed or mandated by such first-
mentioned person, who renders a financial service to a client for or on behalf of a financial
services provider, in terms of conditions of employment or any other mandate.

• A representative excludes a person rendering clerical, technical, administrative, legal,

accounting

• The FSP approves and appoints representatives and has the duty to make sure that these
representatives meet the fit and proper requirements as stated in the FAIS Act 37 of 2002
[Section 6A]

• Juristic representative is a representative that is not a natural person and usually an FSP

DEBARMENT
An authorised financial services provider must debar a person from rendering financial services
who is or was, as the case may be:

• A representative of the financial services provider; or a Key Individual of such representative,

If the financial services provider is satisfied on the basis of available facts and information that the
persons)

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 • does not meet, or no longer complies with, the fit and proper requirements or any
requirements determined by the Commissioner by Notice in the Gazette,

• has contravened or failed to comply with any provision of the FAIS Act in a material manner.

Time Frames
Business days (you don’t count from the same day but from the following day)

1 day = one business day for funds to be transferred.

• Open and maintain a separate account, designated for client funds.

• Ensure that the separate account only contain funds of the clients and not those of the
provider.
• All bank charges are paid in respect of the separate account except the bank charges relating
to deposit or withdrawal of the funds of the clients it is not the clients account.
• Any interest accruing to the funds in the separate account is payable to the client.

2 days = to report any suspicious transactions which is above the prescribed limit of R24999.

5 days = to remove the name of the representative and key individual from the register.

• After being informed by the Authority (Commissioner).

• FSP must notify the Authority within Five days of the debarment of a representative.

5 days = to report property associated with terrorist and its related activities to FIC

7 days = to produce records when being investigated or made available for inspection.

• Client records and documentation are kept safe from destruction

• Any records or other material documentation relating to financial service rendered to the
client.

15 days = for info to be sent to FSCA when changing, adding/removing a representative(Debarred).

• Inform the registrar (commissioner) of a new appointment of a director, member, trustee or

partner within 15 days.
• Provide the Authority with the grounds and reasons for the debarment within 15 days.
• Update the competence register within 15 days of the FSP the Product specific or class of
business training of the FSP, its Rep and KIs
• KIs and Rep must submit evidence of their CPD activities to the FSP within 15 days.
15 days = for money laundering officer to report any suspicious transaction to FIC

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 21 days = A business Practice (FSP) has 21 days to respond to allegations of undesirable business
practice.

• Commissioner must publish the intentions in the gazette or official website and give FSPs 21
days to respond.
• Harming the relations between authorised FSPs, clients and general public
• Unreasonably prejudicing any client
• Deceiving any clients
• Unfairly affecting any client

30 days = To disclose information on Product supplier e.g. (King Price Insurance) and Provider
(Iemas Insurance Brokers) to the client, where such information was provided orally, must
confirm such info within 30 days in writing.

Product supplier

• Name, physical location and postal and telephone contact details

• Contractual relationship with the product supplier (if any)
• Names and contact details of the relevant compliance and complaints department
• Directly or indirectly the provider holds more than 10% of the relevant product supplier’s
shares.
• During the preceding 12 months period received more than 30% of total remuneration,
including commission, from the product supplier.

Providers

• Full business and trade names, registration number (if any) postal and physical addresses,
email address
• Legal and contractual status of the provider
• Name and contact details of the relevant compliance department
• Details of the financial services which the provider is authorised to provide
• Whether the provider holds guarantees or professional indemnity or fidelity insurance cover
or not.

45 days = to keep records where a provider advertises a financial service by Telephone.

• An electronic, voice logged record of all communications must be maintained

• Where no financial service is rendered as a result of the advertisement, such record need not
be maintained for a period exceeding 45 days.

3 Weeks = The FSP must acknowledge receipt of the complainant within three weeks from the
date in which the compliant was lodged.

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6 weeks = if within six weeks of receipt of a complaint the FSP has been unable to resolve the
complaint, the FSP must inform you that you can take the matter to the Office
(Ombuds) must do so within 6 months.

60 days = The registrar may direct an authorised FSP to rectify any mistakes which arose out
carrying on business practice after being declared undesirable and but be done within 60
days

4 Months = For Financial Statements to be submitted to the FSCA for financial Soundness
(Quarterly)

6 Months = For a claim to reach Ombudsman (The Office) from the date of rejection (repudiated).

• The complainant has six months after receipt of the final respond of the respondent, or
after such response was due, to submit a complaint to the Ombuds (The Office)
6 Months = debarment must commence no later than 6 months from the date when the person
ceased to be a Rep of the FSP

12 Months = Rep has to wait at least 12 months to apply to be re-admitted after being debarred,
unless the debarment was consequent on the applicant not having full
qualification.

5 Years = All records must be kept for a minimum period of five years after termination
(cancellation) or after the rendering of the financial service concerned.

• Client records and documentation are kept safe from destruction.

• Records maybe kept in an electronic or recorded format, which is accessible and readily
reducible to written or printed form.

5 Years = Experience gained lapses when a representative has not rendered service in the past
five years

SUPERVISION

• A Representative a period of two to six years to work under supervision

• A supervised representative of a Category I or IV FSP must have Grade 12 National or a

qualification equivalent to a Grade 12.
• A supervised representative of a Category I FSP that is appointed only to perform the
execution of sales must have a Grade 10 or an academic achievement equivalent to Grade
10.
• A supervised representative of a Category II, IIA or III FSP must a qualification which is at a
degree level

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 SUPERVISION AGREEMENT

• The FSP and supervised Rep must enter into a written supervision agreement which may
form part of the performance management process

The Supervision Agreement must

a) identify the supervisor

b) set out task and functions the supervised representative performs on behalf FSP
c) set out appropriate and relevant knowledge, skills and expertise
d) set out training needs and training programmes of the supervised Rep

The supervision arrangement include:

a) duties and responsibilities of the supervisor and supervised representative

b) supervision methodology, tools, processes, and procedures
c) criteria and procedures to assess whether it is appropriate for the supervised Rep to work
under a reduced level of intensity of supervision
d) Sign-off criteria by the supervisor

An FSP that appoints a supervised Rep to Work under Supervision must

• Have the operational ability, including adequate and appropriate human, technical and
technological resources, controls, and procedures to appoint supervised Rep

When assigning a supervisor to the supervised Rep that

• Has adequate, appropriate and relevant skills, knowledge and expertise in respect of
financial service or financial product
• Meet the prescribed minimum competency requirements, including CPD requirements
• A Key individual approved to manage the financial service and class of business for which the
supervised rep will be working under supervision

MINIMUM CPD HOURS

CPD Cycle means a period of 12 months commencing on 1 June of every year and ending 31May of
the following year.

1. A single subclass of business within a single class of business must complete a minimum
of 6 hours of CPD activities per CPD cycle.
2. More than one subclass of business within a single class of business must complete a
minimum of 12 hours of CPD activities per CPD cycle.
3. More than one class of business must complete a minimum of 18 hours of CPD activities
per CPD cycle.

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 A. Short-Term Insurance: Personal Line B. Short-term insurance: Commercial line

1.1 Personal Line: Motor Policies 1.1 Commercial Line: Motor Policies

1.2 Personal Line: Property Policies 1.2 Commercial Line: Property Policies

1.3 Personal Line: liability Insurance 1.3 Commercial Line: liability Insurance

LICENSE CATEGORIES
Category I FSP: Advice & Sales
Category II FSP: discretionary FSP
Category IIA FSP: hedge funds
Category III FSP: administrative FSP
Category IV FSP: assistance business

Long-term insurance subcategory B1: disability, health and life policy

Long-term insurance subcategory B1-4: policies that require limited underwriting
Long -term insurance subcategory B2: investment policies which guarantees a minimum return
Long-term insurance subcategory B2-A: policies which provide for the premiums to be invested in
an investment portfolio managed by the product supplier with no option by the policy holder to
request a change or amendment to that portfolio

There are 26 subcategories in Category I FSP (refer to page 112)

There are 20 subcategories in Category II FSP (refer to page 113)

There are 19 Tier 1 Financial Products (refer to page 116)

There are 7 Tier 2 Financial Products (refer to page 116)

LICENSING FOR FIANCIAL SERVICES PROVIDER

• A financial services provider may not render financial services, unless such person has been
issued with a licence; or a representative, unless such person has been appointed as a
representative of an authorised financial services provider.
• To qualify for authorisation, an FSP must comply with the fit and proper requirements to the
extent applicable to FSPs in the relevant categories.
• The FAIS Act stipulates that an entity may not act or offer to act as an FSP unless such a
person has been issued a financial services provider licence.

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 FIT AND PROPER REQUIREMENTS ON ROLE PLAYERS

Fit & Proper FSP FSP(Sole Compliance Key Representative

Proprietor) Officer Individual
Honesty, YES YES YES YES YES
integrity & Members
good &
standing directors
Competence: NO YES YES YES YES
Experience
&
qualification
CPD NO YES YES YES YES

Operational YES YES YES YES NO

Ability
Financial YES YES NO YES NO
Soundness

WITHDRAWAL AND SUSPENSION OF A LICENSE

The registrar may at anytime suspend or withdraw any licence if satisfied on the basis available fact

a) The licensee no longer meets the fit and Proper requirement

b) When applying didn’t make full disclosure of all relevant info
c) Or furnished false or misleading information
d) Has failed to pay a levy, an administrative penalty
e) Don’t have approved KI
f) Failed to comply with a regulator’s directives

Where the license has been withdrawn or suspended provisionally the registrar must inform the
licensee of the

• Grounds and reasons

• Period and terms of suspension and give the licensee a reasonable opportunity to respond

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 LAPSING OF LICENCE

Licence lapses where the licensee, being a natural person

• Become permanently incapable of carrying on any business due to physical or mental disease
or serious injury
• Is finally sequestrated, liquidated or dissolved
• Or dies
• Or voluntarily and finally surrenders the license to the register

• NB Accreditation in terms of the Medical Schemes Act will be suspended or withdrawn

if the licence is suspended or withdrawn and vice versa.

• Accreditation in terms of the Medical Schemes Act will lapse if the licence is lapsed and
vice versa.

DISPLAYING OF LICENSE

• Display a certified copy of the licence in prominent and durable manner within every
business premises of the licensee.
• Ensure that a reference to the fact that such a licence is held is contained in all business
documentation, advertisement, and other promotional material.
• Ensure that the licence is at all times immediately or within a reasonable time available
for production to any person requesting proof of licensed status under authority of a law
or for a purpose of entering into a business relationship with the licensee.

CONFLICT OF INTEREST
• An FSP must continuously monitor compliance with its conflict-of-interest management
policy and annually conduct a review of the policy.

An FSP or representative must, in writing disclose to the client any conflict of interest of respect of
the client, including the following:

• The measures taken, in accordance with conflict-of-interest management policy to avoid or

mitigate the conflict.
• Any ownership interest or financial interest, other than immaterial financial interest, that
the FSP or representative may be or become eligible for.
• The nature of any relationship or arrangement with a third party that gives rise to a conflict
of interest, in sufficient detail to a client to enable the client to understand the exact nature
of the relationship or arrangement and the conflict of interest.

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 PROFASSIONAL INDEMNITY

Category I or IV provider who does not receive or hold clients’ financial products or funds must
have
• Suitable guarantees of a minimum amount of R1 million or suitable professional indemnity
cover of minimum amount of R1 million.

Category I or IV provider who receives or hold clients’ financial products or funds must have

• Suitable guarantees of a minimum amount of R1 million or suitable professional indemnity

and fidelity insurance cover of minimum amount of R1 million

Category II provider who does not receive or hold clients’ financial products or funds must have

• Suitable guarantees of a minimum amount of R1 million or suitable professional indemnity

cover of minimum amount of R1 million

Category II provider who receives or hold clients’ financial products or funds must have

• Suitable guarantees of a minimum amount of R5 million or suitable professional indemnity

and fidelity insurance cover of minimum amount of R5 million

Category IIA provider who does not receive or hold clients’ financial products or funds must have

• Suitable guarantees of a minimum amount of R5 million or suitable professional indemnity

cover of minimum amount of R5 million

Category IIA provider who receives or hold clients’ financial products or funds must have

• Suitable guarantees of a minimum amount of R5 million or suitable professional indemnity

and fidelity insurance cover of minimum amount of R5 million

Category III provider who receives or hold clients’ financial products or funds must have

• Suitable guarantees of a minimum amount of R5 million or suitable professional indemnity

and fidelity insurance cover of minimum amount of R5 million

PROFESSIONAL IDEMNITY (PI) COVER

• PI Cover protects a business against claims for loss or damage by a client or third party if you
have made mistakes or are found to have been negligent in some or all if the services that
you provide for them.
• PI insurance will cover legal cost.
• PI is only valid when whilst the policy is in place.

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 FIDELITY INSURANCE (FI) COVER

• Fidelity insurance provides cover in the event that an FSP incurred losses as a result of theft
or other acts of dishonesty by its employees.
• Protects organizations from losses of money, securities, or inventory resulting from crime
• Common Fidelity claims allege employee dishonest, embezzlement, forgery, robbery, safe
burglary, computer fraud, wire transfer fraud.

DISCLOUSRE

• An FSP who directly or indirectly holds more than 10% of the relevant product supplier’s
shares.
• During the preceding 12 months period received more than 30% of total remuneration,
including commission, from the product supplier.
• If an FSP holds less than 10% of the relevant product supplier’s share they need not to
disclose
• If and FSP receives less than 30% of total remuneration they need not to disclose

QUALIFYING STAKE

• Financial institution that is a company or a person, directly or indirectly alone or together

holds at least 15% of the stake
• Has the ability to exercise or control the exercise of at least 15% of voting rights

PENALTIES

Maximum fine of R10 000 000 (Million) or 10 years imprisonment on the following offences (FAIS)
• For any person who deliberately makes a misleading, false or deceptive statement.
• Any persons who declares, pretends gives out maintains or professes to be an authorised
representative
• Any person who gives an appointed auditor or compliance officer false info
• When a FSP fails to rectify any mistakes within 60 days
Fine not exceeding R1000 or any greater amount prescribed, for every day during failure continues.
• A person who fails to furnish the registrar with a return, information, or document

Maximum fine of R10 000 000 (Million) or 5 years imprisonment on the following offences:

• Failure to train staff

• Failure to appoint a Compliance Officer
• Failure to implement internal rules.

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Maximum fine of R100 000 000 (Million) or 15 years imprisonment on the following offences:

• Failure to keep records

• Failure to identify persons
• Failure to give assistance to FIC Destroying or tempering with records
• Failure to report cash transactions as prescribed
• Failure to report suspicious or unusual transactions.

REGISTER MUST CONTAIN

• Every Reps or KIs name and business address, and state whether the Rep acts for the
provider as employee or as mandatory
• Specify the categories in which such Reps are competent to render financial services

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