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21 October 2004 Angelo Coppola

An exemption called the Exemption of Banks in respect of Certain Clients, 2004, is explained by Andrew Swart, project manager responsible for FAIS at Absa.

Banks have submitted an exemption application in respect of the rendering of financial services in the course of merchant banking business.

The registrar is of the view that the provisions of the FAIS Act can hardly be applied where a bank is confronted by large corporate and other clients in a business situation where clients will usually have sufficient know-how and expertise, or access thereto.

Certain of these clients will be “execution-only” clients who will have a fixed mind on the services required, leaving the bank with a limited discretion in the rendering of the required service.

The registrar is in addition satisfied that under current economic and public financial circumstances, the granting of the requested exemption does not seem to be in conflict with public interest.

The registrar is however satisfied that economic and public financial circumstances and current business practices and client bases of the relevant banks may change even in the near future.

And that the non-applicability of the provisions of the FAIS Act, may in practice be proved to frustrate an object of the FAIS Act to provide and promote client protection, and that at this stage an exemption of only limited duration must be granted.

Quick Polls

QUESTION

Financial behaviour experts suggest that today’s risk modelling methodologies ignore your client’s emotional ability / behavioural capacity. What are your thoughts on spicing up risk profiling tools to make allowance for your client’s financial behaviours

ANSWER

[a] Bring it on; my client’s make too many irrational financial decisions
[b] Existing risk profiling tools are adequate
[c] Risk profiling tools should be based on the model / rational client
[d] The perfect risk profiling tool is science fiction
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