Regulator takes steps to cool the exam pressure cooker!

Gareth Stokes, FAnews Online Editor

On 12 July 2011 the Financial Services Board (FSB) issued FAIS Circular 7/2011 to advise industry stakeholders of a number of developments relating to the oft-debated regulatory examinations. The letter also attempts to explain away some of the concerns raised by financial intermediaries who have sat the RE I exam to date.

An impossible implementation deadline

The best news for all those industry realists out there is the softening of the 31 December 2011 exam deadline. “Insofar as the implementation of the regulatory examination is concerned, and the possible impact of the 31 December 2011 deadline on industry, [we] are in active and ongoing consultation, not only with industry representative bodies but also with other relevant industry players,” writes the FSB, before dropping an exam statistic bombshell. Their records show that only 11% of the candidates required to sit the RE I exam had done so by 30 June 2011, never mind the pass rate! (We’ve heard rumours as few as one in three have made the grade so far, though the regulator will only publish the pass rate once 25% of potential candidates have completed the exam).

The 11% completion rate was considered strong enough evidence that the entire financial services community would not funnel through the exam ‘goalposts’ within the proposed timeframes. The solution was to shift the goalposts, but only by the slightest margin (see table):

In addition to the above, the FSB states that the deadline for the REII Level I regulatory examination for sole proprietors and key individuals (for subcategories 1.1 and 1.19) is 31 December 2013. Representatives for sub-categories 1.1 and 1.19 are not required to write the Level I regulatory examination! The above deadlines also apply to any persons who have failed the examination to date.

“Despite the above concessions, affected persons are urged not to delay their enrolment for the examination as this will result in candidates being placed under unnecessary time constraints and ultimately being unable to write the examination on a preferred date and at a preferred venue,” says the FSB. They would prefer all industry stakeholders to make the necessary arrangement to sit the exam as soon as possible.

A motivational flyer that misses the point...

The FSB dedicates a couple of paragraphs in FAIS Circular 7/2011 (available at http://www.fsb.co.za/) to motivating individuals who have not yet sat the RE I exam. “Anyone can pass,” trumpets one of their sub-heads, as they congratulate Mr Clive Archer, who at 81 years of age became the oldest person to successfully complete the examination to date. He scored 74%, an achievement which certainly warrants a round of applause. For those who stumbled at their first attempt the regulator offers these thoughts: don’t despair because it’s attitude and preparation that determine success!

“The early statistics suggest that the main cause for candidates failing the examination is lack of proper preparation,” continues the FSB. Sure – lack of preparation guarantees poor results. But the hundreds of candidates we’ve spoken to remain unimpressed with a number of exam issues, including ambiguously worded and “none shall pass” type questions. A financial intermediary I spoke to earlier this week says a group of his colleagues – with many years experience – couldn’t come up with answers to certain questions in a post-exam post-mortem. And many feel sections of the exams have been set by ‘intellectuals’ who are out of touch with the industry. The FSB is aware of this issue but seems reluctant to find a solution. Why?

“Simply put,” they say, “one candidate may find a particular question ambiguous, but whether that question can in fact be classified as such can only be determined from a statistical perspective once the particular question has been posed (and answered) in at least 50 examination papers…” Ok… So what if 1,000 or more individuals indicate that the questions seem ambiguous? Since candidates aren’t allowed to take papers home with them we doubt many question-specific complaints will crop up. Incidentally, we’ve heard that individuals are made to sign a pre-exam waiver which precludes them from lodging complaints (about the exam and related processes) at a later stage!

You cannot take the paper home with you, because...

On this issue the regulator says: “To [provide exam questions] is not possible due to the structure of the examination process. The individual question papers are generated from an item bank of a large but limited number of questions. If these questions were to be made available they would have to be replaced with new questions on a continuous basis to ensure the effectiveness of the examination…” Our initial response – how small is this question database? The FSB also dismisses out of hand (and with reasons) requests to consider open book exams and to lower the pass rate from the current 65%. It seems, once again, that the regulator is taking a “my way or the highway” approach on critical issues affecting the industry. And it will require continued pressure from industry stakeholders to get concessions on a point by point basis.

The FSB acknowledges that difficulties have been experienced since the inception of the examination process. But they will engage with industry representatives and the four examination bodies on an on-going basis to address these difficulties. “Any new system requires continuous improvement and through continuous dialogue between [us] and industry stakeholders there is no doubt that this will be achieved,” they say.

Editor’s thoughts: There is plenty of additional information in FAIS Circular 7/2011, and we suggest you download the document from the FSB website (http://www.fsb.co.za/). The RE I exam deadline relaxation seemed inevitable… Now the question is whether six additional months is a long enough period to get everyone in the industry through the process? Please add your comment below, or send it to gareth@fanews.co.za