FSP's and the FAIS Act
The Financial Advisory and Intermediary Services Act was implemented in 2004 to protect consumers that make use of intermediaries for financial services and also to protect the financial services companies and their intermediaries. However, the implementation of the act’s regulations has been brought into question with many FSP’s not having read the act themselves; choosing to place their trust in compliance officers to make sure that they remain compliant with both the act and the General Code of Conduct.
The FAIS act was implemented with good intentions; to protect FSP’s and their clients, however, the Financial Services Board and the individuals who are required to implement the act are currently facing two problems. Firstly, many smaller brokerages are feeling the pressure to become and remain compliant but are battling to find the time to initiate and maintain the processes required by the act. These smaller brokerages are often one or two man businesses that do not have the budget to hire a compliance officer whose main purpose would be to understand and implement the FAIS act. This leads to the second concern; understanding the act. The FAIS act is quite a lengthy document written in legalese, which can make the document difficult to understand for those individuals who have no background in contractual content.
Further complicating matters are the recent revelations about the new General Financial Services Laws Amendment Bill, 2008 which proposes some major changes within the Financial Services industry, and in particular the FAIS Act of 2002. The proposed changes will allow the Financial Services Board the power to conduct on-site visits and inspections of the businesses of financial service providers and representatives, and disclose the findings of these inspections. This further highlights the importance of becoming compliant, keeping accurate records, and implementing procedures throughout the company.
Roy Kirby, CIB Insurance’s in-house compliance officer suggests that, if in doubt, smaller brokerages should contact their product providers for advice. “Their product providers may not be able to help with compliance but they may be able to guide them in the right direction to get the answers they need. Also product providers should be able to help put the smaller brokers in contact with registered out-sourced compliance officers” says Kirby. “It would be great to see workshops being held for the smaller brokerages so that they can be trained on the specifics of the act. These workshops would afford brokers the opportunity to ask questions to clarify any misunderstandings, while at the same time ensuring that the broker has read the act in its entirety”.
Larger brokerages and insurance underwriters are fortunate enough to have the man power and the budget to either outsource their compliance officer, or hire an in-house compliance officer. These companies have the added benefit of having someone available who is accredited by the Financial Services Board (FSB) to audit and initiate processes that reflect the act’s requirements. However, these larger companies are not without their problems either, as many FSP Directors have not read the FAIS act themselves, choosing to rather trust in their compliance officers to keep the business compliant.
Because the ultimate responsibility lies on the FSP, it is incredibly important for the Directors of the company to know and understand the FAIS act. It is therefore suggested that company Directors sit with their compliance officers on a regular basis, to keep abreast of any and all developments. It should be standard practice for quarterly reports to be issued to management whenever these reports are presented by the compliance officer to the FSB. The intricacies of the report need to be discussed, and management needs to be given the opportunity to ask questions if any should arise. In-house compliance officers, it seems, are the best solution as these individuals are able to gain a thorough knowledge of the company’s processes and develop compliance regulations that suit the company’s needs, and are available at all times for queries.
Kirby recommends that any company looking to hire a compliance officer, whether in-house or outsourced, should check that the compliance officer is registered with the FSB. “Check the compliance officer’s track record; make sure that they have dealt with your type of operation before. It is no use hiring someone whose experience is in small to medium brokerages, when your requirements extend beyond that” says Kirby.
First and foremost all financial service providers should remember that it is up to them to become and remain compliant with the FAIS act. Any discrepancies or disputes will be targeted towards the FSP. It is because of this that management needs to take the responsibility of becoming knowledgeable with the act, its requirements and its procedures. “CIB has created an environment where we communicate on a regular basis with our compliance officer. Our staff understands the importance of the act, and the purpose of any procedures implemented is explained to make sure that they are implemented correctly” says Mike Cownie, Financial Director for CIB Insurance.
