Guidelines into Fit and Proper approach established

In July, the FAnews reported that the Financial Services Board (FSB) were contemplating scrapping the level 2 RE Examinations which are about testing product knowledge. The FSB has indicated that it would replace these exams with Fit and Proper Requirements.

As in most cases where the regulator is involved, there is a big announcement which is followed by the unravelling of how the announcement will affect the industry. At a recent Compli-Serve Regulatory Workshop, Dr Des Leatt – Skills Specialist and Compliance Officer at Compli-Serve – unpacked this in a bit more detail trying to add some foundation to a topic which has seen little news.

Personal character and good standing

In the past, an adviser was seen as competent (having the required product knowledge) when they passed the relevant RE Examination. Dr Leatt pointed out that this will now be replaced with principles of personal character and good standing.

There is little indication as to what this is, but there are indications as to what this is not. “The FSB is on the verge of releasing a document which would describe 18 different incidents which would indicate prima facie evidence that a person is not honest and lacks integrity or good standing,” said Dr Leatt.

Further, when assessing the honesty, integrity or good standing of an adviser, the FSB would take the following into account:

• The seriousness of the persons conduct;
• The relevance of the adviser’s conduct or behaviour to the client being put into an unfavourable position; and
• The passage of time since the incident occurred.

It is important therefore that clients who feel that they have been unfairly treated by an adviser report this behaviour as soon as possible to the FSB or the relevant financial services provider (FSP) so that this issue can be resolved within a reasonable time frame.

Par for the course 

In line with most of the other outlines implemented with the new wave of regulatory reform, the FSB is placing major responsibilities on FSPs.

According to Dr Leatt, FSPs must establish adequate policies and internal systems that would ensure that key individuals and representatives comply and continue to comply with industry regulation, discharge their duties in an honest manner and possess the necessary and general/technical knowledge to provide clients with the best possible advice.

“There are additional guidelines that FSPs need to adhere to. Policies and internal systems need to be put into place in order for the FSP to be able to assess the appropriateness of the financial services that they are providing. Further, FSPs must be able to establish that advisers are competent to render financial services and that staff who are not appointed as representatives do not render financial services,” said Dr Leatt. 

Empty chairs?

When the FSB made the announcements that it would be moving towards a fit and proper principles approach, there were a lot of questions about whether there would be empty seats when it comes to RE Exams. The simple answer is, there will be, but possibly not to the extent that people think.

“RE Examinations will apply to all FSPs, key individuals and representatives. However, there are a few exceptions,” said Dr Leatt.

One of the exceptions where an adviser will not have to write an exam is Category I advisers or representatives that render financial services only  in respect of certain long term insurance products and society benefit product.

Further, a representative of a Category I FSP that is appointed to only perform the execution of sales in respect of a Tier I financial product is exempt from RE Exams.

Further exemptions

Leatt pointed out that possibly the most popular change is that a key individual is no longer required to write and pass the RE5 regulatory exam. However, they must write and pass the RE1 regulatory exam in addition to the applicable RE3 or RE4 exams.  

“It is premature to make an informed comment regarding changes to the Regulatory Exams Qualifying Criteria at this stage. However, it is suffice to say that there are important and significant changes with respect to the content of both the RE1 and RE5 examinations,” concluded Dr Leatt.

Editor’s Thoughts:
At the end of the day, the proof of the pudding will be in the eating. Whether the FSB is vindicated in adopting this approach will only be seen when the dust has settled and we have gone through a few months of implementing this. Let’s hope the FSB establishes some clear guidelines when it comes to an adviser wanting to be in good standing or of good personal character. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.