Moonstone: Product Classification

Question 1.5.2 of the annual report to the FSB reads: “Did you only render the financial services within the limitation on categories and sub-categories for which the license is issued?”

We believe that most of you answered "Yes", but what if you have inadvertently overstepped the mark?

Documentation recently drawn up and distributed by Sanlam to clarify the new Fit and Proper requirements contained a list of various products, indicating the required FAIS license code of each product. A copy can be downloaded here.
 
Of the 69 products on the list, 58 require that the broker be licensed for category 1.14 "Participatory Interests in a Collective Investment Scheme."

This means that Sanlam will not be able to accept such business from brokers who are not licensed for category 1.14 from 1 May 2009. This is in terms of changes to the FAIS Act which prohibits product providers from accepting business from brokers not duly licensed to market specific products.

To the best of our knowledge Sanlam is the first to produce such a guide. It would appear that there are differing opinions on this issue, but our understanding from discussions with the FSB is that Sanlam's interpretation is correct. We have requested a written opinion from the FSB and will publish this as soon as we receive it.

What clouds the issue somewhat is that the product itself is not necessarily a collective investments scheme, but the underlying asset class in which products like endowments or retirement annuities are invested may be.
The thinking appears to be that you should have the required  minimum knowledge and experience of asset classes in which you place clients funds.

Those product houses who have not yet categorised their products need to clarify this issue very rapidly with the FSB to ensure that they stay on the right side of the regulator. Accepting business from a broker selling products he or she is not licensed to advise on can be a very costly exercise.

If you are affected, it would be wise to remedy the matter by applying for the addition of the required license category by means of a license profile change. The cost of adding a new category is R720 (plus VAT, if you do it via a recognised body like Moonstone). In addition to the required application form you will also need to provide confirmation of experience of at least one year from a registered product provider.

If you require assistance you can speak to Karin van Wyk of Moonstone at 021 883 8000, or contact the FSB directly. We process the documentation and capture it electronically whereafter it has to be approved by the FSB.

Our licensing division who handles profile changes informs me that the FSB's turn-around time is six to eight weeks, but some applications have taken longer. Given the deadline of 1 May, this effectively means that you may already be out of time.