Next steps... There is no calm after the Regulatory Exam storm

Continuous Professional Development (CPD) is not a new concept. It is part and parcel of the Fit and Proper requirements introduced in the Financial Advisory and Intermediary Services (FAIS) Act.

The Act requires that the Financial Services Board (FSB) implement a system to register training providers and courses as well as monitor ongoing training of advisers in the domestic financial advice space.

To this end CPD point requirements were set out in the Determination of Fit and Proper Requirements, Board Notice 106 of 2008. Another CDP communication, Board Notice 103, was published in the Government Gazette on 15 October 2008. This notice deals with the Determination of CPD Requirements.

"Board Notice 103 provides the detail required by prospective CPD applicants (whether training providers or individuals) to understand what they need to do to submit a successful CPD application or have their CPD program or activity recognised for CPD purposes,” says Charene Nortier, Manager: FAIS Supervision at the FSB.

The Determination of CPD Requirements notice, along with supporting documentation, was published on the FSB website in November last year – and industry stakeholders were asked to provide feedback by early 2012.

"Valuable recommendations and feedback was subsequently received from the industry and many of their suggested changes incorporated into the documents,” says Nortier. The amended draft was then submitted (as required by the FAIS Act) to the FAIS Advisory Committee for ratification on 28 February 2012.

Following detailed feedback from the Committee, further amendments were made to the documents. These changes have since been re-submitted to the Committee for final comment. "The next step is to implement the structures required to support the CPD application and CPD monitoring systems,” says Nortier. "Once this is completed the actual CPD application process can commence.”

The purpose of CPD is to develop and maintain knowledge and skill, to develop professional competence and to maintain awareness of industry and product provider developments, so it makes sense that an individual begins the process only after they meet all their regulatory competence requirements.

There is still some uncertainty over the timelines for CPD. "The legislation requires that CPD kicks in the year after an adviser has complied with all necessary competence requirements (experience, qualification and regulatory examination), says Elana Honiball, head of compliance at Masthead. "This means that intermediaries who are exempted from the second level regulatory exams may have to comply with CPD from 2013 despite the final list of approved qualifications not yet being published by the FSB.”

"CPD will go live once the Level II RE is rolled out and individuals have successfully written the examinations applicable to them,” says Nortier. "Specific timelines in terms of the roll out of the Level II examinations will be communicated in due course and cannot be supplied at this stage.”

Concerns over implementation dates aside, the CPD requirements are well documented. The FSB says that few changes have been made to Board Notice 103. "The actual CPD requirements as they relate to financial intermediaries did not change at all,” says Nortier. "The bulk of the amendments relate to processes and procedures as well as the application forms that must be completed in order to apply for CPD recognition”.

Honiball agrees: "The changes proposed by the industry were process driven and we do not expect any changes to the requirements already specified for financial intermediaries.” Process changes aside, the FSB says there are one or two "tweaks” to definitions, such as replacing "CPD hours” with "CPD points” to bring the board notice in line with common industry parlance.

Financial advisers can adopt a "wait and see” approach at this early stage. The FSB notes: "The draft CPD board notice does not have any impact on the actual CPD requirement as stipulated in the Fit and Proper Requirements and merely provides clarity regarding process, procedures and requirements in terms of CPD recognition as it relates to CPD activities...

Of course there is no room for complacency. In its latest form the board notice requires that all providers apply for recognition of their CPD programs and obtain approval from the regulator. It is envisaged this application "window” will open within the next four months.

Going forward, financial services providers will have to submit CPD records for the affected staff to the regulator on an annual basis. Professional bodies will submit their CPD records directly to the FSB on behalf of their members too.

"An early concern is the admin burden this will place on financial services providers across the industry – though they have received plenty of forewarning in this regard,” says Honiball. "We are certainly looking forward to the FSB implementing systems for easy reporting and submission.”

Masthead is also concerned about the cost implications of CPD. "A few years ago you could attend an industry seminar for around R30,” says Honiball. "Nowadays the cost of a seminar is in the region of R450.” A quick bit of mental arithmetic reveals that brokers could be docking up in the region of R4 500 each year to accumulate enough CPD points to comply with the regulation.

CPD is an important step towards professionalism in the financial advice space. It is therefore important that its implementation is carefully monitored. Risks that learning institutions will be in a position to exploit the captive broker market and that the shortage of approved providers and courses will drive costs in the CPD market must be addressed.

Intermediaries, product providers and training institutions must be given enough lead time after the Gazetting of the final board notice to bring their processes and procedures in line with any changes.