The calm before the storm: Financial services professionals in limbo as regulator drags its heels

03 June 2013 Joe Kotzé, FIA

Level 1 Regulatory Examinations (REs) have dominated the financial services landscape for so long that industry stakeholders could be excused for losing sight of the next ‘hurdle’. In theory the country’s representatives and key individuals should be gearing up for level 2 (product) exams and Continuous Professional Development (CPD). But theory does not always translate to practice says Joe Kotzé, National Manager of Compliance at the Financial Intermediaries Association of Southern Africa (FIA)

As we enter the second half of 2013 the level 1 exam ‘catch up’ is nearing completion. Financial advisors who attempted the exam before 30 June 2012 should now know whether they comply with the Financial Services Board (FSB) education requirements or not. For those who ignored the deadline, debarment looms.

Debar with caution

In March this year the FSB announced that it had suspended the authorisation of 129 sole proprietor licenses due to non-compliance with section 10 of the Determination of Fit and Proper Requirements for Financial Services Providers (FSPs), 2008. More enforcement action is sure to follow.

The registrar is currently communicating with FSPs to ensure that its records correlate with those of the various examination bodies with regards individuals who have sat the exam. Once the verification process is complete the FSB will embark on enforcement action to debar those who do not comply. FSB licenses will be withdrawn where appropriate.

At this stage it is impossible to say how many FSPs, key individuals and representatives will be impacted by the regulator’s enforcement action. While the non-compliant await their fate – those who have passed level 1 are in a kind of limbo – unsure of which pending regulation to focus on.

Too many uncertainties

Advisors can do little but wait for the FSB to communicate the kick-off date for level 2 (product) regulatory exams and CPD. Although the FIA Education and Development Committee has been in continuous discussion with the FSB, training providers and industry bodies we have no ‘concrete’ answers as to the implementation dates of either of these initiatives.

The FSB has indicated that it will not embark on level 2 exams until all the required processes and systems are in place. From an FIA perspective these requirements include:

• A review of the qualifying criteria which were set in 2008. The FSB has already consulted at high level with the banking sector on revised qualifying criteria and will have to consult with other financial services disciplines;

• A review of study material that is available on the INSETA website;

• Setting and moderating of level 2 exam questions – a process that has not been fully completed; and

• The offering of trial and pilot exams, which may be hampered by the possibility of one or more examination bodies withdrawing from setting of exam questions and offering exams.

Another issue with respect to level 2 is that an updated list of recognised qualifications has not yet been published. FSPs will therefore not be able to accurately determine whether they qualify for exemption from level 2 exams by virtue of S- or SP-rated qualifications.

Thinking outside the box

Should the regulator shelve the product exams in favour of CPD? The FIA believes that product knowledge can be addressed via on-going training rather than a costly once-off examination. It makes sense that the long overdue review of proposed CPD activities and verification processes is undertaken with this in mind.

Streamlining the compliance workload makes sense given the massive strain on the FSB’s resources due to the pending Treating Customers Fairly regime as well as the implementation of the Twin Peaks model of financial regulation. The likely restructuring of FSB departments to accommodate the new framework will doubtless influence the regulator’s operations.

Against this backdrop it is unlikely that either level 2 or CPD will happen in 2013. The FIA is still waiting for Gerry Anderson, Deputy Registrar for Financial Services Providers at the FSB, to issue an official circular to industry with concrete timeframes.