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A late change to the regulatory examination regime

19 June 2012 Gareth Stokes
Gareth Stokes, FAnews Online Editor

Gareth Stokes, FAnews Online Editor

A couple of weeks ago a compliance expert informed us that the Financial Services Board (FSB) was about to publish a “ground breaking” announcement with regards Level 1 Regulatory Examinations. We were told that the regulator would soon apply a sweeping l

After a few hasty telephone calls to our trusted industry contacts we were assured this change had been under discussion for some time. It was also suggested that we not whip up a media storm until after the official FSB communication was distributed. In due course – Friday, 8 June 2012 – we received a copy of FSB Board Notice 102, titled Exemption of certain persons from the Level 1 Regulatory Examination requirements. (Government Gazette No. 35422, 6 June 2012).

Getting to grips with the regulatory jargon

There are two points worth considering before we unpack the content of the latest FSB decree. The first is that the persons qualifying for this exemption are painstakingly defined. If you are giving advice then the RE compliance requirement and examination deadline are both still set in stone. A second observation centres on the slightly misleading use of the word “exemption”. The notice, issued in terms of Section 44(4) of the Financial Advisory and Intermediary Services (FAIS) Act of 2002, identifies persons who will be exempt from the Level 1 RE requirement in its current form… The “exempted” persons will still have to “successfully complete a relevant first level regulatory examination [based, we assume, on a new and simpler question set] by a date to be determined by the registrar”.

In plain English: What has happened is that a number of financial services providers felt that RE Level 1 was too onerous for categories of staff in their employ. They lobbied the FSB through various industry bodies for changes to be made. It was subsequently agreed that an exemption would be granted on application (by the services provider) provided that the FSB could set a more appropriate examination and deadline for the affected individuals. The FSB reserves its right either to amend the exemption or withdraw it by way of notice in the Government Gazette.

We asked Ian Middleton, managing director at Masthead Distribution Services if he could add to our explanation. “Apart from a concern about the number of people in this sector who may not pass the first level RE exams, [this notice] is a recognition that the exams may not be appropriate in their current form for this group,” he said. “This would typically apply to products offered by advisors who work the lower end of the market – the funeral and/or group scheme sector.” At a basic level the “exemption” decision stems from the need to distinguish between persons operating in the “easy to understand” financial products world and the “more complex” one. The FSB believes that advice – even on simple products – is important in encouraging savings and risk protection.

The extent of exemption and condition...

The question is which sector of the financial advice space is affected by the Deputy Registrar of Financial Services Provider’s decision. Paragraph (2) in the communication reads: A provider is exempted from sections 3(3), 3(4), 6(1) (f) and 10 of the Demarcation of Fit & Proper Requirements insofar reference is made to the first level regulatory examination, provided that the provider –

a) Successfully completes the relevant first level regulatory examination by a date to be determined by the Registrar of Financial Services Providers;

b) Must register the exemption with the Registrar in the prescribed format and manner by 30 June 2012, or upon application for authorisation in case of an unauthorised financial services provider;

c) Must inform the Registrar in writing within 15 days after the change has taken place, of any change in respect of the information that was submitted for the purpose of registering the exemption.

The decree does not shed much light on the persons singled out for this exemption. To get to the bottom of the matter one has to spend a few minutes wrestling with the definitions provided in Paragraph (1). I found the easiest way to tackle the problem was to consider each of the three types of exempted “provider” referred to in Paragraph (2), with additional clarifying comments where necessary.

Provider – first definition: “A representative who is employed or mandated by an authorised financial services provider to render financial services in respect of a “policy” only”. The Registrar goes into great detail as to what constitutes a policy in both the long and short-term space… In the long-term space it refers to the policies set out under long-term insurance subcategory B1 and B2 in the Determination of Fit & Proper Requirements, Section 1. In addition it provides that subcategory B2 policies “must provide for the premiums to be invested in an investment portfolio managed by the product supplier with no option by the policyholder to change or amend that portfolio.”

In the short-term space it refers to Short-term Insurance Personal Lines policies, defined in the Fit & Proper Requirements as “short-term insurance contracts or policies referred to in the Short-term Insurance Act, 1998, purchased by natural persons acting otherwise than in a business capacity.” The Regulator excludes group policies and marine policies, and requires that personal lines policies require no or limited underwriting, define policy benefits as a sum assured, provide for the replacement of the insured assets or the settlement of outstanding balances, have contract terms of 24 months or less, are not subject to average, and carry limited liability exclusions.

Provider – second definition: “A financial services provider, its key individuals and representatives who render financial services to or for or on behalf of a “private equity fund” only”. For the purposes of the regulation a private equity fund’s business is to invest primarily in unlisted companies to earn income and capital gains. Such funds will be managed by a member of the South African Venture Capital & Private Equity Association or other relevant industry body and cannot be open (or offered) to the public as an investment.

Provider – third definition: “A financial services provider, its key individuals and representatives who renders financial services as an “underwriting manager” (as defined in regulation 6.1 of the Regulations) only”.

A layperson’s take on BN 102 of 2012

After two hours of reading, re-reading, writing, summarising and re-writing, it occurred to us we were nowhere nearer understanding what category of FSP employee would be exempted by BN 102 of 2012! We again turn to Ian Middleton for clarity. “There are no distinguishing ‘job titles’ for the reps that qualify for the exemption, but they are likely to fall mainly under the tied sales forces of product providers, be reps under larger broker operations that specifically service the lower end of the market, or be employed by Direct Marketers,” he said.

Editor’s thoughts: The FSB Board Notice 102 of 2012 can be viewed at http://www.fsb.co.za/. As we struggled through the copy we lamented how unnecessarily complex it was – and chuckled to ourselves about the irony in the Regulator’s inability to use the “plain and simple” language it frequently advocates. Have you read the Board Notice 102 and would you agree its language is particularly “dense”? Add your comment below, or send it to gareth@fanews.co.za

Comments

Added by Jacko, 20 Jun 2012
Does our constitutional rights debar from operating our brokerages without successfully writing the regulatory exams. Is this not our constitutional right to be gainfully employed in spite of the FSB's demands to regulate the industry with our industry having to fund their functions for the various staff that they employ. Yet the FSB proposes to further decrease our commissions in an already bleak economy. The FSB as far as I am concerned are nothing short of being the Mafia. Even the taxi owners in our country have a way of contravening the rights of our country yet we , the insurance industry, do not have a union similar to Casatu to stnd up to these "bullies" who continously fleece us of our funds with exhorbitant levies. This is a time for these "professional" bodies that fund their existence to show their balls and stand up to the FSB. Can you imagine a 70 year old writing these exams in order to sustain a liv ing !!!!!!!!!!!!!!!!!
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Added by Spitting Mad, 20 Jun 2012
AGAIN it is a question of "different strokes for different folks"! What a bloody sick joke! Who is actually in charge of this Industry one wonders? The Insurance Companies? The Banks? The Corporate Brokers? The FSB? It's seems more & more like a CONSPIRACY to rid the industry of Independent Brokers who have been thrown dead with legislation which is slowly crippling many of us who are trying to make a living amidst all this senseless jargon & regulation we are being threatened with on a daily basis! How dare the FSB now at the eleventh hour back down and make special exemptions available after putting us through this hell for almost 2 years and most of us have written these exams during extremely tough times?? I am sick to death of this Industry and wonder what further nightmares are in store for us?? WTH!! Only a guided missile will eradicate this pariah...
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Added by Ayanda, 19 Jun 2012
You are quite right Gareth. A very "dense" Board Notice of two pages that required a further four page "explanatatory note" from the FSB, itself equally "dense"! After causing months of angst among many thousands of industry people, costing much time, jobs and money (R900 each time one attempted the exam, apart from innumerable training materials and lecture courses!) we are presented with this ill thought through, last minute back-down! "Dense" is indeed the word! Have these people no concept of the damage they have done and continue to do with their constant interference in the private affairs of private people? Perhaps it should be made mandatory for at least 5 of the approximately 500 now on the FSB payroll to actually work in the industry for a few months before being hired to disrupt it so! It may give them some conception of how seriously deleterious to the industry and to the national economy their over-regulation has become.
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Added by Disgusted, 19 Jun 2012
The so-called exemption is not worth the paper it is printed on. My Reps are authorised for funeral business - Long Term A and also Long Term B. Because they are registered for A, they can't get the exemption as they do not sell policies which the board notice says are the only policies that apply.
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Added by Dewald, 19 Jun 2012
Apart from the FSB's inability to write a board notice in plain/clear language also holds true for the correspondence they send to service providers. Apart from this all they have achieved, in my opinion, is to confuse everybody with the exams questions. Not having insight into the answers how can anybody know which answers they had wrong and what the correct answers are - so it becomes a matter of speculation and contributes to the confusion. How many people that wrote and passed can give you an immidiate and clear answer on a question relating to compliance - inevitably it ends up with the compliance officer who also needs to verify in many cases. If a question is challenged and the FSB needs to convene a panel to decide on the answer.....this speak for itself. If the objective is to protect the client, improve service, etc then teach the staff insurance per se - legal technical waffle will not achieve this. I agree with you - the only conclusion one can come to is that confusion reigns in the regulatory body, they have no knowledge of the industries they want to regulate and hence cannot express themselves in a clear manner.....make it vague so each/every question can be sidestepped with the excuse "that is not what we said / intended / we will come back to you".
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Added by Hennie, 19 Jun 2012
Hier is al weer n slang in die gras. Dit lyk asof die doel van die eksamens nie die middel heilig nie. Jammer dat soveel mense baie studie tyd ingesit het net om hulle vas te loop teen dubbelsinninge vrae en ontoepaslike vrae soos Korttermyn adviseurs wat vrae oor lewens polisse en mediese fondse moet beantwoord.Wat n sirkus. Wat ek nie kan verstaan is nie is dat die magtige industrie deur die Reguleerder geboelie word en ons staan nie op vir ons grondwetlike regte nie. Dit is tyd dat ons opstaan en beklei vir ons regte!
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Added by Wonder net?, 19 Jun 2012
Ek wonder of dit maar net nie weer 'n "loop hole" om seker re maak dat party mense nie uit die bedryf gesit word nie.
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Added by ROY, 19 Jun 2012
I READ THE ORIGINAL STATEMENT REFERRING TO THE ABOVE, THAT THOSE WHO SUPPORT THE LOWER END OF THE MARKET IN REGARD TO INVESTMENTS AND BASIC LIFE INSURANCE, WOULD BE PERMITTED TO CARRY ON DOING SO. 'I HAVE WRITTEN BEFORE AND EXPLAINED MY SITUATION IN THIS REGARD. I AM A B.COM & CA SA AND HAVE BEEN IN THE INDUSTRY SINCE 1992. I HAVE NEVER (THANK G-D) EVER BEEN ACCUSED OF ANYTHING INCORRECT IN MY WHOLE CARREER. I HAVE BEEN INVOLVED IN MANY ORGANISATIONS AS CHAIRMAN, TREASURER, ADVISOR AND EXECUTIVE COMMITTEES. ON TOP OF THIS I WAS HIT BY A CAR FROM BEHIND WHILST WALKING IN NOV 2007 AND ALTHOUGH I HAVE ALL MY MENTAL SENSES, ABILITY AND RECALL, I HAVE MUCH DIFFICULTY IN WORKING A FULL DAY. I NEED TO REST AFTER A FEW HOURS. I HAVE ALWAYS BEEN INVOLVED WITH FIGURES AND EVEN IN MY "BAD STATE" OF HEAD INJURIES SPOKE ABOUT INVESTMENTS, INSURANCE, TAXES, BANKS ETC. (MY WIFE AND DOCTORS TOLD ME). I CAN GO ON. I WAS LEFT HIGH AND DRY BY MY PARTNER OF OVER 15 YEARS. I HAD TO GET BACK TO WORK WHICH ONLY STARTED AFTER 10 MONTHS ON A VERY SLOW BASIS. I HAD TO REDO ALL MY CONTRACTS WITH THE INSURANCE AND INVESTMENT COMPANIES TILL TODAY. I HAD TO FIGHT WITH THE BANK TO PROVE I WAS BACK TO LIFE. THANK G-D I HAD INCOME PROTECTION POLICIES WHICH HAS HELPED ME FINANCIALLY TILL TODAY. MY REPUTATION THANK G-D HELPED ME TO RETAIN A VERY LARGE NUMBER OF MY CLIENTS WHO HAD THE UNDERSTANDING OF MY POSITION AND WAITED FOR MY RECOVERY. SARS TO A CERTAIN EXTENT ALSO ASSISTED. THE BOTTOM LINE IS THAT I FIND DIFFICULTY IN REMEMBERING ALL THESE REQUIRED TECHNICALITIES AND THE MULTIPLE ANSWER EXAM CHANGES OR ADDS OR TAKES AWAY ONE WORD, WHICH THEN DECIDES RIGHT OR WRONG EVEN IF THE ANSWER IS 50% RIGHT OR WRONG. I HAVE REQUESTED A FEW TIMES (WHICH THE CHARTERED ACCOUNTANTS BOARD HAVE ACCEPTED) TO PERMIT ME TO CONTINUE AS IN THE PAST. IF I DO NOT PASS I HAVE NO IDEA HOW I WILL COME CLOSE TO MAKING A LIVING. AS AN ACCOUNTANT WE HAVE OUR STANDARDS TO ADHERE TO AS CFODE OF CONDUCT, INTEGRITY, RECORD KEEPING, RELIANCE, TRUST, HONESTY, COMPLIANCE, ETC. NO WHERE IS THIS RECOGNISED AND TAKEN INTO ACCOUNT. I HOPE TYHAT WHAT I HAVE WRITTEN IS CLEAR. MY ACCIDENT ADDS TO MY PROBLEMS, BUT THE BASIC INCESTMENTS AND INSURANCE COMMISSION POSSIBLE LOSS WILL REALLY AFFECT ME AND MY FAMILY AND STANDARD OF LIVING. THANK YOU
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Added by Bigballs , 19 Jun 2012
typical - !!! just to once again exclude "Certain" people from the industry to write these exams Is this fair and with honestly and intergrity ??
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Added by Mike R, 19 Jun 2012
Typical. Companies have obviously been able to bend the rules again. makes you sick. The FSB are a f**king joke....
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Added by Moose, 19 Jun 2012
You said : there's an "irony in the Regulator’s inability to use the “plain and simple” language it frequently advocates". My sentiments exactly! I am a CFP and I have passed both the RE 1 and RE 5 exams. After 45 minutes of trying to decipher what the hell they were trying to say in BN 102, I gave up! I figured if I can't understand it someone will have to explain it to me and others eventually. They probably don't understand it themselves.
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