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It looks like time to bolster your compliance division

09 December 2011 Gareth Stokes
Gareth Stokes, FAnews Online Editor

Gareth Stokes, FAnews Online Editor

Financial services providers (FSPs) that are struggling to keep up with the myriad regulatory and compliance requirements introduced by the Financial Advisory and Intermediary Services (FAIS) Act (and related Codes) should brace for a busy few years. Over

We already know that the Regulatory Examinations (RE) will dominate the financial advice space through the first half of 2012 following the deadline extension granted by the Financial Services Board (FSB). As advisers scurry to get RE Level I under the belt the authorities are already hard at work on RE Level II, which will probably be piloted in Q1 2012. And there is plenty more on the regulator’s short-list. The South African Insurance Association (SAIA) November 2011 Bulletin provides details of various legal and compliance initiatives which will impact the short-term industry – and by extension the financial advice space – over the next few years. What can financial intermediaries and other industry stakeholders look forward to?

Fine-tuning the FAIS Act

On the legislative front, industry stakeholders will be looking to amendments to the FAIS Act early in 2012. SAIA points out that the anticipated amendments will include changes to the “product supplier” definition, the extension of the Registrar’s intervention powers to include compliance officers, clarification that the fit and proper requirements status is regarded as an ongoing requirement and clarification around the grounds for the withdrawal or suspension of a licence (with an increased penalty to R10 million) among others. These changes might appease one of our incensed readers, who recently observed that the “Act fails in its objective and is one of the sloppiest pieces of legislation ever written!”

But the extended powers proposed in these amendments will send shivers down the spines of FSPs who already feel as if they are “living under an FSB reign of terror and intimidation.” SAIA notes: “The intention is to increase the locus standi of the Registrar to allow the Registrar to apply to court for sequestration or winding up of an FSP (currently the Registrar can only apply for curatorship).” Given the apparent failure – in terms of time lapsed to resolution – of various companies under FSB-imposed curatorship one has to wonder whether this is a sensible amendment. We’re sure to hear more about these and other proposed changes early in the New Year.

The next round in Code of Conduct

The various Codes associated with the FAIS Act are morphing into a rich tapestry of financial services legislation. SAIA says that we should expect a Specific Code of Conduct for Professional Clients to be published in the first quarter of 2012 and The Amendment of Financial Soundness Requirements by November of the same year.

There are also a number of new Codes in the pipeline and industry stakeholders will be hard-pressed to keep up with the many requests for comment during their development. Financial intermediaries will soon have to comply with a Specific Code of Conduct for Assistance Business for funeral policies/friendly societies (draft Code expected by 31 March 2012) and a Specific Code of Conduct for Private Equity Funds!

The mother of all consumer protections

And then of course we have the topic that’s dominating compliance discussions across the financial services industry – TCF. Our readers are so interested in the topic we’ve managed to attract a sell-out audience for a morning presentation on the topic to be held 12 December 2011! There are a couple of certainties at this early stage. First – TCF is coming and will be implemented early in 2014. Second – the industry has mountains of work to do to prepare for this fast track implementation. Much of the burden of TCF will fall on product suppliers.

At a recent conference held on 23 November 2011 the FSB said that product providers would have to:

· Identify suitable targeted distribution models as part of the product design process;

· Establish whether advice was necessary in the distribution of their products;

· Consider how to monitor that the distribution channels they use are delivering TCF outcomes for their customers. (This does not mean that the product suppliers are responsible for the FAIS requirements, but that merely checking for the existence of a FAIS licence will not be enough);

· Have the right controls and management information in place to monitor that outsourced activities are carried out fairly.

At this stage there are concerns the industry has underestimated the complexity of TCF. “The process of a regulatory alignment analysis of existing legislation and subordinate legislation is currently being undertaken to identify gaps and inconsistencies in delivering the TCF fairness outcomes,” notes SAIA.

And all this on a smaller pay cheque

And finally – 2012 will bring the discussion paper to end all discussion papers – on Intermediary Services and Related Remuneration. A call for contributions had been received from the FSB to solicit contributions from industry on possible refinements to the definition of intermediary services and reforms to remuneration structures. What are they looking at?

· Commission structures should strike a balance between supporting ongoing service and adequately compensating intermediaries for up-front advice and intermediary services;

· Remuneration structures should promote a level playing field between independent intermediaries and representatives;

· An intermediary may not be remunerated for the same /similar services twice;

· All policyholder fees must be motivated, disclosed and explicitly agreed to by the client;

· All remuneration must be reasonable and commensurate with the actual services rendered;

· Ongoing fees and commission may only be paid if ongoing advice and services are indeed rendered.

The SAIA has constituted a task team with a view to addressing the call for contribution by the deadline of 30 March 2012. We know the Financial Intermediaries Association (FIA) and other broker bodies are hard at work on similar initiatives. Even so, the above points suggest we’re in for extremely heated debates around the remuneration issue next year.

Editor’s thoughts: Professionals in the financial services industry are in for a busy 2012. As we survey the list of regulatory initiatives we wonder how either product provider or independent financial intermediary will find the time to write new and profitable business next year… Are increasing regulatory and compliance pressures making it more difficult to trade profitably? Please add your comment below, or send it to


Added by Sam, 16 Dec 2011
OMG! Now when will my agent/broker be able to come and see me? Do I also have to verify his drivers license? Who is going to pay for his parking? Yes, I agree that the agent/broker needs to be on top of things and more important, MUCH more important, how the hell are all these new laws, tests, rules---call it whatever--- going to honesty proof rogue agent/brokers? These guys are smart and occasionally get caught for being dishonest or selling high comm junk, yet I have not read one complaint to, or ruling made by the ombud, re a customer who is content with his purchased product bur feels his broker or agent is not suitably qualified. Are we trying to 'out Australia the Australians'? TG I have retired from the industry 6 years ago. The previous 30 tears were marvelous--- and I never diddled any one!!!
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