FAIS regulatory exams

March 2012. New fit and proper requirements announced in 2008 introduced "Regulatory Examinations".

Which exam to write?

In order to identify the exam I should write, I read the FSB Circular on identifying which 1st level regulatory exam to write. There are 5 first level regulatory examinations:

Since I am a key individual category I, and am not authorised for subcategory 1 or 19 (assistance business policies & friendly society benefits), I should write "RE 1".

Examination bodies

Read the FSB's Preperation Guidelines

Tasks

1. Role of the key individual in terms of the FAIS Act

A "Key Individual" is responsible for managing or overseeing, either alone or together with other key individuals, the activities of FSP relating to the rendering of any financial service.

1.1 Explain the requirements for licensing by the FSB for the role of the key individual.

Key individuals must:

meet the requirements in respect of honesty & integrity;
meet the minimum experience requirements;
have the required qualifications;
have completed the relevant 1st level regulatory examination;
have completed the relevant 2nd level regulatory examinations;
Ongoing compliance with CPD requirements.

1.2 Describe what the key individual's management responsibility entails regarding the regulated functions of the FSP.

The Key Individual must maintain procedures to be followed by the FSP in complying with the Act, or example in respect of the provision of advice & retaining of record.

The Key Individual is responsible for the representatives as well as the overall business management of the FSP.

1.3 Describe what the honesty & integrity requirements are for a key individual

Factors which may exclude a person from being approved as a key individual:

Person was found guilty of acting fraudulently, dishonestly, unprofessionally, dishonourably or in breach of a fiduciary duty within 5 years before application.
Person was found guilty by any professional body (or denied membership of a professional body) because of an act of dishonesty, negligence, incompetence or mismanagement within 5 years before application.
The FSP had its authorisation to carry on business/any licence withdrawn or suspended because of an act of dishonesty, negligence, incompetence or mismanagement within 5 years before application.
The person was disqualified or prohibited by a court from taking part in the management of any company.

1.4 Explain what the implications are for the key individual if a key individual's personal situation changes & he/she is no longer fit & proper (this refers to the honesty & integrity requirement)

1.5 Explain the competence/qualification requirements that a key individual needs to meet.

Extent to which qualification's content meets qualifying criteria	How qualification is recognised	Must you write a product specific regulatory exam?
Partially	Generic (G)	Yes
80%	Specific (S)	No
100%	Specific (SP)	No

1.6 Explain the experience requirements that the key individual must meet.

Key individuals of a Category 1 FSP must have at least 1 year's practical experience in the management or oversight of services similar to that rendered by the FSP. For Category II & IIA FSPs the key individual must have actually provided the financial services in relation to the subcategories. A key individual of a Category III FSP must have 3 years practical experience gained in the rendering of financial services in that category, in addition to meeting the requirement for one year management/oversight experience.

1.7 Explain what management responsibilities should be carried out by a key individual.

1.8 Explain when an individual can commence acting as a key individual.

2. Describe the role of the representative in terms of the FAIS Act

A representative is any person who renders a financial service to a client for or on behalf of a financial services provider, in terrms of conditions of employment or any other mandate, but excludes a person rendering clerical, administrative, legal, accounting or other service in a subsidiary or subordinate capacity, which service -
a) does not require judgement on the part of the latter person; or
b) does not lead a client to any specific transaction in respect of a financial product in response to general enquiries

2.1 Describe the roles & responsibilities of representatives as defined in the FAIS Act.

A representative gives advice &/or provides an intermediary service to the clients of the FSP.

A representative must confirm to clients (& certified by the FSP) that he:

has an employment or mandate agreement with the FSP to represent the FSP
that the FSP accepts responsibility for the activities of the representative performed in terms of the agreement

A representative must be fit & proper as required by the FAIS Act

Representatives may have to work under supervision whilst getting the required qualifications, experience and/or completing the regulatory examinations.

2.2 Discuss the purpose of the representatives

3. Manage & oversee the appointment of representatives

3.1 Explain the requirements for the registration of representatives

Representatives are appointed by the FSP (the FAIS Registrar does not appoint representatives or approve them), who ensures that they are fit & proper & comply with legislation & the FAIS subordinate legislation (e.g. the General Code).

FSPs must maintain a register of all key individuals & representatives employed or mandated by them. The register must be uploaded to the Registrar wtihin 15 days of changes.

First level regulatory examinations must be completed within 2 years from date of first appointment, and second level examinations within 6 years from date of first appointment. The examinations may be completed whilst working under supervision.

3.2 Explain the fit & proper requirements applicable to representatives

Honesty & integrity requirements are the same as for key individuals. The main difference is with required competence & CPD.

Whilst the FSB does not approve or appoint representatives, it may debar them. The representatives must declare to the FSP on a regular basis whether there is any change in his personal situation that affects his status negatively. If there's a change in circumstances which of the representative which affect the representative's circumstances negatively, the FSP must debar the representative. The FSP must remove the name of the representative from the representative register & must advise the Regulator & also inform the Regulator what action the FSP has taken.

3.3 Explain the qualification requirements for representatives

Competency requirements for representatives are made up of:

minimum experience requirements (practical hands-on experience, gained within or outside the borders of South Africa, possibly in intermittent periods in the last 5 years, could have been gained simultaneously in multiple subcategories)
relevant qualifications requirements
- When a representative is responsible for more than 1 category or subcategory he needs to have a qualification that meets the most onerous requirements.
- The main reason for the differentiation & classification of qualifications is to indicate if a person has to complete a regulatory examination, in addition to the qualification (2nd level regulatory examinations).
  - If the content of your qualification only partly meets the qualifying criteria, it is a Generic qualification & you have to complete a product specific regulatory examination.
  - If the content meets the qualifying criteria 80% then it is a specific qualification & you are exempted from the product-specific regulatory examination, provided you were first authorised before 2010
  - If the content meets 100% of the qualifying criteria it is a specific qualification & you are exempted from the product-specific regulatory examination
regulatory exam completion requirements
ongoing compliance with CPD (starts on completion of the highest level regulatory examination). CPD cannot start later than 6 years from date of first-ever appointment into a FAIS role or date of approval as a Key Individual. CPD will require that between 15 to 60 notional hours be achieved during a 3-year cycle.

3.4 What recruitment & appointment procedures have to be implemented when appointing representatives?

4. Manage the rendering of services under supervision

4.1 Explain when representatives can act under supervision.

The FSP must be able to satisfy the Registrar that it has the operational ability to facilitate services under supervision.

To qualify for exemption from competence requirements for Category I & IV representatives:

must have passed Grade 12 or NQF Level 4
in subcategories 1.1 Long-term Insurance Category A &/or 1.19 Friendly Society Benefits must have passed ABET Level 1; or the proven ability to read, write & calculate.
complete a full qualification within the prescribed date

For exemption from competence requirements for Category II, IIA & III representatives must:

have a degree/similar

Direct supervision is on a daily to weekly basis.

Ongoing supervision is on a bi-weekly to monthly basis.

4.2 Describe the supervision requirements that must be in place when representatives act under supervision.

4.3 Explain the disclosure requirements that representatives are responsible for.

5

Manage & oversee the ongoing development/employment of representatives

6

Debar representatives that have been found to act fraudulently, or committed any other act that gives rise to debarment

7. Awareness of the regulatory environment in which the FSP functions

7.1 Describe the FAIS ACT & requirements thereof

The FAIS Act refers to the Financial Advisory & Intermediary Services Act, no 37 of 2002.

The FAIS Act aims to protect consumers in relation to financial services. The FAIS Act regulates all FSPs & intermediaries who give advice or provide intermediary services to clients.

The Act regulates across institutions - insurance companies, banks & brokerages.

Role Players

The FSB oversees SA's non-banking financial services industry
FSPs offer financial services after being authorised by the FSB
Representatives are employed by FSPs to provide financial services
Key Individuals are employed by FSPs & manage & oversee FAIS-related business
Compliance officers are employed by FSPs to ensure the FSP complies with the Act
The FAIS Ombud resolves disputes between consumers & FSPs & their representatives

FAIS Registrar is responsible for:

administration & enforcement of the Act, and imposing penalties
authorising & issuing licences to FSPs
approval of key individuals & compliance officers
publishing Codes of Conduct

"Advice" means any recommendation, guidance or proposal of a financial nature furnished, by any means or medium, to any client or group of clients -
a) in respect of the purchase of any financial product; or
b) in respect of the investment in any financial product; or
c) on the conclusion of any other transaction, including a loan or cession, aimed at the incurring of any liability or the acquisition of any right or benefit in respect of any financial product; or
d) on the variation of any term or condition applying to a financial product, on the replacement of any such product, or on the termination of any purchase of or investment in any such product, and irrespective of whether or not such advice -
i) is furnished in the course of or incidental to financial planning in connection with the affairs of the client; or
ii) results in any such purchase, investment, transaction, variation, replacement or termination, as the case may be, being effected;"

Advice does not include -
i) factual advice given merely -
(aa) on the procedure for entering into a transaction in respect of any financial product;
(bb) in relation to the description of a financial product;
(cc) in answer to routine administrative queries;
(dd) in the form of objective information about a particular financial product; or
(ee) by the display or distribution of promotional material;
ii) an analysis or report on a financial product without any express or implied recommendation, guidance or proposal that any particular transaction in respect of the product is appropriate to the particular investment objectives, financial situation or particular needs of a client.
(iii) advice given by -
(aa) the board of management, or any board members, of any pension fund organisation or friendly society referred to in paragraph (d) of the defintion of "financial product" in subsection (1) to the members of the organisation or society on benefits enjoyed or to be enjoyed by such members; or
(bb) the board of trustees of any medical scheme referred to in paragraph (g) of the said definition of "financial product", or any board member, to the members of the medical scheme, on health care benefits enjoyed or to be enjoyed by such members; or
(iv) any other advisory activity exempted from the provision of this Act by the registrar, after consultation with the Advisory Committee, by notice in the Gazette;"

Intermediary service means any act, other than the furnishing of advice, performed by a person for or on behalf of a client or product supplier -
a) the result of which is that a client enters into, or offers to enter into a transaction in respect of a financial product with a product supplier; or
b) with a view to -
(i) buying, selling or otherwise dealing in, managing, administering, keeping in safe custody, maintaining or servicing a financial product purchased by a client from a product supplier or in which the client has invested;
(ii) collecting or accounting for premiums or other moneys payable by the client to a product supplier in respect of a financial product; or
(iii) receiving, submitting or processing the claims of a client against a product supplier;

Intermediary service does not include -
(i) the rendering by a bank, mutual bank or co-operative bank of a service contemplated in paragraph (b)(ii) of the definition of 'intermediary service' where the bank, mutual bank or co-operative bank acts merely as a conduit between a client and another product supplier;
(ii) an intermediary service rendered by a product supplier - (aa) who is authorised under a particular law to conduct business as a financial institution; and (bb) where the rendering of such a service is regulated by or under such law;

Awareness of the specific obligations in terms of the relevant Code of Conduct & other subodinate legislation

9

Oversee & manage the compliance functions as required by the FAIS Act

10. Maintain the licence of the FSP including the management of the licensing conditions.

10.1 Explain the different financial products with examples of products in each category

Category descriptions & experience requirements for advice

Category	I	II	IIA	III	IV
	Other	Discretionary	Hedge Fund	Administrative	Assistance Business
Long-term Insurance Cat A	0.5		3 years practical experience	3 years practical experience
Short-term Insurance Personal Lines	1
Long-term Insurance Cat B
Subcategory B1	1	2
Subcategory B2	1	2
Long-term Insurance Cat C	1	2
Retail Pension Benefits	1	2
Pension Fund Benefits	1	2
Short-term Insurance Commercial Lines	1
Shares, money market instruments, Debentures, Warrants, certificates & other instruments acknowledging debt, bonds & derivative instruments	2	3
Participatory interests in collective investment schemes	1	2
Forex Investment Business	2	3
Health Service Benefits	2
Short & long-term deposits	0.5	1
Friendly Society Benefits	0.5

An Discretionary FSP "renders intermediary services of a discretionary nature, as regards the choice of a particular financial product"

11

Take the necessary action if the FSP voluntarily lapses its licence

12

Verify that the proper record-keeping activities are carried out

13

Manage & oversee/participate in the setting up and/or managing of the infrastructure of the FSP

14

Manage & oversee the requirements that auditors/accounting officers must adhere to

15

Manage & oversee the FSPs adherence to the requirements of FICA & other relevant anti-money laundering legislation, as it applies to the FSP

16

Manage any processes required in the event of an investigation by the Ombud for Financial Services Providers (FAIS Ombud)

Product categories

Compliance Officers, key individuals & representatives are approved for certain product categories & sub-categories.

Format of exams

Closed book & multiple choice questions, no negative marking (so guessing helps).

Purpose of level 1 regulatory examination

To ensure that financial advisors & representatives understand their regulatory role & responsibilities.

Qualifying criteria & material

The questions are based on the qualifying criteria, which are apparently available on the FSB website (the particular part of the website wasn't working when I looked!). The following material was used in the development of the questions for the Regulatory level 1 exams:

Role of a key individual

A key individual is responsible for managing or overseeing, either alone or together with other so responsible persons, the activities of the entity relating to the rendering of any financial service (if the entity consists of only one natural person, that person is the key individual). Key individuals include people in executive control such as directors & other persons performing a managerial function over activities relating to the rendering of a financial service. However, it is not the intention to include every person in a supervisory capacity.

Requirements for licensing of a key individual

The key individual must (1) be honest & have integrity, (2) be sufficiently competent & have sufficient operational ability to fulfil the responsibilities required of key individual by the FAIS Act.

A FSP must at all times be satisfied that the provider's representatives, & key individuals of such representatives, are, when rendering a financial service on behalf of the provider, competent to act, taking into consideration honesty, integrity, comptenence & operational ability.

Minimum experience requirements for advice are 6 months for long-term deposits, short-term deposits or friendly society benefits; 1 year for Long-term insurance Category A, Short-term Insurance Personal Lines, Long-term Insurance Category B, Long-term Insurance Category C, Retail Pension Benefits, Short-term Insurance Commercial Lines, Pension Fund Benefits or Participatory Interests in one or more collective investment schemes; 2 years experience is required to give advice on shares, money market instruments, debentures & securitised debt, warrants, certificates and other instruments acknowledging debt, bonds and derivative instruments. Half that time is required for intermediary services, except collective investment schemes where it's also 1 year.

Years experience required

In the last 5 years a key individual must have at least 1 year's practical experience in the management or oversight of financial services similar to that rendered by the provider.

A FSP must maintain a register of representatives and key individuals of such representatives.

A FSP with more than 1 key individual or more than 1 representative must appoint one or more compliance officers.

FAIS Registrar

The FAIS Registrar is responsible for administration & enforcement of the Act, the issuing of licences & the approval of key individuals & compliance officer.

Terms and Conditions of writing regulatory Examinations

Candidates are obliged to identify themselves when writing an examination by means of an identity document/ driver’s licence/ passport.
No candidate may enter the examination venue later than 30 minutes after commencement of an examination session and no candidate may leave the examination venue less than 30 minutes after commencement of a test or examination session. If the candidate is late within the first 30 minutes, he loses the time he was late.
Candidates may not bring into the examination venue or have in their possession any unauthorised apparatus, books, paper, electronic means of communication or notes of any nature whatsoever.
It remains the candidate’s responsibility to double-check, prior to the commencement of an examination, that none of the aforementioned items are in his/her possession.
Book bags and handbags may be kept with candidates (i.e. underneath their chairs) during examinations provided that these are not handled by candidates at all for the entire duration of the examination.
It is important that the surname, full names and signature of the candidate are provided in the relevant space on the examination answer sheet.
During the course of the examination no communication of any nature whatsoever may take place between candidates.
Candidates may not act in a dishonest way with regard to any examination assessment. No candidate may assist or attempt to assist another candidate, or obtain help, or attempt to obtain help from another candidate during an examination.
Rough work should be done on the examination question sheet and then crossed out.
Smoking is not permitted in the examination venue.
Only in exceptional circumstances will a candidate be given permission to leave the examination venue temporarily, and then only under the supervision of an invigilator.
Candidates may not remove used or unused question papers or answer sheets from the examination venue.
Candidates are not allowed to copy, duplicate or record the examination paper.
As soon as the invigilator announces that the time for an examination has expired, candidates must stop writing immediately.
Please note: Candidates should take note that, if found guilty of misconduct or non-compliance with these rules, a candidate may forfeit his/her examination results, and could also face further action under the FAIS Act. The candidate may be suspended from rendering financial services for the duration of the investigation, pending a final decision.
In the event that it is impossible to mark an examination script, the examination body may contact a candidate and arrange for the candidate to re-write such examination, with no examination fee being charged.
Under no circumstances will candidates have further access to their question papers and/or answer sheets once they have submitted such to the invigilator.
No answer(s) marked on the examination paper will be marked. All answers must be marked on the answer sheet, and only the answer sheet will be used for marking purposes. The examination paper itself will be disregarded during the marking process.

TRIAL QUESTIONS

Where trial questions are included at the end of the examination, the following terms and conditions will apply:

Any persons completing the separate trial questions does so voluntarily and hereby declares that he/she has not in any way been coerced, offered or given any incentive to participate in such examinations and knows and understands that:

Completing the trial question(s) will not entitle him/her to a qualification as a result of such participation.
The trial question are merely being tested to enable the Examination Body to determine and set the standard and quality for future regulatory examination questions and is not intended to be an official examination of the Examination Body.
You will not be provided with the results of the trial questions that you have participated in.
You will not be compensated, or remunerated in any manner or form for completing the trial questions.
You may not copy, duplicate or make photographic or other electronic images of the questions.
The trial questions cannot be appealed and therefore the “Right of Appeal/Re-mark/Complaint” section of this Terms and Conditions do not apply to the trial questions.

RIGHT OF APPEAL/RE-MARK/COMPLAINT

Candidates have the right to register a complaint or lodge an appeal in respect of the regulatory examination.
Complaints are directed at the examination process or procedures and should be lodged with the examination body. Candidates have the right to request a re-mark of the examination results. Re-marks do attract an administrative fee.
Appeals are directed at the content of examination questions. If you are of the opinion that a question in the examination is technically incorrect, ambiguous or unfair you may appeal against the question. When you encounter such a question, immediately ask the invigilator for the documentation to support your appeal and record the specific question number/s that you wish to appeal including a reason for your appeal. You will not have access to the questions in your exam once the examination is over.
Candidates awaiting the outcome of an appeal need not wait for the examination result before applying to re-sit the examination under review or appeal, and/or other examinations. An outstanding appeal does not exempt candidates from the meeting the exam deadline dates.
Examination Appeals do attract an administrative fee. No appeal will be processed by the examination body concerned until the appeal has been formally lodged on the appropriate form and the fee has been paid to the examination body. The fee charged will cover up to three appeal questions. Each additional one to three questions you wish to appeal will require an additional fee paid by you.
Examination appeals must be formally lodged with the examination body within 5 working days of receipt of your examination result.
In the event that you lodge an appeal, having met the requirements of point 5 in the Appeal section of the T&Cs, your appeal will be forwarded to the examination body responsible for developing the question/s that you are appealing. On review of your appeal by the examination body concerned, the outcome of the appeal will be forwarded to the FSB for ratification. In the event that you are dissatisfied with the outcome of the appeal, you have the right to escalate your dissatisfaction to the FSB. The Registrar’s decision will be FINAL.

INDEMNITY

I agree and acknowledge that the FSB will not be liable for death, injury, loss or damage suffered by me or my dependants through or contributed to by any cause whatsoever including, but not limited to, any negligent act, omission or breach of contract on the part of the FSB or the examination body, its employees, contractors or independent consultants.
I agree and acknowledge that I enter upon and exit the premises (inclusive of the parking areas) and use the equipment and facilities entirely at my own risk.
I and my estate hereby indemnify the FSB and examination body against any claim by any person arising directly or indirectly from my death, injury, loss or damage allegedly caused or contributed to by an act or omission by the FSB or the examination body, its employees, contractors or independent consultants.

Terms & Conditions: Cancellations and Refunds:
For paper-based and electronic examinations:

Once payment has been received, on condition that it is not a late payment, your booking confirmation containing the examination, venue, date, session, format of the examination and a Tax Invoice will be sent to your e-mail address to notify you of the registration.

Please note – if payment is not received within 24 hours after registration, your reservation will be cancelled.

blog comments powered by Disqus

Due to regulations, our emails and this entire website should be considered as having been set up for entertainment purposes alone. Expect errors and omissions. Investment in shares and other financial instruments should be conducted by professional investment experts only. Any use of the information on my websites, emails and newsletters is at your own risk, and by using it you agree that the owners of our websites, authors and associated parties wont be held liable for any losses suffered as a result of using the information. None of the information should be construed as being advice. Our newsletters, articles, discussions and website are not an offering for any investment. It represents only our and others' opinions. Any views expressed are provided for information purposes only and should not be construed in any way as an offer, an endorsement, or inducement to invest. Illustrations, forecasts or hypothetical data are not guaranteed and are provided for illustrative purposes only. There are risks involved in buying or selling a financial product. Past performance is not indicative of future performance. Any investment values given are not guaranteed. Investment returns can be volatile. When investing there is always the risk of losing all or a substantial amount of your investment, as well as the risk of illiquidity. There may be advertisements on some pages on this website, and we may earn income from these advertisements. We may earn commission on products invested in or annuities purchased. We cannot attest to the accuracy of the material presented here, and opinions expressed may be changed without prior notice. In any event our liability will be limited to R1, and any court cases must take place in Cape Town. You may contact us at invest@freeinvestmentadvice.org

RE 1	Key Individuals Category I, II, III & IV
RE 2	Key Individuals Category 1.1 & 1.19
RE 3	Key Individuals Category II & IIA
RE 4	Key Individuals Category III
RE 5	Representatives