Financial services professionals play a crucial role in the economic landscape of South Africa. To protect consumers by maintaining the high standards of these professionals, the Financial Advisory and Intermediary Services Act (FAIS) sets out “fit and proper” requirements to ensure that professionals are competent, ethical, and trustworthy. This article describes these requirements and their significance for financial services professionals.
To whom do the fit and proper requirements apply?
To understand if the requirements apply to you, you should first be familiar with the term “financial services provider” or “FSP”. This is a legal person – which may be just an individual person, or an entity as giant as a major bank – that gives financial advice or renders other services related to financial products. To operate, an FSP must be authorised and have obtained a licence from the Financial Sector Conduct Authority (FSCA).
The fit and proper requirements apply to you if you are one of the following:
- An authorised representative, or a representative under supervision: An individual who renders a financial service to clients for or on behalf of an FSP. Representatives are under supervision until the key fit and proper requirements have been met.
- A key individual: a manager or overseer of an FSP’s financial services-related activities
- An individual who has received an FSP licence to render financial services as a sole proprietor
What are the fit and proper knowledge requirements?
Some of the fit and proper requirements are not knowledge requirements, because they cannot be obtained through training. For example, representatives and key individuals must have acquired experience, by rendering particular services for a certain length of time. Key individuals also require a certain amount of experience in management and oversight of the rendering of a particular financial service, before the FSCA will authorise them to act as Key Individuals on an FSP’s licence. And to be issued with an FSP licence, sole proprietors must meet other requirements, such as financial soundness and operational ability. Also, all financial services professionals must have honesty, integrity and good standing.
This article is about the requirements that can be met by doing the right kind of training, so we describe below the five knowledge requirements that an individual must meet to be fit and proper.
(Note that, as these requirements have been introduced and refined over the years, some professionals have been exempted from them – for example, some representatives who were appointed before 1 April 2018, when Class of Business training was introduced, are exempt from having to complete it. For more information about the complex web of exemptions, see the FSCA’s website here.)
1. Complete Class of Business (COB) training within 12 months of date of first appointment
There are nine classes of financial products, including investments, insurance, deposits, foreign exchange, and so on. For each one, there is Class of Business training, about the context, characteristics, fees, charges, and risks of that class of financial products. You need to complete the training for the class or classes relevant to the financial products that you work with.
Check out Skillfully’s course page for Moonstone’s accessible and flexible Class of Business training. For each of the nine classes, this excellent self-study training material includes comprehensive notes, charts, and practical examples curated by industry experts. Regular quizzes help in testing knowledge, and preparing you for the final online assessment. Upon successful completion, you will receive a certificate demonstrating compliance with this requirement.
2. Pass the relevant Regulatory Exam (RE) (for representatives, within 2 years of date of first appointment)
To ensure that financial services professionals know and understand the legislation governing their roles and responsibilities, they are required to pass a regulatory exam. Which exam you have to write, and when, depends on your roles and responsibilities. Representatives must pass Regulatory Exam 5 (RE5) within two years of the date of their first appointment, whereas key individuals and individuals seeking their own FSP licence must pass Regulatory Exam 1 (RE1) before the FSCA will approve them. After completing RE1, these individuals may also need to complete RE3 or RE4, depending on the category of their FSP. (An FSP’s licence allows it to operate within one or more of five categories – I, II, IIA, III and IV. For more on the categories, see this link.)
The regulatory exams are rigorous, and have a pass mark of 65%, so it is highly recommended that you take a course to help you prepare. Skillfully offers Growth in Motion’s RE5 and RE1 acclaimed courses. Each of these prep courses includes a user-friendly study guide, 16 hours of instruction, mini assessments, multiple-choice practice questions, six practice exams, and direct facilitator assistance. The lessons are offered either online or in-person in Johannesburg.
3. Obtain a recognised qualification within 6 years of the date of first appointment
The recognised qualification is a tertiary education credential that has been recognised by the FSCA as sufficient to satisfy the standards of the financial service industry. Some representatives may already have a recognised qualification before entering the working world, while others may need to obtain it while under supervision. The lists of recognised qualifications include many local and international offerings from a variety of institutions, not all of them traditional universities. These lists are updated from time to time, with the latest lists at this link. The recognised qualifications differ depending on the category of FSP for which the professional works and the type of work which they will be doing within that category. (If you work, or wish to work, for a particular category of FSP, make sure that the qualification you have done, or intend to do, is on the list for that category.)
4. Complete continuous professional development (CPD) training by 31 May each year
CPD involves lifelong learning to maintain and update skills and knowledge, and to acquire wholly new knowledge and skills. Given the fast-evolving nature of financial services, CPD is one more mandated requirement to be fit and proper.
- CPD should not be seen as a tick-box exercise; rather, it should be relevant to the function and role of the professional, and should be targeted to address any competence gaps and future needs
- To count, CPD activities must be accredited by a professional body such as the the Financial Planning Institute of South Africa or the Compliance Institute
- You cannot “double-dip” by counting as CPD your time spent pursuing the Class of Business, qualification or product specific training requirements
- The minimum CPD hours required to be completed within the cycle from 1 June to 31 May each year varies, as follows:
- If you render services for a single subclass within a class of business (say, only for the “shares” subclass within the “investments” class): 6 hours
- If you render services for more than one subclass within a class of business (say, for the “shares” and “bonds” subclass within the “investments” class): 12 hours
- If you render services for products within more than one class of business (say, within the “investments” class and the “foreign exchange” class): 18 hours
- More information about CPD, including a helpful FAQ, is available at this link
Representatives only need to do CPD once they are no longer under supervision.
Skillfully conveniently offers 6, 12, and 18-hour CPD packages from Growth in Motion. Full of useful and interesting content, these engaging, interactive activities have been designed with efficiency in mind, and can be accessed online anytime. Earn your CPD certificate the inexpensive and hassle-free way!
5. Complete product-specific training (PST) before rendering services related to that product
To be able to render financial services relating to a particular product, a professional must of course understand the nature, structure, pricing, fees, and tax implications of that product. This training is often provided by the product supplier, or it can be offered by key individuals or supervisors within your firm, provided that it ends with an assessment.
By when must the fit and proper requirements be met?
The above information indicates the deadlines by when each of the requirements needs to be completed. For ease, the graphic below summarises the timeline for representatives.
Timeline showing the deadlines to meet the five knowledge requirements
What are the consequences of non-compliance?
The FSCA is very serious about maintaining high standards. If you don’t meet the fit and proper requirements, you’re in for severe consequences, including fines, debarment from the financial service industry, suspension or revocation of licenses, and even legal action.
To know more about the FAIS fit and proper requirements, and how Skillfully can help with Class of Business, passing the RE exams, and earning your CPD, please click “Ask a question” above, and we’ll get right back to you.