THE FAIS ACT FOR KEY
INDIVIDUALS AND
REPRESENTATIVES
by
Daleen Millard
26 January 2011
THE BASICS OF FAIS:
REGULATOR
CONSUMER/
CLIENT
FSP
FAIS LEGISLATIVE FRAMEWORK
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Definitions an application (s 1)
Administration (secs 2, 3, 5 and 6)
Authorisation of FSPs (secs 7, 8 and 11)
Representatives (secs 13 and 14)
Duties of FSPs (secs 17 to 19)
Codes of Conduct (secs 15 and 16)
Supervision of FSPs (s 4)
Ombud (secs 20 and 30)
Regulatory Action (secs 19 and 14 A)
Enforcement (secs 33, 34 and 36)
Exemption (secs 44 and 45)
Miscellaneous (secs 32, 35, 40-42 and 46)
Definitions an application (s 1)
ANY ACT IS LIKE A HOUSE: ASK: WHAT
IS INSIDE AND WHAT IS OUTSIDE?
STARTING POINT IS ALWAYS
DEFINITIONS IN THE ACT.
-FAIS: all definitions in s 1
-If no definition: look at ordinary meaning
of the word, references to other Acts –
e.g. long-term insurance business
Definitions and application (s 1)
• There are certain key concepts that are fundamental to
our understanding of the Act, e.g:
-advice
-complaint
-intermediary service
-key individual
-ombud
-product supplier
-representative
• Concepts determine scope of application of the Act.
E.G. “ADVICE”
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Recommendation
Guidance
Proposal
Financial nature
Any medium
To client/group of clients
MUST PERTAIN TO A FINANCIAL PRODUCT
(Exclusions)
Possible question: Did a particular individual render
advice for purposes of FAIS Act
ADMINISTRATION
• Delegation of functions to the FSB
(FSB cannot act outside this)
• Advisory committee (e.g. “Treating
Customers Fairly”)
• Recognition of representative bodies
AUTHORISATION OF FSPs (1)
• Licensing requirements
-Application
-Fit
and proper requirements
• Approval of Key Individuals
• Lapsing of a licence
COMPLIANCE WITH FIT AND PROPER
REQUIREMENTS
FIT AND PROPER
REQUIREMENTS
KEY INDIVIDUAL
PARTNERSHIP, TRUST,
CORPORATE
Honesty and
integrity
Person himself
KI, any director, member,
trustee, partner of provider
who is not KI
Competency
Person himself
Key individuals
Operational
ability
Person himself
Entity and key individuals
Solvency
Person himself
Entity
AUTHORISATION OF FSPs (2)
FIT AND PROPER
REQUIREMENTS
FOR KI’S
OPERATIONAL
ABILITY
HONESTY
AND
INTEGRITY
COMPETENCY
Operational ability:
Basics:
-Fixed business address
-Communication
-Storage and filing facilities
-Account with a registered bank
(P91 H & M)
HONESTY
and
INTEGRITY
What is the meaning of
“honesty”?
-What is the meaning of
“integrity”?
-Which factors constitute
prima facie evidence that
an FSP, key individual or
representative does not
qualify?
(H & M 94-96)
COMPETENCY REQUIREMENTS:
Date of authorisation
Qualifying criteria
Experience
Qualifications
Regulatory examinations
CPD’s
REPRESENTATIVES
• Again, Fit and Proper
Requirements
• Debarment
• Reinstatement of debarred
representatives
DUTIES OF FSPs
• Approval of compliance
officers
• Compliance reports
• Audit reports
• Recordkeeping requirements
CODES OF CONDUCT
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Purpose of the Codes?
See s 16 of FAIS Act- obligations (principles)
Codes: Rules!
5 Codes:
-General Code of Conduct
-Administrative and
-Discretionary Code of Conduct
-Forex Investment Code of Conduct
-Specific Code of Conduct for Short-term
Deposit Business
RULES V PRINCIPLES: WHAT’S THE STORY?
• E.g. s 16(1)(a) of FAIS Act: Must act honestly and fairly,
with due skill, care and diligence, in the interests of
clients and the integrity of the financial services industrythese are principles!
• Rules: See BN 58 of 2010: Conflict of interests
E.g. a broker who acts on behalf of various insurance
companies in marketing long-term insurance, advises a
client to enter into an agreement with company A, wellknowing that company B’s product is better suited to the
needs of the client. However, because company A invites
the broker along on their annual hunting trips and golf
days, the broker is partial to A and would rather send
more business their way.
• Compliance with rules must serve principles.
SUPERVISION OF FSPs (S 4)
• Powers of the FSB:
-Functions
-Departments
-Profile changes
-On-site visits
• Read this together with Regulatory Action
(suspension, withdrawal and debarment) and
Enforcement
Enforcement
• 2 Aspects:
-FAIS Ombud
-Other measures:
*Suspensions and withdrawals
*Voluntary sequestration, winding up, debarment
*Removal of directors
*Civil remedies
*Undesirable practices
DISPUTES: OPTIONS
LITIGATION
FAIS OMBUD
ADVANTAGES√
DISADVANTAGES
Creature of statute
x
Voluntary
Jurisdiction?
JURISDICTION
• Contravention of FAIS Act- has lead to financial
prejudice or damage, future prejudice, damage
• Willful, negligent rendering of financial service
• Treating the complainant unfairly
• At a time when the rules were in force
• Respondent had failed to address complaint
within 6 weeks
DETERMINATIONS
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Extensive powers
Uphold: wholly or partially
Financial prejudice, damage
Cost order: improper, unreasonable,
unreasonable delay
• Difference between Ombud and court?
REMEMBER:
REGULATOR
CONSUMER/
CLIENT
FSP
CONCLUSION
“Financial systems were not abstract entities
dreamed up by dispassionate architects: they
were human working practices caught up in the
messy real world. That meant that the
psychopathology of those people running such
systems would determine the operation of the
system…And therein lay the problem: (banks)
had been taken over by the wrong types.”
-Alexander McCall Smith-