FAIS
LEARNING GUIDE
OVERVIEW
MODULE
3
Inter-Bank Compliance Training Project
Sponsored by BANKSETA
Overview:
Codes of Conduct
Topics:
1 Advice and intermediary service: the difference
2 The Codes of Conduct
3 The differences between the Codes
4 The General Code of Code of Conduct
5 Specific Code of Conduct for Short-term Deposit-taking business
6 Code of Conduct for Administrative FSPs
7 Code of Conduct for Discretionary FSPs
8 Advertising
9
Record Keeping
B A N K S E T A
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Overview: Codes of Conduct
Module 3: Overview
INTRODUCTION
Introduction
Topics covered in
this lesson
The Codes in
perspective
A Code of Conduct may be defined as a set of conventional
principles and expectations that are considered binding on any
person who is a member of a particular group. Specifically, the
Codes lay down the ground rules for behaviour when FSPs and
their Representatives offer advice or an intermediary service to
clients.
This overview lesson contains brief notes on the following topics:
 Advice and Intermediary Service: The difference
 The Codes of Conduct
 The differences between the Codes
 The General Code of Conduct
 Specific Code of Conduct for Short-term Deposit business
 Code of Conduct for Administrative FSPs
 Code of Conduct for Discretionary FSPs
 Advertising
 Record Keeping.
This diagram on the next page illustrates the areas covered by the
Codes and places them into perspective.
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INTRODUCTION - cont
Advertising
Key
Responsibilities
Key Areas
Specific
Code
General
Code
Role players
affected
Key
Responsibilities
Client
Key
Responsibilities
Discretionary
Code
Product
categories
affected
Key Areas
Key
Administrative Responsibilities
Code
Product
categories
affected
Record-keeping
Record-keeping
Key Areas
Key Areas
Key Terms
Key Terms
Advertising
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Overview: Codes of Conduct
Module 3: Overview
1 ADVICE & INTERMEDIARY SERVICE: THE DIFFERENCE
Definition: Advice
The following definitions are based on the definitions contained in
FAIS (see Appendix 1.1).
Advice means any recommendation, guidance or proposal of a
financial nature, by any means or medium, given to any client or
group of clients on financial products with the intention of getting
the client to consider:
 Entering into a financial transaction in respect of a financial
product
 Investing in a financial product
 Varying, replacing or terminating any of these
 The conclusion of any other transaction, including a loan or
cession, aimed at incurring liability or acquiring rights/
benefits in any financial product.
This applies regardless of whether or not such advice:
 Is incidental to the financial planning of the affairs of a client
or
 Results in any transaction, purchase, investment, variation,
replacement or termination being effected.
What advice is
NOT
For the purposes of FAIS, advice does NOT include factual advice
given:
 On the procedure for entering into any transaction relating to a
financial product
 In relation to the description of a financial product
 In response to a routine administrative query
 In the form of objective information about a specific financial
product
 By the display or distribution of promotional material.
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1 ADVICE & INTERMEDIARY SERVICE: THE DIFFERENCE – cont.
Advice excludes
general
information
In terms of FAIS, advice also excludes:
 An analysis or report on a financial product without any express
or implied recommendation as to its suitability for a client
 Advice given by a board member or management, of a pension
fund organisation or friendly society or trustees or board
member of a medical scheme to its members, on the benefits
enjoyed or to be enjoyed by such members.
Definition:
Intermediary
service
An intermediary service occurs when a person performs any act,
other than giving advice, for or on behalf of a client or product
supplier. For example:
 Doing something other than giving advice as a result of which
the client will enter into a financial product with a product
supplier
 Keeping a financial product in safe custody
 Processing the claims of a client against a product supplier
 Collecting or accounting for premium payments.
Intermediary service does not include when a Bank or Mutual bank
acts as a conduit between a client and another product supplier.
Explanation:
Intermediary
service
In practice intermediary service means the facilitation of a financial
transaction where the service is not a recommendation or guidance
or proposal regarding financial products.
The difference in
a nutshell
The difference between intermediary services and advisory
services may be described simply as follows:
 Intermediary services may facilitate the administration of the
product
 Advisory services facilitate the client’s decision in relation to a
financial product.
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2 THE CODES OF CONDUCT
Code of Conduct:
Basic
responsibilities
FSPs and their Representatives must adhere to certain basic
principles when rendering services in respect of financial products.
The following diagram illustrates their responsibilities based upon
these principles:
Obtain from clients
information relating to their:
• Financial situation
• Financial product experience
• Financial goals
• Intentions.
Act:
• Honestly and fairly
• With skill, care and diligence
• In the interests of clients
• With integrity.
Have and maintain
appropriate systems
to ensure performance
of professional activities.
Authorised FSP/
Representative
Comply with all legal
requirements applicable
to the conduct of business.
Avoid conflict of
interests.
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2 THE CODES OF CONDUCT – cont.
Code of Conduct:
General
provisions
The Codes of Conduct contain provisions relating to the following
basic categories of information:
 Adequate disclosure of relevant, material information to clients
 Disclosure of actual and potential own interests to clients
 Adequate and appropriate record keeping
 Avoidance of fraudulent and misleading advertising, canvassing
and marketing
 Proper safe keeping, separation and protection of client funds
and transaction documents
 Suitable and adequate guarantees, professional indemnity or
fidelity insurance cover.
These provisions are specified in each Code.
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3 DIFFERENCES BETWEEN THE CODES
Descriptions:
Codes of
Conduct:
Different Codes exist for different categories of financial products.
The following table gives you a brief description of each of the
Codes of Conduct:
Code Name
General Code
Description
Applies to all services and advice in
financial products not covered by the
Specific Code Short-term Deposit
business. It also applies in conjunction
with the Discretionary and the
Administrative Codes.
Specific Code - Applies only to bank deposits with a term
Short-term Deposit of less than 12 months (ie The client has
business
access to the funds within a twelve month
period.)
Administrative Code
Applies to those persons dealing with the
following financial products in terms of a
mandate from their client, and who use
the method of bulking.
a. Securities and instruments
b. Participatory interest in a collective
investment scheme
c. Long term insurance
d. A pension or friendly society benefit
e. A foreign currency denominated
investment instrument.
Discretionary Code
Applies to those acting on behalf of a
client in terms of a mandate who do not
use aggregation or bulking.
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3 DIFFERENCES BETWEEN THE CODES – cont.
Description:
bulking
Bulking means the aggregation of clients’ funds on buying,
investing and selling of funds in financial products on behalf of
clients, and the subsequent allocation of the products or proceeds
to each client’s account.
Codes of Conduct
relating to
Financial
products
A FSP which conducts business that covers more than one
financial category may need to comply with the requirements of one
or more of the applicable Code/s of Conduct.
Example:
A personal banker may give advice on transactional products such
as a cheque account (Short Term Deposit - Specific Code) as well
as an educational investment product (Long Term insurance General Code).
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4 THE GENERAL CODE OF CONDUCT.
Quick reference
to the General
Code
The General Code provides very specific instructions across twelve
key areas that impact upon clients.
Key Area
1. Duties of the
FSPs
Content:
 How representations are provided to a
client
 Disclosure of actual or potential
conflicts of interest
 Client’s interests take priority over
those of the FSP
 Accurate account for transactions.
2. Information on

product suppliers
What you need to disclose to your
client about the supplier of the product.
3. Information on
FSPs

What you should tell your client about
the FSP.
4. Contacting of
clients

Disclosure requirements when
contacting clients.
5. Information
about financial
service

What information to disclose to your
client about the financial services you
are offering them.
6. Furnishing of
advice

Establishing your client’s financial
needs and goals
Recommending a financial product
that meet the client’s needs and goals.
Disclosing of information you have to
provide to the client when
recommending a financial product.


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4 THE GENERAL CODE OF CONDUCT – cont.
Quick reference
to key areas cont
Key Area
7. Records
Description
 Requirements with regard to record
keeping.
8 Custody of
financial
products and
funds
9 Risk
Management

Requirements applicable to custody of
the clients’ funds or documents.

Risk management procedures in order
to protect all parties’ interests.
10 Direct Marketing

Disclosure requirements for financial
services provided by direct marketing.
11 Advertising

Disclosure requirements when
advertising financial products.
12 Complaints

Systems and procedures for the
recording, managing and resolution of
complaints
Escalation to Statutory Ombud office.

13 Termination of
agreement or
business

14 Miscellaneous






What to do if clients wish to end their
business with you
What to do if you (the Representative)
or the FSP stop operating.
Waiver of rights
Client confidentiality
Insurance
Signing of incomplete forms
Comparison to other FSPs.
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5 THE SPECIFIC CODE OF CONDUCT
The Specific Code
The Specific Code applies to Short-term Deposit Business not
exceeding 12 months.
It applies to every aspect of providing a service of short-term (less
than 12 months) deposit taking.
Individuals
affected by
Specific code
Individuals affected by the Specific Code are:
 The FSP
 The Representative working for the FSP
 The client.
Key areas
The Specific Code makes provision for a number of key areas:
1. General duties of providers
2. Confidentiality and privacy
3. Advertising
4. Complaint resolution
5. Miscellaneous.
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5 THE SPECIFIC CODE OF CONDUCT
A quick reference
to the Specific
Code
Key Area
1. General duties of
FSPs
Description
This deals with three areas of FSP
duties. These areas are:
 Unsolicited contacting of clients
 General duties of the FSP
 Other information and explanations.
2. Confidentiality and
privacy
Confidentiality deals with:
 When you may disclose information
about your client and their affairs to
other parties
 The circumstances under which
marketing information may be
provided to the client.
3. Advertising
Deals with concentrating on the
restrictions for written and telephonic
advertising of the financial service or
product.
4. Complaint
resolution
Deals with:
 Basic principles of systems and
procedures
 Resolution of complaints
 Specific obligations (of the
complaints procedures and the FSP).
5. Miscellaneous:
Waiver of rights

Deals with the waiver of rights.
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6 ADMINISTRATIVE CODE OF CONDUCT
Definition:
Administrative
Code
The Administrative Code is a set of regulations that applies to
entities that render intermediary services in respect of all the
financial products specified in FAIS on the instructions of a client or
another FSP and through the method of bulking.
Individuals
affected by this
Code
This Code applies typically to the ‘back office’ environment. An
example of this is the entity that administers trusts and has
obtained a discretionary mandate to administer an investment
portfolio.
The Code lays down precise patterns of behaviour and procedures
for all those who work in this environment.
Product
categories
Some types of product categories that may be affected by the
Administrative Code are:
 Retail Pension Benefits
 Wholesale Pension Funds
 Participatory Interests, including Collective Investment Schemes
 Securities and Instruments.
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6 ADMINISTRATIVE CODE OF CONDUCT – cont.
Key Areas:
Administrative
Code
The key areas covered under the Administrative Code are:
1. Prohibitions
2. Duties of an Administrative FSP
3. General functions
4. Dealing with clients
5. Termination of relationship with clients
6. Record-keeping
7. Insurance
8. Independent nominees
9. Reporting to clients.
These areas cover the specifics of all appropriate interactions with
the clients.
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7 DISCRETIONARY CODE OF CONDUCT
Applicability of
Discretionary
Code
The Discretionary Code applies to those entities, and their
Representatives, and/or Intermediaries, who render a discretionary
intermediary service. In other words, it applies to those who use
discretion, judgement and wisdom within the limitations of the
mandate provided to make decisions regarding a client’s choice of
financial product.
Purpose of Code
The purpose of this Code is to ensure that clients are able to make
well informed decisions about their choice of financial products.
Individuals
affected
The Code applies to Representatives and Intermediaries who have
been approved as Category II licence holders (Discretionary FSP).
A good example of this type of provider is an investment manager
or an asset manager. This person sells different types of
investment products acting on behalf of a client based on a specific
mandate.
Examples:
Product
categories
affected
The FSP renders intermediary services of a discretionary nature in
respect of typically the following products:
 Securities and Instruments
 Foreign Currency Denominated Investments
 Pension Fund Investments
 Long Term Insurance
 Collective Investments.
Product
categories NOT
affected
Opening a cheque account for a client does not require you to use
discretion, judgement or wisdom. Cheque accounts are therefore
not an example of a product covered by this Code.
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7 DISCRETIONARY CODE OF CONDUCT
Key Areas:
Discretionary
Code
The key areas covered under the Discretionary Code are:
1. Prohibitions
2. Duties of a Discretionary FSP
3. Mandates
4. Reporting to clients
5. Insurance
6. Nominee companies.
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8 ADVERTISING: CODE OF CONDUCT
What is
Advertising?
The General Code describes an advertisement as being any
written, printed, electronic or oral communication (including a public
radio service) by a FSP to the public.
Purpose:
Advertising
regulatory
requirements
Regulatory requirements ensure smooth operation and a standard
of behaviour by all affected parties. The requirements for
advertising ensure:
 Ethical behaviour between all interested parties
 Standards to follow when writing/ designing an advertisement
regarding content.
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9 RECORD KEEPING
What is recordkeeping?
A record is a register, file, electronic recording or a written
comment of information about a transaction or event.
Records need to be kept in a secure environment which may not
be on your premises, but would be easily accessible to a client or
the Registrar on request.
Records kept by
FSPs
A FSP must (unless the Registrar exempts him in any way)
maintain records for a minimum period of five years regarding:
 Records of advice given to clients as appropriate
 Premature cancellations of transactions or financial products by
the client of the provider
 Complaints received, as well as an indication as to whether or
not the complaint has been resolved
 The continued compliance with the authorisation requirements
of FAIS by FSPs and Representatives
 Cases of non-compliance and the related reasons
 Accounting records, maintained on a continual basis and
updated monthly
 Financial statements showing the financial position of the
business on the last day of the financial year
 The results of operations and cash flow information for that
period
 The FSP must also maintain a Register of Representatives and
Key Individuals.
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9 RECORD KEEPING – cont.
General Code:
Record of advice
Records of advice must reflect in particular:
 The advice given to clients
 A brief summary of the information and material on which the
advice was based
 Which financial products were considered
 Which financial products were recommended
 An explanation of how the product is likely to satisfy the clients’
needs.
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ASSESSMENT
Test your
knowledge &
understanding
Answer these short questions to test your knowledge and
understanding of this material. Choose the right answer.
Statement
Overview
Q 3.1
Advice means any financial recommendation,
guidance or proposal given to any client or group of
clients on any financial product with the intention of
getting the client to consider:
 Entering into a financial transaction in respect of a
financial product
 Investing in a financial product
 Varying, replacing or terminating any of these.
Overview
Q 3.2
An intermediary service occurs when a person
performs any act for or on behalf of a client or product
supplier, including giving advice, which facilitates a
transaction relating to a financial product.
Overview
Q 3.3
For the purposes of FAIS, advice does NOT include
factual advice given:
 On the procedure for entering into any transaction
relating to a financial product
 In relation to the description of a financial product
 In response to a routine administrative query
 In the form of objective information about a
specific financial product
 By the display or distribution of promotional
material.
Is the statement
True or False?
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ASSESSMENT
The Codes of Conduct makes it clear that representatives have to:
a Obtain information from clients
b Base their advice on the client’s financial situation
c Keep records of the advice given
d Adhere to all legal requirements
e Act honestly and ethically in all dealings with clients.
Overview
Question 3.4
3.4.1
3.4.2
3.4.3
3.4.4
3.4.5
All of the choices are true
Choices (a), (b) and (c) are true
Choices (c), (d) and (e) applies
Choices (b) and (c) and (e) are true
None of the choices are true.
Statement
Overview
Q 3.5
You are not allowed to compare financial products
offered by different banks or insurance companies,
if you cannot provide factual reasons for the
comparisons.
Overview
Q 3.6
A FSP which conducts business that covers more
than one financial category will be able to select
the requirements of the Code of Conduct with which
it chooses to comply.
Overview
Q 3.7
Ms Walters from ABC Bank’s branch in Kuruman is
not a representative. She phones people in the
town trying to sell the new funeral plan to them. This
is acceptable.
Overview
Q 3.8
Mr. Ndlou is unhappy with the performance of his
investment account. He goes to the branch to
complain. The correct procedure for this staff
member is to inform him that he has to go home
and write a letter to the Head Office as they are the
only people who can assist him.
Is the statement
True or False?
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ASSESSMENT
Overview
Question 3.9
FSPs need to keep records of advice. The following does NOT
need to be kept:
a The advice given to clients
b Brochures handed to the client
c The clients salary statements
d A brief summary of the information and material on which
the advice was based
e Which financial products were considered.
3.9.1
3.9.2
3.9.3
3.9.4
3.9.5
All of the choices are true
None of the choices are true
Choices (a), (c) and (d) are true
Choices (a), (d) and (e) are true
Choices (b) and (c) are true.
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