A Fallacy called FAIS Credits

FAIS Newsletter 22 from the FSB, published in December 2016, contains a very important section to assist the industry in understanding the “Credit” requirements.

The following paragraph is printed in bold and highlighted:

There are no “FAIS credits”. The credits referred to in the Fit and Proper requirements are credits that have been allocated to the South African Qualifications Authority (SAQA) registered unit standards which have been recorded on the relevant Sector Education and Training Authority (SETA) learner database and the National Learner Record Database (NLRD).

In plain English this means that, if you have successfully completed any skills training that conforms to the required standards, you are allocated credits which are recorded on the National Learner Record Database, and these credits contribute towards the attainment of a full qualification.

The Background

One of the long term intentions with the introduction of FAIS was to ensure that financial advisers are fit and proper. One of the proposed outcomes was that they should have a professional qualification relevant to their business.

Back in 2004, with the introduction of the FAIS Act, numerous advisers had many years of experience, but far less had professional qualifications. Realising the gravity of the matter, the Regulator introduced transitional requirements which allowed those without such qualifications to attain a minimum number of credits, depending on their line of business. The irony was that some people acquired skills credits that had absolutely no bearing on the business they were doing, but that was in order.

This concession was phased out over time, and those appointed from 2010 onwards were required to have an approved qualification at appointment, or were allowed to work under supervision for a specified maximum period of time until they acquired such a qualification.

In order to enhance professionalism, it was also proposed to introduce regulatory examinations, which would test candidates on both legislative (level 1) and product (level 2) knowledge. This would then be followed by continuous professional development (CPD).

Going Forward

Draft amendments to the Fit and Proper requirements were published in 2015, and revised data in October 2016, based on feedback from the industry. The closing date for comments on the latter document was on 15 December 2016.

Feedback at various forums by the Regulator indicates that the following is likely to happen.

The current Level 1 REs will continue as before, with changes to the qualifying criteria and question bank as legislation changes.

The new Fit and Proper requirements will focus on the following aspects:

• Honesty, integrity and good standing
• Competency and CPD
• Operational ability and
• Financial soundness

Learning from Experience

The Level 1 regulatory exams provided the Regulator with a lot of insight into how to proceed with setting competency standards in place of the axed level 2 REs and CPD.

The latest proposals indicate that the level 2 REs will be replaced by two new requirements:

• Class of business training and
• Product specific training

An important consideration is that, apart from the necessary rules-based standards, the new requirements should also be principle-based to ensure fair outcomes for clients.

This will apply equally to CPD.

On Tuesday, we will expand on this, and also discuss the classification of Tier 1 and Tier 2 products, and the contentious issue called “execution of sales” where the choice of the word “execution”, from the perspective of a client, may be more appropriate than envisaged.