The financial services industry cannot be seen in isolation to what happens in the rest of the country. President Zuma’s recent initiative regarding matters of state should also be applied to what happened in our industry since the publication of the Financial Advice and Intermediary Services Act on 15 November 2002.
The Act is introduced in the following words:
To regulate the rendering of certain financial advisory and intermediary services to clients; to repeal or amend certain laws; and to provide for matters incidental thereto.
Whilst it is a broad definition, it makes provision for change.
Perhaps it is exactly the wide scope of the Act which led to my colleague, Billy Seyffert’s recent observation in an article on the current status of regulation of the Act:
“Even after all this time, one Code of Conduct still regulates the actions of a single advisor business as well as that of an international insurance company or investment house responsible for billions of Rand of investor funds. Simply amending the Code by putting more rules in place only serves to increase the compliance burden whilst doing little to protect investors from rogue products.”
He concludes his article thus:
“I would advocate strongly that the time for the next era of regulation has arrived and that this era must focus where it is so sorely needed, on institutional and product level. The average financial advisor is a person of finite resources who, similarly to consumers, deserve some regulatory protection.”
The recent announcement by the Regulator that it will exempt certain categories of advisors from writing the current level 1 regulatory exams, appears to be a move in this direction. The rationale for this decision is provided in an explanatory circular:
“The Registrar is satisfied that reasonable grounds exist to distinguish between persons that render financial services in respect of basic and easy to understand financial products and persons that render financial services in respect of more complex financial products, in order to create an enabling environment for increased access to financial services and to prevent the creation of entry barriers into the industry.”
“Secondly, the exemption deals with the problem relating to persons rendering financial services in respect of private equity funds only, namely, that such persons will have to comply with a specific code of conduct that is in the process of being developed and which code of conduct will place more onerous requirements on them when rendering
financial services to or on behalf of private equity funds. Due to the fact that those persons will be subject to a specific code of conduct, the Registrar intends to develop a specific Level 1 examination to test their knowledge and understanding of the requirements that they must adhere to when rendering financial services to or on behalf of private equity funds.”
“Thirdly, the exemption addresses the problem relating to persons who render services as underwriting managers. The Registrar is currently investigating the relevance and effectiveness of the requirements currently applicable to underwriting mangers (sic) under the Financial Advisory and Intermediary Services Act, 2002 (FAIS Act). Such investigation may result in an amendment to the requirements applicable to underwriting mangers which in turn may necessitate a specific examination.”
The areas indicated in italics above appear to indicate an acceptance that a one-size-fits-all approach is not viable, and needs to be reviewed.
- The distinction made between basic and more complex products needs to be extended to different products as well. In my view, the current legislation was developed for investment products to counter financial loss to consumers. The requirements were then largely transposed to other products. Specific requirements would be far more effective than broad-based principles.
- A specific code of conduct per line of business, as proposed above, makes a lot more sense, and ties in with the argument in 1. above. There is already a myriad of laws which have evolved over a long time to regulate the provision of long-term, short-term, collective investments and healthcare products.
- The third point above questions “…the relevance and effectiveness of the requirements currently applicable to underwriting managers…” and effectively summarises what I stated above in terms of other products as well.
The problems currently experienced in the country, notably corruption and inefficiency, as so sadly illustrated by the catastrophe in the Limpopo school books scandal, cannot be ascribed to deficiencies in the Constitution, or to inept legislation. It is rather the lack of application of what is in place that causes the problems.
The answer to our problems, and a goal that everyone in the industry would aspire to, is contained in an excerpt from a quote above: the creation of “…an enabling environment for increased access to financial services and to prevent the creation of entry barriers into the industry.”
If this is not achieved, the biggest loser will be the consumer, whom this is all about, in the first place.
