This is the first in a series of articles that will explain the competence requirements for embarking on a career in the financial services industry. The series is aimed at people who have no or little familiarity with the industry.
Competence means a person has the necessary qualifications, skills, and knowledge to perform his or her role in the industry. This includes having a good understanding of financial products and services and the legislation and regulations that govern an individual’s activities.
The financial services sector in South Africa is highly regulated. There are two regulators: the Prudential Authority and the Financial Sector Conduct Authority (FSCA). The FSCA, which replaced the Financial Services Board (FSB) in April 2018 is responsible for overseeing and regulating the market conduct of the financial services sector. The FSCA is relevant to this series.
The financial services industry is governed by several pieces of legislation. The Financial Advisory and Intermediary Services Act (FAIS Act) is particularly important for individuals who work in the sector.
Over the years, the FSCA has issued conduct standards and notices that provide more detailed information about the requirements that individuals who work in the sector must meet.
Two important notices that govern the competence requirements for individuals in the financial sector are:
- Board Notice 194 of 2017, the Determination of Fit and Proper Requirements for Financial Services Providers
- FAIS Notice 86 of 2018, Exemption of Services under Supervision
This series will explain the practical implications of these notices for you, as a new entrant to the industry.
Do the regulations apply to everyone who works in financial services?
No, not every individual who works in the financial services sector must meet the regulatory requirements. The FAIS Act applies to specific types of entities and persons, as defined by the legislation. One of these types of persons is a “representative”.
In the context of FAIS, a “representative” means a person who renders a financial service to a client for or on behalf of a “financial services provider” (FSP).
(Note: A representative can also be a juristic or legal person, that is, a non-human entity, such as a company. But juristic representatives are beyond the scope of this series.)
An FSP is a person (natural or legal), other than a representative, who offers or provides financial services to clients. Financial services include “advice” and “intermediary services”.
An FSP must be “authorised”, which means the FSP has been authorised by the FSCA to provide specific financial services and has received a licence.
It is against the law to provide financial services without being authorised as an FSP.
Let’s look at what is meant by a “representative” in more detail. A representative engages in financial advisory or intermediary activities, such as providing advice, selling financial products, or assisting clients in selecting suitable financial products based on their needs and circumstances.
As defined by the FAIS Act, a representative is any person who:
renders a financial service
to a client
on behalf of an authorised provider
by virtue of an employment contract or a mandate with an FSP.
A person is not a representative if he or she provides clerical, technical, administrative, legal, accounting, or related services if these services:
- do not require any judgement;
- do not lead a client towards buying a financial product when the client merely enquires about the product or service;
or
- if the person provides only factual, objective information about the product or service.
It is the responsibility of an FSP to ensure that employees whose activities meet the criteria of a “representative” are classified as such.
FSPs and their representatives must meet what are called the “fit and proper” criteria, which are set out in Board Notice 194 of 2017, also known as the Determination of Fit and Proper Requirements for Financial Services Providers.
The “fit and proper” requirements are used to assess whether an individual is sufficiently ethical, experienced, qualified, and competent to perform his or her role in the financial services industry. If an FSP is an entity, it must be in good shape financially and have the capacity to manage and administer its operations and provide its services.
This series will focus on the competence requirements for representatives.
Chapter 3 of the Determination of Fit and Proper Requirements sets out the competence requirements for FSPs and representatives.
How do I know which competence requirements apply to me?
As stated above, an FSP must be authorised or licensed. An FSP must be licensed for all the financial products where it provides financial services. These will be indicated in the annexures to the FSP’s licence and can also be identified by searching for the FSP on the FSCA’s website.
The competence requirements are linked to the category of FSP. This means the category of FSP that employs you as a representative will determine the competence requirements that apply to you.
There are five categories of FSP.
- Category I covers FSPs that do not fall into any of the other four categories. Most FSPs fall into Category I.
- Category II: discretionary FSPs. These FSPs make investment decisions on behalf a client without requiring specific instructions from a client for each transaction.
- Category IIA: hedge fund FSPs.
- Category III: administrative FSPs. These FSPs provide administrative services that link a provider of a financial product or service to a client – allowing a client to move products between financial product suppliers.
- Category IV: assistance business FSPs, which administer funeral insurance policies.
Do I need to meet the competence requirements fully before I can work as a representative?
No. The FSCA recognises that many people who would like to work as representatives do not meet the full competence requirements when they enter the industry.
Therefore, the legislation makes provision for you to be allowed to work under supervision while you attain the competence requirements. You need to work under the supervision of a competent person while you gain experience and reach the various competence requirements.
But you may have to meet the ‘minimum requirements’
Even to work under supervision, however, you may have to meet certain minimum or entry-level requirements.
The minimum requirements do not apply to Category I supervised representatives appointed for either of two product sub-categories, or both sub-categories:
- Product sub-category 1.1 (funeral policies)
- Product sub-category 1.19 (friendly society benefits)
In all other cases, the entry-level requirements for working under supervision are as follows:
- For Category I representatives who only execute sales using a script, a Grade 10 or equivalent. Essentially, this means staff who work in a call centre and do not provide clients with any advice.
A representative who is appointed for Category I (except for product sub-categories 1.1 and 1.19) or Category IV must have a Grade 12 National Certificate or an equivalent.
Representatives appointed for Categories II, IIA, or III must have a recognised qualification at a degree level applicable to the product category for which they are appointed.
Note: These are the minimum legislated requirements. An FSP can decide to set higher entry-level requirements.
Product-specific training
You can be appointed under supervision, but you must have completed product specific training before you render any financial services under supervision.
Product-specific training means being trained about the features of the products that the FSP allows you to market on its behalf. If the FSP has other products and you are not trained on those products, you may not market those products. For example, many non-life insurers offer motor vehicle insurance. But not all insurers’ motor vehicle policies have the same terms and conditions, premiums, and exclusions. You need to understand how a specific policy works before you can advise on it or sell it while working under supervision.
If the features of a product are changed once you are appointed as representative, you must receive new training, unless you are appointed for Categories II, IIA and III.
Section 29(5) of the Fit and Proper Requirements sets out what product-specific training must cover.
Product-specific training can be provided by the produce supplier and/or the FSP that sells the products. The FSP must ensure that its representatives understand the products, and an assessment of some form will be done to ensure this is the case.
