Chapter 3 Flashcards
What are the reasons for regulation acts?
- protect rights and interests of clients
- create access to financial services
- ensure FSPs and Representatives act with due care, skill and diligence
- financial soundness
- reduce unlawful activities
- create industry watchdogs
- provide guidelines and set service and practice standards for providers
What is FAIS?
Financial advisory and intermediary services act regulates financial services and protects consumers
Who are the role players who ensure compliance with FAIS Act?
- FSP: provides financial services
- Compliance Officer: Monitors compliance
- FSCA: oversees the SA financial services environment
- Key Individual: manages and oversees activities of the FSP
- Representative: renders financial services
- FAIS Ombud: investigates and resolves complaints
What are the requirements of representatives?
- comply with FAIS Act and relevant laws for business conduct
- must be fit and proper
- if debarred, the reappointment of debarred reps procedures must be followed for reinstatement
- may work under supervision
- KI also have the responsibilities of reps
- Must confirm to clients that they have an employment or mandate agreement
What are intermediary services?
An act other than the furnishing of advice, performed by a person for or on behalf of a client or product supplier. The facilitation of a financial transaction
Which records should FSPs keep?
For 5 years FSPs must keep records of:
- known premature cancellations of transactions or financial products
- complaints received and information on the resolution
- Ongoing compliance(licensing and fit and proper requirements)
- Non- compliance and reasons
- Ongoing rep compliance
What does the Ombud do?
Handle and considers complaints in a fair, fast, informal and economical manner
What are the powers of the Ombud?
- Settling a case through mediation and conciliation
- issuing a determination
When will the Ombud accept a complaint?
- The complaint falls within FAIS ambit
- complaint must have risen when FAIS was in effect(30 Sep 2004)
- FSP must have failed within 6 weeks of complaint receipt
- claim must not exceed R800 000
- complaint must not relate to investment performance
- complaint must not be subject of pending, current or part-court proceedings
What is the role of FSPs when handling complaints?
- Complainant lodges a complain in writing. The FSP records it.
- FSP has 6 weeks to resolve it
- If resolved by FSP complainant gets compensation
- If not resolved complainant can submit complain to Ombud within 6 months
- FSPs are required to:
- identify root cause of the complaint
- improve systems and procedures to avoid more complaints
- implement written complaints resolution
- train staff on complaint processes
What are the Fit and proper requirements?
- Personal character
- Competence
- Operational ability
- Financial soundness
- CPD
How does experience lapse?
If financial services have not been rendered for 5 consecutive years
What are the minimum entry requirements and qualifications?
- Rep, KI, FSP: Qualification recognised by Registrar
- Rep of CAT II, IIA or III FSP: Have at minimum a degree
- FSP, KI, Rep of LTI or friendly society benefits: no qualification
- Rep appointed for “execution of sales” only: Min a matric or equivalent
- Supervised Rep of CAT I or IV FSP: Matric, work under supervision until full qualification is obtained
- Supervised Rep of CAT I FSP: Grade 10, work under supervision until matric is obtained
What are the RE requirements?
FSP CAT I: RE 1
FSP CAT II: RE 1 & 3
FSP CAT IIA: RE 1 & 3
FSP CAT III: RE 1 & 4
FSP CAT IV: RE 1
KI CAT I:RE1
KI CAT II:RE1 and 3
KI CAT IIA:RE1 and 3
KI CAT III:RE 1 and 4
KI CAT IV:RE1
REP CAT I:RE5
REP CAT II:RE5
REP CAT IIA: RE 5
REP CAT III: RE 5
When should class of business training be completed?
Within 12 months under supervision
Who does the COB training not apply to?
CAT I FSP, it KI and Reps that render financial services of Long-term insurance sub-category A and Friendly Society Benefits
Reps of CAT I FSPs who deal with Tier 2 products or only perform execution of sales
What is Continuous Professional Development?
CPD activity is accredited by a professional body. Starts 1 June every year and ends 31 May
Who is liable for CPD activities?
Supervised reps from date they meet COB training requirements, RE requirements and qualifications or after 6 years of DOFA(whichever comes first)
Who is excluded from CPD training?
CAT I FSP, KI, Rep of Long-term insurance sub-cat A and Friendly Society Benefits
CAT I FSP Rep who renders tier 2 products and intermediary services in tier 1
Rep in CAT I FSP who performs execution of sales
When should CPD activities evidence be submitted to the FSP?
At the end of each cycle (31 May) within 15 days
What are the min CPD hours required?
- Single sub-class of business within single class of business= 6 hours
- More than 1 sub-class of business within single class of business= 12 hours
- More than 1 class of business = 18 hours
What is Operational Ability?
The ability to do what is legally required of you.
Reps must have the appropriate resources to perform duties.
The FSP must ensure that the Rep appointed is not declared insolvent, under liquidation or business rescue, or no pending proceedings for these
What is financial soundness?
Adequate resources and meets liabilities
What are the principles of the FAIS Act and The code?
FSPs and Reps must:
- Act honestly and fairly, with due skil, care and diligence, in the interest of clients and with integrity.
- Act with circumspection and treat customers fairly in situations of conflict of interest.
- Obtain from clients information relating to their financial situation, product experience, goals and intentions.
- Comply with legal requirements applicable to the conduct of business
- Have and maintain appropriate systems to ensure performance of professional activities
What are the requirements of the code of conduct?
- Making adequate disclosures to clients.
- Record keeping
- Fraudulent and misleading advertising
- Safe- keeping, separation, protection of funds
- Guarantees, professional indemnity, fidelity insurance
- Controlling and prohibiting incentives
What are the duties of FSPs under the General code of conduct?
- Conveying clear and non-misleading information
- Disclosing conflicts of interest
- Client’s best interest
- recording accurate transactions
- safe record keeping and retrieval of documents
- confidentiality of client information
What are the categories of complaints?
- design of product and service
- information provided
- advice
- performance
- service, premium or investment contribution collection or lapsing
- accessibility of products, changes or switches, redemption of investment
- complaints handling
- insurance risk claim, Non-payment of claims
What sort of information should the product supplier provide?
- Registered & Trade Name
- Registration number
- Physical location of product
- Physical and postal address
- Contact details: product supplier, compliance department of product supplier, complaints department of the product supplier
What information must be given on the relationship of product supplier and FSP?
- contractual relationship with product supplier
- contractual relationship with other product suppliers
- existence of any conditions or restrictions imposed by product supplier
- If FSP holds more than 10% shares of product supplier
- FSP received more than 30% renumeration, including commission in the past 12 months from the product supplier
Client must be given the above information. If given orally, it must be confirmed within 30 days in writing
What information should reps confirm to clients?
- They have been authorized by the FSP
- The FSP takes responsibility for their actions
- FSP must confirm such information in writing within 30 days
What should be on the record of advice?
- Brief summary of information which the advice was based
- Financial products which were considered
- recommended financial products, with explanation
The Registrar determines the format of the ROA and the client must be provided with a copy
What is Risk Management?
It is control measures, specific control objectives and insurance.
An FSP must have resources, procedures and appropriate systems to eliminate the risk of financial loss
What is FICA?
FICA is there to combat money-laundering activities and the financing of terrorists
What are the duties of accountable institutions in terms of FICA?
- Developing, documenting, maintaining & implementing risk Management and compliance programme.
- identify and verify client’s identity
- keep records
- train staff
- report suspicious transactions
- report cash transactions over prescribed limit
What is money-laundering?
Illegal money is out through a cycle of transactions so that it comes out as legal
What are the reasons for laundering money?
- To prevent unexplained wealth from drawing attention to police and tax officials
- proceeds of crime may link them to crime
- government may confiscate proceeds
How is money laundered?
- personal bank accounts
- bank accounts in name of shell or front companies
- through family members bank accounts
- 3rd party bank accounts
- fictitious accounts
- using fraudulent documents to open accounts
- credit and debit cards
- ATMs
- Insurance policies
- crypto assets
What are the Money laundering techniques?
- Placement
- Layering
- Integration
What is in the FIC Amendment Act?
- Anti-Money Laundering
- Countering the Financing of Terrorism
- counter-proliferation Financing
What are FICA’s control obligations for accountable institutions?
- Duty to identify & verify client’s
- Keep business and transaction records
- Reporting duties (cash threshold reporting, suspicious transactions)
- Implement Risk Management & Compliance Program(RMCP)
What happens if accountable institutions do not comply with FICA?
They will get fined or imprisoned.
Industry Regulators can revoke licences
What is RMCP?
Accountable institutions have to develop, document, maintain and implement an RMCP in order to apply a risk-based approach effectively.
It is the foundation of institution’s effort to comply under the FIC Act
What should the RMCP cover?
- Risk rating methodology to identify ML/TF/PF
- Manner and processes by which institutions deal with due diligence, record keeping and reporting
- appropriate training on ML & TF
- Employees are aware of & understand legal & regulatory responsibilities
- Provision of information to senior management
- Risk Management policy
- Categories of customer due diligence & risk Management measures
- Escalation of decision-making
- Appropriate measures
What is the Protection Of Personal Information Act?
It sets out the conditions for lawfully processing personal data and the regulation of the processing of special personal information
Who are the people involved in information processing?
- Data subject: person whom information relates
- Responsible party: Person who determines who determines why & how to process information
- Operator: person who processes the information
What is regarded as personal information?
Is any information or combination of information that can be used to identify an individual
What is the list of personal information?
- contact details
- demographic information
- biometric information
- history
- private correspondence
Businesses are not allowed to process information of anyone under 18 years
What are the Lawful conditions for processing of personal information
- Accountability
- Processing limitations
- Purpose specifications
- Information quality
- Further processing limitations
- Openness
- Security safeguards
- Data subject participation
What is an insurer?
The party who accepts the risk & will pay the insured amount when the insured event occurs
Who is a policy holder?
The owner of the policy, the only person authorized to make changes to the policy
Who is the life assured?
Insured or life covered. If the policyholder is a different person from the life assured, they must have an insurable interest in that person
Who is a beneficiary?
The owner, the insured or another nominated person
What is a cedent?
The policyholder who decides to cede the insurance policy
Who is the cessionary?
The person whom policy is ceded
What are the different cessions?
- Outright(absolute) cession: the transfer of all rights
- Collateral (security) cession: policy is ceded as security for a loan. Not all rights are ceded
What is the long-term insurance cover principle?
The owner of the policy can choose their own level of cover, sum assured and who the policy covers; subject to affordability & underwriting criteria
What is contractual capacity?
Being over 18 & of sound mind
What is insurable interest?
Related to the fact that the owner stands to suffer financially if life assured dies
What are the amounts for policies taken on the life of a minor?
- The amount is limited depending on the minor’s age
- unborn or child under 6 years = R20 000
- Children 6 - 14 = R50 000
What happens if material information is misrepresented and it has not been disclosed?
The insurer can reject or reduce a claim if any material information was misrepresented by the client & this then results in the insurer not being able to make an informed decision when doing risk assessment
What is the Insurance Act?
- Insurance and reinsurance business is licensed under the insurance act
- LTIA & STIA regulate product-specific matters
- Provides financial soundness, governance & operational requirements
What does the insurance act regulate?
- Licensing
- Prudential requirements
- Key persons & significant owners
- Governance
- Financial soundness
- Reporting & public disclosures
- Transfers of business & other significant transaction
- Other resolution of insurers
What is the purpose of the insurance act?
- Align: the insurance industry with the constitution
- Promote: Fair, stable & safe insurance market
- Financial inclusion: providing a legal framework for micro-insurance
- Amend/Replace: certain parts of the LTI & STI Act
What does the new policyholder protection rules deal with?
- insurance products
- product performance
- acceptable service
- post-sale barriers
What are the measures under the policyholder protection rule(PPR)?
- Delivery of TCF outcomes
- cooling off periods
- target customers who need the product
- prohibiting “negative option” selection of policy T’s & C’s
- Fair premiums
What are the other Acts?
- Pension Funds Act
- Income Tax Act
- Collective Investment Schemes Control Act( CISCA)
