What FAIS Compliance really means

The Financial Advisory and Intermediary Services Act, also known as FAIS, aims to regulate financial service providers (FSP’s) by protecting the consumer against improper conduct by such FSPs. The Act makes provision for FSP’s to be licenced and authorised through the Financial Services Board (FSB). The FSB also regulates members of the industry in the way they provide advice, as well as related intermediary services such as processing your insurance claims, in terms of certain financial products as defined by the Act. The Act requires that competent and qualified persons render services and give advice (fit and proper requirements) so that you receive sound financial advice, services and products that best suit your individual needs. The products covered under FAIS include investments, insurance and deposits. Loans and credit agreements are not covered.

Who operates FAIS

It operates as a division within the FSB that is set up to administer the Financial Advisory and Intermediary Services Act, 37 of 2002 whose aim is to protect the investors and to professionalise the financial services industry.


The Financial Advisory and Intermediary Services Act (37 of 2002) affects the way in which a Financial services provider (FSP) conducts business and interacts with Consumers, and guides Consumers in their daily dealings with their chosen product provider. The Financial Advisory and Intermediary Services Act (37 of 2002) regulates the activities of all financial services providers (FSP) who give advice or provide intermediary services to consumers of certain financial products. The Financial Advisory and Intermediary Services (FAIS) Act requires that FSPs be licensed and crates a professional code of conduct with specific enforcement measures. All FSP’s must ensure that they comply with the legislation, and with certain specific fit and proper requirements as stipulated in the act. They register financial services providers after being satisfied that they meet the fit and proper requirements, supervise such providers on an on-going basis to ensure that they comply with the duties imposed by the Act at all times and take the necessary regulatory action against those who do not comply, which include unregistered entities or persons.

How it operates

An ‘authorized financial service provider’ means a person who or which has been granted an authorisation as a financial services provider by the issue of a licence under section 8 of the Act. Such person may be one who ‘furnishes advice’ or ‘renders an intermediary service’, or carries out both functions. To cover various other forms of financial service provider, both corporate and individual, the Act defines such entity as a ‘key individual’. The conditions of licencing are very strict. Licences will be suspended, pending further investigation, and withdrawn from authorised financial service providers if they are found contravening the law. Failure to disclose ‘all relevant information’ when applying for a licence, or the furnishing of false or misleading information will render the applicant liable to debarment. No person may render financial services to clients without a licence, and for any person who is not authorised as a financial services provider. He must also hold a service contract or other mandatory agreement to represent the provider who in turn must accept responsibility for his activities performed within the scope of such contract or agreement. Every authorised financial service provider must ensure that his representatives and key individuals of any such representatives are ‘competent to act’, and must take such steps as may be reasonable to ensure his representatives comply with any applicable code of conduct, as well as with other applicable laws on the conduct of business. Note that a given individual or entity may be subject to more than one Code of Conduct at any one time. The authorised financial service provider must maintain a register of representatives and of their key individuals. The register will include the capacity in which the representative acts; and specify the categories in which the representative is competent to render financial services.

A Code of Conduct must ensure that:

• Clients being rendered financial services will be enabled to ‘make informed decisions’; • Their reasonable financial needs as regards financial products will be appropriately and suitably satisfied; and, • Authorised financial services providers, and their representatives are obliged by the provisions of the code: — To act honestly and fairly, with due skill, care and diligence; — Have and employ effectively resources, procedures and appropriate technological systems; — Seek from clients appropriate and available information regarding their financial situations and objectives; and, — Treat clients fairly in a situation of conflicting interests.

A Code of Conduct must contain specific provisions as regards:

• Adequate disclosures, including that of actual or potential ‘own interests’; • Adequate record keeping; • Avoidance of fraudulent or misleading advertising or marketing; and, • Suitable guarantees, professional indemnity or fidelity insurance where appropriate. Specific Codes of Conduct must be drawn up for each type of financial service provider, as noted below).

Compliance Officer

Any authorized financial services provider with more than one key individual or one or more representatives must appoint a compliance officer, subject to Section 35. He must be approved by the Registrar. An authorized financial services provider must maintain records for five years of, among other things: • Premature cancellation of transactions or financial products; • Complaints received; • Continued compliance matters; • Compliance with the Act and any cases of non-compliance; and of, • The continued compliance by representatives.

The Objective of the Ombud

The objective of the Ombud is to dispose of complaints in a ‘procedurally fair, informal, economical and expeditious manner. He will be appointed for a minimum period of three years. Official receipt of a complaint by the Ombud suspends the running of prescription in terms of the Prescription Act 1969, until the matter is settled. In any case, where a matter has not been settled, the Ombud may ‘make a final determination’ to the extent he may dismiss the complaint, prescribe a financial award to the complainant, or direct the authorised financial services provider, representative or other party involved to take such steps as he sees fit in order to resolve the issue. A final decision of the Board of the Ombud will carry the same weight in law as a civil judgment in the relevant court of law, and indeed be recorded by the clerk or register of such court. The Ombud’s authority is protected by ‘contempt of court’ principles. The Registrar, for his part, has powers to take persons who have contravened or not complied with any provisions of the Act to court. The court may determine suitable compensation for losses suffered, plus costs, and may further determine a penalty of up to three times the amount of any profit and gains arising from the act in question. The Registrar has powers to declare a particular business practice to be undesirable by notice in the Government Gazette. The Minister of Finance also has powers to make regulations concerning any relevant matter in terms of the Act, prohibitions, compliance arrangements, the powers of the Registrar to call for information, and so on. Penalties of up to R100 000 may be applied for contravention of the Act, and in cases of non-compliance. However, contraventions of certain Sections of the Act may carry a fine of up to R 1 million, or five years imprisonment, or both. Anyone who fails to furnish the Registrar with a return, information or document, as provided for in the Act, within the applicable time shall be liable to a penalty of up to R 1 000 per day during which failure occurs. The Registrar has powers to disclose any information he has acquired to any state department, other regulatory bodies including the Registrar of Medical Schemes, and foreign financial or investment services regulatory body.

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