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FSB REGULATORY EXAMINATION PREPARATION

Section 3:

First Level Regulatory Examination:

FSPs (sole proprietors) and Key

Individuals in Category III

2 © INSETA– Section 3 10b

© INSETA

© INSETA– Section 3 10b 3

Table of Contents Heading Page number

Task list 5

Glossary 6

CHAPTER 1:

CATEGORY III BUSINESS MODEL 7

1.1 Introduction 8

1.2 Characteristics of Category III FSP‘s 9

1.3 Separation of client‘s assets 14

1.4 Roles and responsibilities of various parties 15

1.5 Relevant contracts 23

Summary 24

Self-Assessment Questions 25

Self-Assessment Answers 27

CHAPTER 2:

INDEPENDENT NOMINEE COMPANIES 29

2.1 Purpose of independent nominee 30

2.2 Duties of independent nominee 34

Summary 36



CHAPTER 3:

MANAGE AND OVERSEE CLIENT MANDATES 43

3.1 Use of client mandates 44

3.2 Client mandates 44

Summary 47



CHAPTER 4:

DISCLOSURES 53

4.1 Manage and oversee disclosures 54

Summary 63



CHAPTER 5:

CONFLICTS OF INTEREST 69

5.1 Conflicts of interest 70


Summary 78



CHAPTER 6:

MANAGE AND OVERSEE TYPICAL DAILY TRANSACTIONS 85

6.1 Daily transactions 86

Summary 92



CHAPTER 7:

UNDERSTAND THE LEGAL ENVIRONMENT OF CATEGORY III FSP‘s 99

7.1 Financial soundness 100

7.2 Fidelity cover 101

7.3 Netting of transactions 103

7.4 Conducting business with other authorised FSP‘s 103

7.5 Continual compliance 104

7.6 Civil remedies available to the Registrar 104

Summary 106



CHAPTER 8:

RECORD-KEEPING REQUIREMENTS 111

8.1 Apply record-keeping requirements 112

8.2 Security, confidentiality and access to records 118

8.3 Additional record-keeping requirements 118

Summary 119



CHAPTER 9:

REPORTING TO CLIENTS 125

9.1 Requirements when reporting to clients 126

Summary 127



CHAPTER 10:

MISCELLANEOUS 131

10.1 Licensing requirements for intermediaries 132

10.2 Rebates 133

Summary 134




Tasks

The material provided in this guide is based on the following tasks, as published

in Board Notice 105 of 2008 as amended by Board Notice 60 of 2010.

1 Apply the Category III FSP business model.

2 Understand the role of the independent nominee.

3 Manage and oversee client mandates.

4 Manage/oversee typical daily transactions.

5 Manage and oversee disclosures.

6 Understand the legal environment of the Category III FSP.

7 Apply the record-keeping requirements.

8 Comply with requirements when reporting to clients.

9 Apply knowledge of the accounting and unit reconciliations.

10 Apply knowledge of how intermediaries must be licenced before they can

do business.

11 Deal with rebates.

Please note that any reference to:

masculine gender implies also the feminine.

singular indicates also the plural, and vice-versa.


Glossary of terms

Administrative Code: The Code of Conduct for Administrative Financial

Services Providers of 2003, (issued as Chapter I of Board Notice 79 of

2003).

BN: a Board Notice issued by the Registrar, each Board Notice having an

issue number and year of issue.

Codes of Conduct: the General Codes of Conduct plus the Codes of

Conduct for Administrative and Discretionary FSP‘s of 2003, (Board

Notice 79 of 2003).

CISCA: the Collective Investment Schemes Control Act of 2002, (―Act 45

of 2002).

FAIS: the Financial Advisory and Intermediary Services Act of 2002, (Act

37 of 2002).

FICA: the Financial Intelligence Centre Act of 2001, (Act 38 of 2001).

Financial Product: a financial product as defined in Section 1 of FAIS.

FSP: an Authorised Financial Services Provider as defined in Section 1 of

FAIS.

General Code: General Code of Conduct for Authorised Financial

Services Providers and Representatives of 2003, (Board Notice 80 of

2003).

Long-term Insurance Act: the Long-term Insurance Act of 1998, (Act 52

of 1998).

Long-term Insurer: a registered Long-term Insurance Company as

defined in Section 1 of the Long-term Insurance Act.

Registrar: unless otherwise indicated, means the Registrar of Financial

Services Providers as defined in Section 1 of FAIS.

Short-term Insurance Act: the Short-term Insurance Act of 1998, (Act

53 of 1998).

Short-term Insurer: a registered Short-term Insurance Company as

defined in Section 1 of the Short-term Insurance Act.


Chapter

1

Category III FSP Business Model

This chapter covers the following criteria:

KNOWLEDGE CRITERIA:

Describe the characteristics of a Category III FSP and how that differentiates it from other

product providers such as insurers and unit trusts.

Describe the reason for separation of client assets from Category III FSP‘s Assets.

Explain the role of various parties.

Explain the concept of bulking and pooling of assets into a single account with an investment

provider.

Explain the relevant contractual agreements that need to be in place with the relevant other

party.


Purpose

In this chapter we attempt to clarify the nature and role of Administrative FSP‘s. In

so doing we consider advice versus intermediary services, the Administrative Code

and concepts such as bulking and the types of financial products that Administrative

FSP‘s can administer.

1.1 INTRODUCTION

The Financial Advisory and Intermediary Services Act of 2002, Act 37 of 2002

(―FAIS‖) intermittently refers to different categories of financial services that may

be rendered to clients. One of these financial services providers (―FSP‘s‖) is the

Category III FSP or, as they are also known, Administrative FSP‘s. These FSP‘s,

previously known as ―LISP‘s‖ or ―Linked Investment Services Providers‖ (terms

still used in the financial services arena today) are well known in the financial

services arena and provide clients with wholesale access to products such as

collective investment schemes and long-term insurance products.

Many clients are oblivious to the existence and purpose of Administrative FSP‘s

and in order to understand the characteristics of these FSP‘s it is necessary to

consider the provisions of FAIS and subordinate legislation thereto. These pieces

of legislation create the legal entities referred to as FSP‘s and further distinguish

different categories of FSP‘s.

Section 1 of FAIS defines a financial service as:

―any service contemplated in paragraph (a), (b) or (c) of the definition of

‗financial services provider‘, including any category of such services.‖

Further references to categories of financial services can be found throughout

FAIS. Section 8(4)(a)(ii) of FAIS authorises the Registrar of FSP‘s (―the

Registrar‖) to approve FSP licenses and to impose conditions and restrictions on

the exercise of authority in respect of such licenses based on, inter alia, the

―category of financial services which the applicant could appropriately render or

wishes to render‖, and ―the category of financial services providers in which the

applicant will be classified in relation to the fit and proper requirements…‖.


It is sufficient for the purpose of our introduction to emphasise that FAIS

distinguishes between various categories of financial services. Little clarity is,

however, provided in FAIS as to the characteristics of the respective categories.

Further information and parameters are provided in several pieces of subordinate

legislation, i.e. Regulations, Codes of Conduct, etc.

The focus of this book is to concentrate on Category III FSP‘s with a view to

providing a framework in terms of which preparation for the Regulatory Exams 3,

Level 1 can be explored. In order to avoid confusion we shall refer to these

Categories of FSP‘s as Administrative FSP‘s or Category III FSP‘s. This terminology

will be used interchangeably throughout this book, particularly where applicable

legislation and or references are quoted.

1.2 CHARACTERISTICS OF CATEGORY III FSP‘S

1.2.1 Advice versus intermediary services

As stated above, FSP‘s may, in terms of FAIS, render different categories of

financial services. Whilst the Regulations to FAIS (―the Regulations‖) promulgated

on 13 June 2003 provide us with a slightly better context relating to

Administrative FSP‘s, we are still none the wiser as to the post FAIS nature of

these Administrative FSP‘s. In order to better understand the nature of the

entities we are dealing with, it is necessary to work through some definitions.

These definitions collectively provide us with the characteristics of these

Administrative FSP‘s.

Section 1 of FAIS defines a ―financial services provider‖ as any person who, as a

regular feature of their business:

1. furnishes advice; or

2. furnishes advice and renders intermediary services; or

3. renders an intermediary service.

Advice is defined in FAIS as any recommendation, guidance or proposal of a

financial nature furnished, by any means or medium, to any client or group of

clients:


a) in respect of the purchase of any financial product; or

b) in respect of the investment in any financial product; or

c) on the conclusion of any other transaction, including a loan or cession,

aimed at the incurring of any liability or the acquisition of any right or

benefit in respect of any financial product; or

d) on the variation of any term or condition applying to a financial product,

on the replacement of any such product, or on the termination of any

purchase of or investment in any such product, and irrespective of

whether or not such advice –

i. is furnished in the course of or is incidental to financial planning in

connection with the affairs of the client; or

ii. results in any such purchase, investment, transaction, variation,

replacement or termination, as the case may be, being effected.

It is clear from the definition, together with the specific exclusions, that ―advice‖

refers to any influence exerted by an FSP or representative over a client in

relation to that client‘s financial situation.

In contradistinction to providing advice, is the rendering of intermediary services

by an FSP to a client in respect of a financial product. In this instance the FSP

does not render advice but performs a function without providing the client with

advice. Section 1 of FAIS defines intermediary services as any act, other than the

furnishing of advice, performed by an FSP for or on behalf of the client or the

product supplier:

a) the result of which is that the client may enter into, offers to enter into or

enters into any transaction in respect of a financial product with a product

supplier; or

b) with a view to –

i. buying, selling or otherwise dealing in (whether on a discretionary

or non-discretionary basis), managing, administering, keeping in

safe custody, maintaining or servicing a financial product

purchased by a client from a product supplier or in which the

client has invested;


ii. collecting or accounting for premiums or other moneys payable by

the client to a product supplier in respect of a financial product; or

iii. receiving, submitting or processing the claims of a client against a

product supplier.

Intermediary services does not include:

a) the rendering by a bank or mutual bank of a service contemplated in

paragraph (b)(ii) of the definition of "intermediary service" where the

bank or mutual bank acts merely as a conduit between a client and

another product supplier;

b) an intermediary service rendered by a product supplier –

i. who is authorised under a particular law to conduct business as a

financial institution; and

ii. where the rendering of such service is regulated by or under such

law;

c) any other service exempted from the provisions of this Act by the

Registrar, after consultation with the Advisory Committee, by notice in the

Gazette.

In practice it is often challenging to assess whether one is providing advice or

rendering intermediary services. This distinction, however, informs the category of

license an FSP has to hold and the concomitant competency, operational ability

and solvency requirements. It is therefore important for the FSP to properly

identify its functions to ensure that it does not render financial services for which

it is not licensed and thereby incurring liability.

1.2.2 Administrative FSP‘s

Section 1 of the Codes for Administrative and Discretionary FSP‘s defines an

Administrative FSP as follows:

―‘Administrative FSP‘ means an FSP, other than a discretionary FSP –

a) that renders intermediary services in respect of financial products referred

to in paragraphs (a), (b), (c) (excluding any short-term insurance

contract or policy referred to therein), (d) and (e), read with paragraphs


(h), (i) and (j) of the definition of ―financial product‖ in section 1(1) of the

Act, on the instructions of a client or another FSP and through the method

of bulking; and

b) acting for that purpose specifically in accordance with the provisions of

this Code, read with the Act, the General Code (where applicable), and

any other applicable law;‖

You will note that an FSP only qualifies as an FSP when it engages in ―bulking‖.

Bulking is defined in Chapter 1 of the Codes for Administrative and Discretionary

FSP‘s applicable to Administrative FSP‘s (―the Administrative Code‖) as follows:

―‘bulking‘ means the aggregation by an Administrative FSP of –

a) clients‘ funds when buying or investing in financial products on behalf of

clients, and the subsequent allocation of such financial products to each

client separately in the records of the FSP;

b) the financial products belonging to clients when selling such financial

products on their behalf, and the subsequent allocation of the proceeds of

such sale to each client separately in the records of the FSP;‖

Bulking therefore refers to aggregation of several clients‘ funds and the

investment thereof into underlying investments for the benefit of those clients. In

theory the cumulative buying power provides additional benefits to each individual

client.

The administration of a client‘s investments (―broadly referring to both long-term

insurance policies and other investments such as investments in Collective

Investment Schemes‖) by an Administrative FSP, constitutes the rendering of

intermediary services. Here the Administrative FSP acts in terms of a mandate

granted by a client to the FSP to administer the client‘s investments. The

Administrative FSP does not exercise any discretion over the client‘s investments

and, subject to certain product-specific restrictions, is dependent on the specific

client instructions. The client is therefore required to provide specific or individual

consent prior to each transaction. This is the distinguishing factor between an

Administrative FSP, on the one hand, and a Discretionary FSP, on the other hand,

in that the Discretionary FSP exercises its authority without the client‘s

specific/individual consent to each transaction and exercises a greater ―discretion‖

over the client‘s investments. The primary distinguishing factor between Category

III and Category I FSP‘s is that Category III FSP‘s do not provide advice whilst


Category I FSP‘s provide advice (as defined in FAIS) to clients in respect of their

financial products.

The financial products in respect of which Administrative FSP‘s may render

financial services as listed in the definition (and Section 1 of FAIS) are:

a) securities and instruments, including –

i. shares in a company other than a "share block company" as

defined in the Share Blocks Control Act, 1980 (Act No. 59 of

1980);

ii. debentures and securitised debt;

iii. any money-market instrument;

iv. any warrant, certificate, and other instrument acknowledging,

conferring or creating rights to subscribe to, acquire, dispose of,

or convert securities and instruments referred to in subparagraphs

(i), (ii) and (iii);

v. any "securities" as defined in Section 1 of the Securities Services

Act, 2002;

b) a participatory interest in one or more collective investment schemes;

c) a long-term or a short-term insurance contract or policy, referred to in the

Long-term Insurance Act, 1998 (Act No. 52 of 1998), and the Short-term

Insurance Act, 1998 (Act No. 53 of 1998), respectively;

d) a benefit provided by –

i. a pension fund organisation, as defined in Section 1(1) of the

Pension Funds Act, 1956 (Act No. 24 of 1956), to the members of

the organisation by virtue of membership; or

ii. a friendly society referred to in the Friendly Societies Act, 1956

(Act No. 25 of 1956), to the members of the society by virtue of

membership;

e) a foreign currency denominated investment instrument, including a

foreign currency deposit;


f) a deposit as defined in Section 1(1) of the Banks Act, 1990 (Act No. 94 of

1990);

g) a health service benefit provided by a medical scheme.

Read with:

h) any other product similar in nature to any financial product referred to in

paragraphs (a) to (g), inclusive, declared by the Registrar, after

consultation with the Advisory Committee, by notice in the Gazette, to be

a financial product for the purposes of this Act;

i) any combined product containing one or more of the financial products

referred to in paragraphs (a) to (h), inclusive;

j) any financial product issued by any foreign product supplier and marketed

in the Republic and which in nature and character is essentially similar or

corresponding to a financial product referred to in paragraphs (a) to (1),

inclusive.

1.3 SEPARATION OF CLIENT‘S ASSETS

Section 15 of FAIS prescribes that the Registrar must publish a Code of Conduct

applicable to all categories of FSP‘s. In addition to this Code of Conduct, Section

15 further authorises the Registrar to publish different Codes of Conduct for the

various Categories of FSP‘s. Section 16 of FAIS requires the Registrar, when

publishing these Codes of Conduct to ensure that these Codes contain, inter alia,

a provision relating to the ―proper safe-keeping, separation and protection of

funds and transaction documentation of clients‖.

Pursuant to the above sections, the Registrar published the General Code of

Conduct on 8 August 2003 (―the General Code‖) that is applicable to all FSP‘s and

representatives. Section 10 of the General Code prescribes that an FSP, other

than an FSP who receives, holds or in any other manner deals with premiums

payable under a short-term reinsurance policy or who is subject to Section 45 of

the Short-term Insurance Act (Act 53 of 1998), who holds financial products or

funds on behalf of a client, must account for such products and funds properly and

promptly. According to this section of the General Code, the FSP must, when it

receives funds from a client without the intervention of a bank, issue a receipt to


the client. The FSP or its duly appointed third party agent must take all

reasonable steps to ensure that the funds are adequately protected.

In addition to the aforesaid, the FSP or its duly appointed agent must open a bank

account with a bank designated solely to hold clients‘ funds. The FSP or agent, as

the case may be, must within one (1) business day of receipt of the funds deposit

all funds held on behalf of the client(s) into this bank account. The FSP must pay

all bank charges in relation to the bank account except those associated with the

deposit and withdrawal of the funds from the bank account. The FSP must also

ensure that all interest is paid to the client or the owner of the funds.

The FSP must ensure that:

the funds are dealt with strictly according to the mandate provided by the

client to the FSP;

all client funds are readily discernable or identifiable from the FSP‘s

private assets; and

subject to any statutory or contractual provisions that the client has ready access

to the funds, less any allowable deductions, i.e. agreed to by the client and/or

imposed by law.

1.4 ROLES AND RESPONSIBILITIES OF VARIOUS PARTIES

It is important, when considering the context of Administrative FSP‘s, to briefly

consider the different parties and/or legal entities that interact or potentially

interact with these Administrative FSP‘s. These parties and/or legal entities

include:

1.4.1 Registrars

Different pieces of legislation create the various Registrars that regulate FSP‘s,

representatives and the respective product suppliers with whom an Administrative

FSP could interact. These Registrars are:

i. the Registrar of Financial Services Providers. This Registrar is created by

Section 2 of FAIS. Its function is to regulate the conduct of FSP‘s

(including Administrative FSP‘s) and representatives, in the provision of

advice and the rendering of intermediary services.


ii. the Registrar of Long-term Insurers. This Registrar is created by Section 2

of the Long-term Insurance Act of 1998, (Act 52 of 1998). Its function is

to regulate the conduct of Long-term Insurers in the provision of long-

term insurance policies to members of the public.

iii. the Registrar of Short-term Insurers. This Registrar is created by Section

2 of the Short-term Insurance Act of 1998, (Act 53 of 1998). Its function

is to regulate the conduct of Short-term Insurers in the provision of short-

term insurance policies to members of the public.

iv. the Registrar of Pension Funds. This Registrar is created by Section 3 of

the Pension Funds Act of 1956, (Act 24 of 1956). Its function is to

regulate the conduct of pension fund organisations in their provision of

benefits to members of the public.

v. the Registrar for Collective Investment Schemes. This Registrar is created

by Section 7 of the CISCA. Its function is to regulate collective investment

schemes in the provision of investment vehicles to members of the public.

It is important to note that the above pieces of legislation appoint the executive

officer and deputy executive officers of the Financial Services Board (―FSB‖) to be

Registrars and deputy Registrars of the respective areas detailed above.

1.4.2 Independent nominees

The independent nominee‘s function is to hold assets on behalf of clients of long-

term insurers, short-term insurers or pension funds, or, Administrative and/or

Discretionary FSP‘s who wish to hold assets on behalf of long-term insurers,

short-term insurers, pension funds or hold clients‘ securities in the Strate

environment, or any other independent nominee that wishes to hold securities in

terms of Section 36(2) of the Securities Services Act, 2004 (Act No 36 of 2004) in

order to ring-fence these assets against potential claims against these product

suppliers.

1.4.3 Management Company

The term ―Management Company‖ is prevalent in the CISCA environment. CISCA

does not however define a Management Company. CISCA defines a ―Manager‖ as

a person authorised by the Registrar to administer a collective investment

scheme. When one considers the definition of a ―deed‖ (also contained in CISCA)

the picture becomes a bit clearer. A deed is defined as:


―the agreement between a manager and a trustee or custodian, or the document

of incorporation whereby a collective investment scheme is established and in

terms of which it is administered, and includes the deed of a management

company which immediately prior to the commencement of this Act was a

management company in terms of any law repealed by this Act‖

It is therefore clear that reference to ―Management Company‖ or ―Manco‖ is

historic terminology and refers to a manager as defined in CISCA. In essence the

manager is responsible for the administration of the collective investment scheme

as more fully detailed in Section 4 of CISCA.

In essence the manager must:

avoid any conflict between the interests of the manager and the interests

of an investor;

disclose the interests of its directors and management to the investors;

maintain adequate financial resources to meet its commitments and to

manage the risks to which its collective investment scheme is exposed;

organise and control the collective investment scheme in a responsible

manner;

keep proper records;

employ adequately trained staff and ensure that they are properly

supervised;

have well-defined compliance procedures;

maintain an open and cooperative relationship with the office of the

registrar and must promptly inform that office about anything that might

reasonably be expected to be disclosed to such office; and

promote investor education, either directly or through initiatives

undertaken by an association.

1.4.4 Trustee or custodian

Trustee or Custodian is once again a reference prevalent in the CISCA

environment. Section 68 of CISCA prescribes the criteria in terms whereof


trustees or custodians are appointed and the termination of such appointment. A

manager must appoint either a trustee or a custodian for its collective investment

scheme depending on the structure of the collective investment scheme, e.g.

whether it is a unit trust or a management company.

Section 70 of CISCA prescribes that a trustee or custodian must –

a) ensure that the basis on which the sale, issue, repurchase or cancellation,

as the case may be, of participatory interests effected by or on behalf of a

collective investment scheme is carried out in accordance with this Act

and the deed.

b) ensure that the selling or repurchase price of participatory interests is

calculated in accordance with this Act and the deed.

c) carry out the instructions of the manager unless they are inconsistent

with this Act or the deed.

d) verify that in transactions involving the assets of a collective investment

scheme, any consideration is remitted to it within time limits, which are

acceptable market practice in the context of a particular transaction.

e) verify that the income accruals of a portfolio are applied in accordance

with this Act and the deed.

f) enquire into and prepare a report on the administration of the collective

investment scheme by the manager during each annual accounting

period, in which it must be stated whether the collective investment

scheme has been administered in accordance with –

i. the limitations imposed on the investment and borrowing powers

of the manager by this Act; and

ii. the provisions of this Act and the deed.

g) if the manager does not comply with the limitations and provisions

referred to in paragraph (f)(i) or (ii), state the reason for the non-

compliance and outline the steps taken by the manager to rectify the

situation.


h) send the report referred to in paragraph (f) to the Registrar and to the

manager in good time to enable the manager to include a copy of the

report in its annual report.

i) ensure that –

i. there is a legal separation of assets held under custody and that

the legal entitlement of investors to such assets is assured.

ii. appropriate internal control systems are maintained and that

records clearly identify the nature and value of all assets under

custody, the ownership of each asset and the place where

documents of title pertaining to each asset are kept.

A trustee or custodian must report to the manager any irregularity or undesirable

practice of which it is aware, concerning the collective investment scheme,

whether declared in terms of Section 21 or not, and if steps to rectify the

irregularity or practice in question are not taken to the satisfaction of the trustee

or custodian, it must as soon as possible report such irregularity or undesirable

practice to the Registrar.

The trustee or custodian must satisfy itself that every income statement, balance

sheet or other return prepared by the manager in terms of Section 90, fairly

represents the assets and liabilities, as well as the income and distribution of

income, of every portfolio of the collective investment scheme administered by

the manager.

At the request of the trustee or custodian, every director or employee of the

manager must submit to the trustee or custodian any book or document or

information relating to the administration by the manager of its collective

investment scheme which is in his or her possession or at his or her disposal, and

which the trustee or custodian may consider necessary to perform its functions. A

person may not interfere with the performance by a trustee or custodian of its

functions. (6) A trustee or custodian of a collective investment scheme that fails

to perform any of its duties referred to in this section, is guilty of an offence.

Finally, Section 72 of CISCA prescribes that the trustee or custodian must

indemnify the manager and investors against any loss or damage suffered in

respect of money or other assets in the custody of the trustee or custodian and

which loss or damage is caused by a wilful or negligent act or omission by the

trustee or custodian.


1.4.5 Asset Manager

In searching the relevant legislation such as CISCA and the Security Services Act,

one does not detect a formal definition of the ―Asset Manager‖ or ―Asset

Managing‖. Wikipedia defines investment management as follows:

―Investment management is the professional management of various securities

(shares, bonds and other securities) and assets (e.g., real estate), to meet

specified investment goals for the benefit of the investors. Investors may be

institutions (insurance companies, pension funds, corporations, etc.) or private

investors (both directly via investment contracts and more commonly via collective

investment schemes, e.g. mutual funds or exchange-traded funds).

The term asset management is often used to refer to the investment management

of collective investments, (not necessarily) whilst the more generic fund

management may refer to all forms of institutional investment as well as

investment management for private investors. Investment managers who

specialise in advisory or discretionary management on behalf of (normally

wealthy) private investors may often refer to their services as wealth

management or portfolio management often within the context of so-called

‗private banking‘.

The provision of 'investment management services' includes elements of financial

statement analysis, asset selection, stock selection, plan implementation and

ongoing monitoring of investments. Investment management is a large and

important global industry in its own right responsible for care taking of trillions of

dollars, euro, pounds and yen. Coming under the remit of financial services many

of the world's largest companies are at least in part investment managers and

employ millions of staff and create billions in revenue.‖

(http://en.wikipedia.org/wiki/Investment_manager)

In essence, the manager may elect to outsource the investment or asset

management function to an external asset or investment manager. The trustee or

custodian would still be responsible for ensuring that the manager and asset

manager remain within the parameters of the Investment Policy contained in the

Supplemental Deed.

1.4.6 Long and short-term insurance companies

These entities perform a similar function to a Collective Investment Scheme in

that they supply the financial products so that the FSP or representatives (on

behalf of the FSP), as the case may be, may make it available to members of the

http://en.wikipedia.org/wiki/Securities

http://en.wikipedia.org/wiki/Asset

http://en.wikipedia.org/wiki/Real_estate

http://en.wikipedia.org/wiki/1000000000000_(number)

http://en.wikipedia.org/wiki/Investment_manager


public or other investors. Long-term Insurance Companies are governed by the

Long-term Insurance Act 52 of 1998 and the Short-term Insurance Companies are

governed by the Short-term Insurance Act 53 of 1998, together with various

subordinate legislation.

1.4.7 Pension funds

Contrary to popular opinion, pension funds, provident funds and retirement

annuity funds are established in terms of the Income Tax Act of 1962, (Act 58 of

1962), instead of the Pension Funds Act. These entities also play a similar role to

Long and Short-term Insurers, in that they supply retirement financial products so

that FSP‘s and representatives may (subject to the Rules of the Fund) make them

available to members of the public.

These entities may themselves appoint an administrative FSP to provide

intermediary services in terms of a mandate.

1.4.8 Third party FSP‘s

The identification of third Party FSP‘s have become more important since the

addition of Subsection (3) to Section 7 of FAIS. Subsection 7(3) reads as

follows:

―(3) An authorized financial services provider or representative may only

conduct financial services related business with a person rendering financial

services if that person has, where lawfully required, been issued with a license

for the rendering of such financial services and the conditions and restrictions of

that license authorizes the rendering of those financial services, or is a

representative as contemplated in this Act.‖

As Category III FSP‘s will conduct business with other persons who render

financial services, it is important to ensure that those third Party FSP‘s possess

the necessary licenses, failing which these Category III FSP‘s will attract liability.

The key issue in 7(3) is to understand what it means to render financial

services. Section 1 of FAIS states that:

―‘financial service‘ means any service contemplated in paragraph (a), (b) or (c)

of the definition of ‗financial services provider‘, including any category of such

services;

The definition of financial services provider is also defined in Section 1 of FAIS

as follows:


―‘financial services provider‘ means any person, other than a representative,

who as a regular feature of the business of such person –

a) furnishes advice; or

b) furnishes advice and renders any intermediary service; or

c) renders an intermediary service;‖

The enquiry into whether the person is rendering financial services as a regular

feature of that person‘s business is a factual one, and all FSP‘s should be wary

of conducting business with any person who renders financial services without

the relevant licenses.

1.4.9 Financial advisers vs. brokers

FAIS does not contain formal definitions of financial advisers or brokers. In

essence, a broker performs an integral role in bringing the product from the

supplier to the market, i.e. a broker is a distribution agent or channel. The same

theory holds true in the financial services industry. With the advent of FAIS, the

industry experienced a fundamental reconstruction. FAIS requires that

appropriate advice be provided by a representative or independent intermediary

when providing a financial product to client(s). This requirement has resulted in

many brokers (who were primarily focussed on selling a financial product to a

client) shifting their roles to that of financial advisers. These financial advisers

are now required to hold the minimum fit and proper requirements (honesty,

integrity, competency and operational ability). Once again Section 7(3) plays an

important role when FSP‘s deal with independent intermediaries as the FSP‘s

now have to ensure that these independent intermediaries possess their own

FSP licenses for the category of financial products that they seek to provide to

the market.

1.4.10 Clients

Clients can be broadly categorised into institutional and retail clients. Whilst

many layers may exist in an investment context, these persons are typically the

―end-user(s)‖ of the financial product or service. Section 1 of FAIS defines client

as follows:

―‘client‘ means a specific person or group of persons, excluding the general public,

who is or may become the subject to whom a financial service is rendered


intentionally, or is the successor in title of such person or the beneficiary of such

service;

1.5 RELEVANT AGREEMENTS

Part III of the General Code requires an FSP, other than a direct marketer, to at

the earliest reasonable opportunity, and only where appropriate, furnish the client

with full particulars of the following information about the relevant product

supplier

a) ―Name, physical location, and postal and telephone contact details of the

product supplier;

b) the contractual relationship with the product supplier (if any), and

whether the provider has contractual relationships with other product

suppliers;...

c) the existence of any conditions or restrictions imposed by the product

supplier with regard to the types of financial products or services that

may be provided or rendered by the provider;...‖

Where such information is provided orally, the FSP must confirm the information

in writing within thirty (30) days.

It is therefore clear that the FSP is required to contract with relevant product

suppliers when distributing that product supplier‘s financial product. In addition to

the aforesaid, Section 13(1)(b)(ii) stipulates that the FSP who appoints a

representative must appoint such representative in terms of an employment

contract or other mandatory agreement.

In terms of Section 5 of the Administrative Code, the Administrative FSP is also

required to have a signed mandate with each client, prior to providing the

financial services. This mandate is a contract.

Other contracts with third party services providers such as IT Services are

required to be in place to ensure that these systems are adequately supported,

thereby managing the risk for the Administrative FSP.

An Administrative FSP may only render intermediary services as an administrative

FSP where it has contracted with an independent nominee duly approved by the

Registrar for FSP‘s and representatives. Board Notice 63 of 2007 requires the


administrative FSP to enter into an agreement with the Independent nominee.

The content of this agreement is prescribed in Board Notice 63 of 2007.

Where another FSP through the use of an Administrative FSP intends providing

the client with a personalised range of financial products that FSP may enter into

an agreement with the Administrative FSP.

Summary

In this chapter you should have gained a better understanding of the nature of an

Administrative FSP. In so doing we considered the following:

1. The distinction between advice and intermediary services;

2. Clarification that Administrative FSP‘s render intermediary services and

not advice;

3. The duties of an Administrative FSP and how it renders intermediary

services to clients, based strictly on the instructions given to it by the

client;

4. The distinction between Administrative FSP‘s and other FSP‘s;

5. The different role players in the Administrative FSP‘s context;

6. The need for relevant contracts.


Self-Assessment Questions

1. The distinction between an Administrative FSP and a Discretionary FSP

is that:

a) the Administrative FSP administers financial products for

clients, while the Discretionary FSP exercises discretion over

clients‘ products

b) the Administrative FSP provides advice while the Discretionary

FSP does not

c) the Discretionary FSP provides advice while the Administrative

FSP does not

d) none of the above

2. An Administrative FSP must engage in:

a) providing advice

b) selling financial products

c) administrative services

d) bulking

in order to qualify as an Administrative FSP.

3. A LISP is a/an:

a) Administrative FSP

b) Discretionary FSP

c) Product Provider

d) Collective Investment Scheme

4. Administrative FSPs provide:

a) advice and intermediary services

b) advice and financial products

c) intermediary services

d) intermediary Services and financial products

5. The financial product that an Administrative FSP may not provide

services in respect of is:

a) participatory interests in Collective Investment Schemes

b) shares in share block companies

c) property Unit Trusts

d) long-term insurance products


6. Section 15 of FAIS requires the Registrar to:

a) publish Codes of Conduct

b) ensure that the Codes of Conduct contain provisions relating to

the ―proper safe-keeping, separation and protection of funds‖

c) ensure that the FSP has proper risk management plans in place


7. Section 10 of the General Code requires an FSP to:

a) hold or otherwise deal with premiums payable under the Short-

term Insurance Act

b) provide Short-term Insurance policy documents to the client

c) provide a summary of the main terms and conditions that

regulate the Short-term Insurance contract


8. The Role of the Trustee or Custodian in South African Law is to:

a) ensure that the manager holds the assets in safe custody

b) ensure that the manager holds the clients‘ assets in a nominee

company

c) to hold clients‘ assets in safe custody


9. The Asset Manager:

a) Is the manager as defined in section 1 of the Collective

Investment Schemes Control Act

b) Is the entity responsible for or appointed by the manager to

manage the investments in the portfolio

c) manages the fixed property in the portfolio


10. The Registrar for Financial Services Providers and Representatives deals

with FAIS-related complaints through the office of the:

a) Ombudsman for Long-term Insurance

b) Ombudsman for Short-term Insurance

c) FAIS Ombud

d) None of the above


Self-Assessment Answers

1. The distinction between an Administrative FSP and a Discretionary FSP

is that:

a) the Administrative FSP administers financial products for

clients, while the Discretionary FSP exercises discretion over

clients‘ products

b) the Administrative FSP provides advice while the Discretionary

FSP does not

c) the Discretionary FSP provides advice while the Administrative

FSP does not


2. An Administrative FSP must engage in:

a) providing advice

b) selling financial products

c) administrative services

d) bulking

in order to qualify as an Administrative FSP.

3. A LISP is a/an:

a) Administrative FSP

b) Discretionary FSP

c) Product Provider

d) Collective Investment Scheme

4. Administrative FSPs provide:

a) advice and intermediary services

b) advice and financial products


d) intermediary Services and financial products

5. The financial product that an Administrative FSP may not provide

services in respect of is:

a) participatory interests in Collective Investment Schemes

b) shares in share block companies

c) property Unit Trusts

d) long-term insurance products


6. Section 15 of FAIS requires the Registrar to:

a) publish Codes of Conduct

b) ensure that the Codes of Conduct contain provisions relating to

the ―proper safe-keeping, separation and protection of funds‖

c) ensure that the FSP has proper risk management plans in place



a) hold or otherwise deal with premiums payable under the Short-

term Insurance Act

b) provide Short-term Insurance policy documents to the client

c) provide a summary of the main terms and conditions that

regulate the Short-term Insurance contract


8. The Role of the Trustee or Custodian in South African Law is to:

a) ensure that the manager holds the assets in safe custody

b) ensure that the manager holds the clients‘ assets in a nominee

company

c) to hold clients‘ assets in safe custody


9. The Asset Manager:

a) Is the manager as defined in section 1 of the Collective

Investment Schemes Control Act

b) Is the entity responsible for or appointed by the manager to

manage the investments in the portfolio

c) manages the fixed property in the portfolio


10. The Registrar for Financial Services Providers and Representatives deals

with FAIS-related complaints through the office of the:

a) Ombudsman for Long-term Insurance

b) Ombudsman for Short-term Insurance

c) FAIS Ombud



Chapter

2

Independent nominee companies


KNOWLEDGE CRITERIA:

Explain the duties that the nominee company is responsible for.

Explain the purpose of the nominee company.

Describe the obligations and requirements regarding the use of nominee companies.


Purpose

In terms of FAIS and subordinate legislation thereto, an Administrative FSP may

only act in that capacity if approved by the Registrar.

The subordinate legislation goes further to prescribe that approval can only be

granted by the Registrar if the applicant (being the proposed Administrative FSP)

has an independent nominee.

The purpose of this section is to look at the qualifying criteria that have to be

satisfied in order for an FSP to have its nominee approved.

2.1 PURPOSE OF INDEPENDENT NOMINEE

2.1.1 Nature and function

In terms of Chapter V of the Regulations to FAIS (―the Regulations‖) the concept

of a post-FAIS Independent Nominee Company (―the Nominee‖) was introduced

for Administrative FSP‘s. Section 6 of the Regulations prescribes that:

1) the functions of the nominee of an Administrative FSP must be limited to

its object and to such other functions as may be necessary to achieve the

said object. The object of a nominee is to hold assets on behalf of

investors so that any risks associated with the Administrative FSP are

withheld from those assets. In essence, it is a ring-fencing mechanism

that allows for the protection of investors‘ assets in the event of the

Administrative FSP falling into financial difficulties.

2) an Administrative FSP must, prior to obtaining authorisation, apply to the

Registrar for approval of its nominee. Hence the Administrative FSP may

not exist without its duly approved nominee.

3) the Memorandum and Articles of Association of the nominee company

must preclude it from incurring any liabilities other than those to persons

on whose behalf it holds assets and, if any other liabilities are incurred in

the name of the nominee company, the Administrative FSP shall be liable

to meet them.


The nominee must enter into an agreement with the Administrative FSP in terms

of which the provider must pay all expenses for and incidental to its formation,

activities, management and liquidation, unless the Memorandum and Articles of

Association of the nominee already provide for such an obligation.

The Registrar published Board Notice 63 of 2007 (―BN63‖) on 25 May 2007. BN63

prescribes the requirements imposed by the FSB for nominees to operate in South

Africa in respect of:

1. the Registrar of Pension Funds;

2. the Registrar of Long-term Insurance;

3. the Registrar of Short-term Insurance;

4. the Registrar of Security Services Act; and

5. the Registrar of Financial Services Providers.

Section 1 of BN63 reiterates the principles laid down in the Regulations in that

nominees who wish to register or hold any assets of long-term insurers, short-

term insurers or pension funds, the independent nominee of an Administrative

and Discretionary FSP‘s who wishes to hold assets on behalf of long-term insurers,

short-term insurers, pension funds or hold clients‘ securities in the Strate

environment, or any other independent nominee that wishes to hold securities in

terms of Section 36(2) of the Securities Services Act, 2004 (Act No 36 of 2004)

require the prior written approval of the Registrar of Long-term insurance, the

Registrar of Short-term Insurance, the Registrar of Pension Funds, the Registrar

of Financial Services Providers or the Registrar of Securities Services, as the case

may be.

As stated above, the executive officer and deputy executive officer of the FSB are

appointed as these Registrars and therefore any approval will be administered by

the FSB. It is important to note that BN63 prescribes specific requirements for

those nominees wanting to hold assets on behalf of investors in the Strate

environment. BN 63 prescribes further requirements that independent nominees

have to satisfy in order to operate in the capacity as independent nominees in

South Africa.


2.1.2 Independent nominee requirements (BN63)

A nominee must –

1. be a registered company under the Companies Act, 1973, (Act No 61 of

1973);

2. be wholly owned by a holding company. In practice this holding company

is most often the Administrative FSP, although the requirements are not

prescriptive in this regard, provided that the holding company qualifies

with the criteria stipulated in BN63 (as detailed in 1-8 below). What is

required is that it be wholly-owned by a holding company and not have

natural persons as shareholders;

3. have adequate insurance against loss through fire, theft and other

disasters in place for trust assets held by the independent nominee as

well as fidelity guarantee cover. (It is the responsibility of the holding

company to put this in place); and

conclude a written agreement with each pension fund, short-term insurer, and

long-term insurer whose assets it will hold and the agreement should comply with

the minimum requirements as required by the Registrar concerned.

2.1.3 Holding company requirements

As stated above, the independent nominee may not have a natural person as a

shareholder. The nominee must be wholly owned by –

1. a Long-term or Short-term insurer as defined in Section 1 of the Long-

term Insurance Act, 1998 (Act No 52 of 1998) and Section 1 of the Short-

term Insurance Act, 1998 (Act No 53 of 1998) respectively; or

2. an authorised user in terms of the Securities Services Act, 2004 (Act No

36 of 2004); or

3. a Bank or a Bank Controlling Company as defined in Section 1 of the

Banks Act, 1990 (Act No 94 of 1990); or

4. an Administrative or a Discretionary FSP as approved in terms of Section

7 of FAIS; or


5. an administrator registered in terms of Section 13B of the Pension Funds

Act, 1956 (Act No 24 of 1956) where the exclusive object of its nominee

is the holding of pension fund assets; or

6. a participant of a central securities depository licensed in terms of the

Securities Services Act, 2004 (Act No 36 of 2004); or

7. a central securities depository licensed in terms of the Securities Services

Act, 2004 (Act No 36 of 2004); or

8. an exchange licensed in terms of the Securities Services Act, 2004 (Act

No 36 of 2004).

The holding company must also, to the satisfaction of the Registrar concerned,

demonstrate that it –

a) is fit and proper to own an independent nominee for purposes of taking

title of assets on behalf of long-term insurers, short-term insurers,

pension funds or others and hold such assets in trust and in safe custody

on their behalf;

b) has a culture and operational structure which evidence a commitment to

effective control by executive management and the board of directors

over all aspects of the business of the independent nominee and that

demonstrates a zero tolerance to management override of controls;

c) has evidence of a commitment to the employment and retention of

adequate numbers of suitably qualified personnel of integrity and the

ongoing education of staff in relevant disciplines;

d) has evidence of a documented system of internal controls which ensures

that its independent nominee is effectively run, that the assets of clients

are safeguarded and segregated and the records of the independent

nominee accurately reflect the information which they purport to present;

e) has evidence of appropriately-documented procedures to exclude

unauthorised access to critical systems, the thorough testing of all new

proprietary systems and the continuity of operations of all critical

applications of its independent nominee, including disaster recovery and a

business continuity plan;


f) has adequate and prospective financial resources represented by a

minimum of R3 million equity capital which shall be maintained at all

times; and

g) has an appropriately-documented system of risk management to provide

substantial assurance of continuity of the business of its independent

nominee for the foreseeable future.

Where the holding company has outsourced the control over the operation of the

nominee register to another company, that outsourced company must, to the

satisfaction of the Registrar, demonstrate that it has met the requirements listed

in (a) to (g) above. Where the maintenance of the register has been outsourced,

the independent nominee has the obligation to advise the clients of the

outsourcing arrangement.

2.2 DUTIES OF THE INDEPENDENT NOMINEE

2.2.1 Independent nominee Definition (BN63)

The Securities Services Act, 2004 (Act No 36 of 2004), defines a nominee to mean

―a person that acts as the registered holder of securities or has an interest in

securities on behalf of other persons‖.

In all instances detailed in this publication, a nominee refers to any entity that

holds assets in its own name on behalf of the beneficial owner (i.e. the Nominee

is not the beneficial owner of these assets). The main duties of the independent

nominee are therefore to hold the assets on behalf of the beneficial owners and

to protect the assets from claims by creditors of the FSP.

2.2.2 Ongoing obligations

Approved independent nominees shall annually submit to the FSB:

i. audited financial statements; and

ii. an audit report within six (6) months of the financial year-end of the

company, setting forth whether any assets held on behalf of any other

person in safe custody are in possession of the nominee and properly

accounted for.


Should the nominee fail to submit the above and, before the expiry of that period,

also not apply in writing for an extension of time within which to submit the

statements, the FSB may withdraw its approval with immediate effect on the

conditions as prescribed by the Registrar concerned.

A declaration by the holding company of the independent nominee in the format

as prescribed in Clause 12 of BB 63 must accompany the annual financial

statements of the independent nominee.

The FSB retains the right to withdraw an approval at any time should the

independent nominee, its holding company or the company to which the control

over the nominee register has been outsourced fail to comply with the FSB and

Strate requirements.

Members of the JSE, BESA, Participants and their independent nominees need

only to comply with Clause 7 of the requirements imposed by the FSB for

independent nominees to operate in South Africa if they hold securities on behalf

of either pension funds or long and short-term insurers.

2.2.3 Account and unit reconciliation‘s

Section 10(2) of the Regulations requires the independent nominee, within three

(3) months after the financial year end of the Administrative FSP for which it acts,

to satisfy itself and submit a written statement to the registrar that:

a) the Administrative FSP has adequate procedures in place for ensuring that

proper reconciliation, of the number of investments held in its name and

reflected in the client records of the Administrative FSP, and the number

of investments reflected in the records of the collective investment

scheme or company, takes place on an ongoing basis;

b) such procedures are followed by the Administrative FSP;

c) procedures are implemented by the independent nominee in order to

ensure that the duties stipulated in this regulation are carried out on a

continuous basis;

d) it summarises the nature of the errors and or difficulties that impacted on

the ability of the Administrative FSP to conduct its business in accordance

with these Regulations during the year under review; and


e) it highlights the co-operation or lack thereof extended by the

Administrative FSP to the independent nominee during the year under

review.

In practice this reconciliation occurs in the client registry which details the

―holdings‖ of each client in relation to the financial products invested in by the

Administrative FSP, i.e. this is where the Administrative FSP keeps a record of the

value of the client‘s investment placed via the Administrative FSP into the

underlying financial product.

Summary

In this chapter we dealt with the relevance and importance of the nominee in the

Administrative FSP‘s context.

In this and the previous chapter we explained that the FSP could not act in the

capacity as an Administrative FSP unless prior approval is granted by the

Registrar.

We also explored that the Registrar would not grant approval for the

Administrative FSP to conduct business unless it had a duly approved independent

nominee.

We considered the definition and requirements of nominees as contained in BN63

and the Regulations to FAIS.

We also considered the duties and obligations of the nominee.



1. The object of the Independent Nominee Company is to:

a) pay the expenses of the Administrative FSP

b) pay the expenses of the Discretionary FSP

c) hold client assets in safe custody

d) provide clients and members of the public with financial

products

2. An Independent Nominee of an Administrative FSP must:

a) within 1 year of holding clients‘ assets, obtain approval from the

Registrar

b) within 6 months of approval by the Registrar, hold clients‘ assets

c) obtain approval to hold assets on behalf of the Administrative

FSP annually

d) obtain the Registrar‘s approval prior to acting as an independent

nominee for an Administrative FSP

3. The memorandum and articles of association of the independent

nominee must specify that:

a) its shares shall only be sold to members of the public through a

recognised exchange

b) its shares may only be owned by juristic persons

c) its shares may only be sold at a premium

d) only preference shares may be sold by the independent nominee

to members of the public

4. Independent Nominees who wish to hold assets on behalf of Long-term

Insurance Companies must obtain prior approval from:

a) The Long-term Insurance Registrar

b) The Registrar for Financial Services Providers and

Representatives

c) The Registrar for Securities



5. The holding company of the Independent Nominee must:

a) undertake to provide all the employees required by the

independent nominee to operate

b) undertake to pay all expenses of the Independent Nominee

c) undertake to indemnify the Independent Nominee against all

claims relating to fraud or negligence of their staff


6. The Independent Nominee company must be:

a) wholly-owned by a Long-term or Short-term insurance company

b) jointly-owned by the Long-term and Short-term Insurance

Company

c) wholly-owned by the JSE



a) a registered company in terms of the Companies Act

b) a Collective Investment Scheme

c) authorised by the Registrar of Pension Funds to act as an

Independent Nominee



a) be fit and proper to own an Independent Nominee

b) have a cultural and operational structure that shows

commitment to effective control by executive management and

the board of directors over all aspects of the Independent

Nominee

c) have evidence of commitment to the employment and retention

of adequately trained staff

d) all of the above

9. An approved nominee shall:

a) submit abridged financial statements to the Registrar half-yearly

b) submit financial statements to the Registrar half-yearly

c) submit abridged financial statements to the Registrar annually

d) submit financial statements to the Registrar annually


10. An approved nominee shall submit audit reports:

a) to the Registrar every six months

b) to the Registrar each year

c) to the Registrar within six months of the financial year-end

d) to the Registrar within nine months of the financial year-end



1. The object of the Independent Nominee Company is to:

a) pay the expenses of the Administrative FSP

b) pay the expenses of the Discretionary FSP

c) hold client assets in safe custody

d) provide clients and members of the public with financial

products

2. An Independent Nominee of an Administrative FSP must:

a) within 1 year of holding clients‘ assets, obtain approval from the

Registrar

b) within 6 months of approval by the Registrar, hold clients‘ assets

c) obtain approval to hold assets on behalf of the Administrative

FSP annually

d) obtain the Registrar‘s approval prior to acting as an independent

nominee for an Administrative FSP

3. The memorandum and articles of association of the independent

nominee must specify that:

a) its shares shall only be sold to members of the public through a

recognised exchange

b) its shares may only be owned by juristic persons

c) its shares may only be sold at a premium

d) only preference shares may be sold by the independent nominee

to members of the public

4. Independent Nominees who wish to hold assets on behalf of Long-term

Insurance Companies must obtain prior approval from:

a) The Long-term Insurance Registrar

b) The Registrar for Financial Services Providers and

Representatives

c) The Registrar for Securities




a) undertake to provide all the employees required by the

independent nominee to operate

b) undertake to pay all expenses of the Independent Nominee

c) undertake to indemnify the Independent Nominee against all

claims relating to fraud or negligence of their staff



a) wholly-owned by a Long-term or Short-term insurance company

b) jointly-owned by the Long-term and Short-term Insurance

Company

c) wholly-owned by the JSE



a) a registered company in terms of the Companies Act

b) a Collective Investment Scheme

c) authorised by the Registrar of Pension Funds to act as an

Independent Nominee



a) be fit and proper to own an Independent Nominee

b) have a cultural and operational structure that shows

commitment to effective control by executive management and

the board of directors over all aspects of the Independent

Nominee

c) have evidence of commitment to the employment and retention

of adequately trained staff

d) all of the above

9. An approved nominee shall:

a) submit abridged financial statements to the Registrar half-yearly

b) submit financial statements to the Registrar half-yearly

c) submit abridged financial statements to the Registrar annually

d) submit financial statements to the Registrar annually


10. An approved nominee shall submit audit reports:

a) to the Registrar every six months

b) to the Registrar each year

c) to the Registrar within six months of the financial year-end

d) to the Registrar within nine months of the financial year-end


Chapter

3

Manage and oversee client mandates


KNOWLEDGE CRITERIA:

Explain why the Category III FSP must use mandates that have been approved by the FSB.

Explain why a mandate cannot be used if it is not approved by the FSB.

Explain why a mandate cannot be used if it is not signed by the client or his duly authorised

representative.

Explain why such a mandate must adhere to the requirements in the Discretionary Code of

Conduct.

Explain what the requirements are for mandates.


Purpose

The client mandate is of fundamental importance to the Administrative FSP.

In terms of prevailing legislation the FSP may not render intermediary services

without obtaining a client mandate in the manner and form as prescribed by these

pieces of legislation.

This chapter will focus on these aspects.

3.1 USE OF CLIENT MANDATES

3.1.1 Introduction

Section 5.1 of Chapter II of the Administrative Code prescribes that the

Administrative FSP (Category III FSP‘s) must obtain a signed mandate from the

client prior to rendering any financial services. The Discretionary FSP must at all

times adhere to the client‘s mandate and it is therefore important that the FSP

manages compliance with the mandate through the use of compliance resources,

adequately trained employees and systems. Consequently, an Administrative FSP

is prohibited from rendering any financial services to a client unless it receives a

mandate signed by the client. It is therefore important to consider this mandate in

greater detail.

3.2 CLIENT MANDATES

3.2.1 Specimen mandate

Section 5(4) of the Administrative Code stipulates that the Administrative FSP‘s

mandate must be approved by the Registrar prior to being put into use. After

approval for the mandate (―specimen mandate‖) has been obtained from the

Registrar, Section 5(4) of the Administrative Code further prohibits the

Administrative FSP, from substantially amending and using the specimen mandate

unless it has once again submitted the specimen mandate to the Registrar for

approval and obtaining the aforesaid approval. A specimen mandate is


substantially amended where any of the prescribed content previously approved

by the Registrar is changed.

Section 5(2) of the Administrative Code prescribes the following minimum criteria

for the specimen mandate:

a) State whether the client will deal with the Administrative FSP through

another person or in a personal capacity.

b) If the client will deal with the Administrative FSP through another person:

i. state the name of the person.

ii. state whether that person is an authorised FSP.

iii. state whether that FSP is appointed with full or limited discretion

and where the discretion is limited, indicate those limits.

iv. authorise the Administrative FSP to accept from that FSP

instructions given on behalf of the client.

c) Record the names, telephone and fax numbers, and postal and e-mail

addresses of the client and the other FSP.

d) Indicate that the financial products will be registered in the name of the

independent nominee of the Administrative FSP.

e) Provide in bold font an indication of the time period involved with regard

to the following administrative processes:

i. The cut-off times within which an instruction must be received by

the Administrative FSP to enable it to render an intermediary

service on that particular day;

ii. Once an instruction has been received, the maximum number of

working days it will take to render that intermediary service and an

indication of the day that will determine the price that the client

eventually receives.

iii. The maximum number of working days that it will take to process a

switch or withdrawal instruction and an indication of the day that

will determine the price that the client eventually receives.


f) Stipulate separately in respect of the Administrative FSP and the other

FSP (if any), the total fees and benefits to be received by each in respect

of a client‘s financial products, whether by way of a deduction from the

financial product or not, including:

i. the initial fees or costs.

ii. ongoing fees or costs.

iii. any other benefit, fees or costs, whether in cash or kind.

iv. costs (if any) to have the financial products registered in the name

of the client or in the name of the nominee company of another

Administrative FSP at the request of the client or at termination.

v. any fees or costs that will be levied on additional investment in or

purchase of the same financial product.

g) The signatures of the client, as well as the other FSP, where applicable.

In addition to paragraph 5.2, paragraph 5.3 stipulates that an Administrative FSP

may, subject to the approval of the Registrar, provide the said information either

in the mandate or in a combination of the mandate and the Administrative FSP‘s

written terms or guides of business.

Upon termination by the client, or the client‘s duly authorised agent, of the

mandate with the Administrative FSP, the Administrative FSP, depending on the

nature of the financial product involved must:

a) return the client‘s cash (if any) to the other FSP or client, as the case

may be;

b) provide the other FSP or client, as the case may be, with a detailed final

statement of account; and

c) issue an instruction to the independent nominee to either return the

client‘s assets or documents of title in the name of the client to the other

FSP or client, as the case may be, or to sell the relevant financial

products and pay the realised amount to the other FSP or client; or

issue an instruction to the independent nominee to transfer the financial products

into the name of an independent nominee of an Administrative FSP specified by

the client: Provided that the written instruction in this regard is signed personally


by the client and is accompanied by written confirmation from the client that the

client had received full disclosure of the relevant implications and costs and of

incentives due to the other FSP as a result of the transfer.

Summary

In this chapter we considered the relevant legislation compelling the

Administrative FSP to obtain a mandate from the client prior to rendering any

intermediary services.

We noted that the client mandate has to be signed by the client and we noted the

source legislation for that requirement.

We considered the criteria that the specimen mandate has to contain and the

source legislation of these requirements.



1. An Administrative FSP must:

a) on instruction from another FSP, render intermediary services

b) on instruction from the client, render intermediary services

c) on written instruction obtained from the client, render

intermediary services


2. The mandate provided by the client to the Administrative FSP must state

whether:

a) the client will deal with the Administrative FSP through another

person

b) the client will deal with the Administrative FSP directly

c) the client authorises the Administrative FSP to exercise a

discretion over the clients‘ investments


3. The mandate must indicate:

a) whether the Independent Nominee has been approved by the

Registrar

b) that the Independent Nominee does not have the same

registered address as the Administrative FSP

c) whether the financial products will be registered in the name of

the Independent Nominee of the Administrative FSP

d) all of the above

4. The mandate must separately stipulate:

a) the initial fees or costs

b) the ongoing fees or costs

c) any fees or costs that will be levied on additional investments in

or purchases of the same financial product

d) all of the above

5. The mandate must stipulate in bold font:

a) the physical address of the Administrative FSP

b) the telephone and fax numbers of the Administrative FSP

c) the cut-off times within which an instruction must be received

by the Administrative FSP to enable it to render an intermediary

service on that particular day

d) all of the above


6. Upon termination of the mandate the Administrative FSP must:

a) return the cash to the client, or such other FSP, as may be

nominated by the client

b) provide the client or other FSP, as the case may be, with a

detailed statement of account

c) issue an instruction to the Independent Nominee to either return

the client‘s assets or documents of title in the name of the client

to the other FSP, or sell the relevant financial products and pay

the realised amount to the other FSP or the client

d) all of the above



1. An Administrative FSP must:

a) on instruction from another FSP, render intermediary services

b) on instruction from the client, render intermediary services

c) on written instruction obtained from the client, render

intermediary services


2. The mandate provided by the client to the Administrative FSP must state

whether:

a) the client will deal with the Administrative FSP through another

person

b) the client will deal with the Administrative FSP directly

c) the client authorises the Administrative FSP to exercise a

discretion over the clients‘ investments


3. The mandate must indicate:

a) whether the Independent Nominee has been approved by the

Registrar

b) that the Independent Nominee does not have the same

registered address as the Administrative FSP

c) whether the financial products will be registered in the name of

the Independent Nominee of the Administrative FSP

d) all of the above

4. The mandate must separately stipulate:

a) the initial fees or costs

b) the ongoing fees or costs

c) any fees or costs that will be levied on additional investments in

or purchases of the same financial product

d) all of the above

5. The mandate must stipulate in bold font:

a) the physical address of the Administrative FSP

b) the telephone and fax numbers of the Administrative FSP

c) the cut-off times within which an instruction must be received

by the Administrative FSP to enable it to render an intermediary

service on that particular day

d) all of the above


6. Upon termination of the mandate the Administrative FSP must:

a) return the cash to the client, or such other FSP, as may be

nominated by the client

b) provide the client or other FSP, as the case may be, with a

detailed statement of account

c) issue an instruction to the Independent Nominee to either return

the client‘s assets or documents of title in the name of the client

to the other FSP, or sell the relevant financial products and pay

the realised amount to the other FSP or the client

d) all of the above


Chapter

4

Disclosures


KNOWLEDGE CRITERIA:

Explain and ensure transparency and manage disclosures.


Purpose

This chapter covers the minimum disclosures required by FAIS and subordinate

legislation thereto.

This chapter deals with the minimum content, timing, manner and frequency of the

disclosures that are required to be made by Administrative FSP‘s.

4.1 MANAGE AND OVERSEE DISCLOSURES

4.1.1 The importance of disclosures

The intent behind these disclosures is to put the client in a position to be able

make an informed decision relating to a financial product. It also provides the

client with valuable information that enables the client to communicate effectively

with the product supplier, the FSP or representative. While recent conflicts of

interest amendments require certain disclosures to be made, these disclosures are

dealt with in the next chapter. The mandatory disclosures specified in the General

Code of Conduct for FSP‘s and representatives (―the General Code‖) broadly touch

on three key areas in the rendering of financial services to the client.

These key areas are:

The product supplier

The product provider

Information about financial services

4.1.2 Requirements regarding the disclosures and impact on FSP‘s

As stated above, the Registrar has, through the General Code, instituted several

standard disclosures that provide the client with a measure of transparency. Some

of these disclosures have been extremely successful whilst others have to a larger

extent not provided the desired results. The basic principles that underpin these

disclosures made by the FSP to the client are that they:


1. are factually correct;

2. are made in plain language so as to avoid uncertainty or confusion and

not be misleading;

3. are adequate and appropriate in the circumstances of the particular

financial service being rendered, taking into account the client‘s factually

established or reasonably assumed level of knowledge;

4. are provided timeously so as to afford the client reasonably sufficient

time to make a decision about the proposed transaction;

5. may, subject to further provisions, be made orally, and at the client‘s

request, be confirmed in writing within a reasonable time after the

request;

6. must, where provided in writing or by means of standard forms or

format, be in clear and readable print size, spacing and format;

7. must, as regards all amounts, sums, values, charges, fees, remuneration

or monetary obligations payable to the product supplier or the FSP, be

reflected in specific monetary terms, provided that where such amount,

sum, value, charge, fee, remuneration or monetary obligation is not

reasonably pre-determinable, its basis of calculation must be adequately

described; and

8. need not be duplicated or repeated to the same client unless material or

significant changes affecting that client occurs, or the relevant financial

service renders it necessary, in which case a disclosure of changes to the

client must be made without delay.

In addition to the above principles, the General Code (Chapters III and IV) also

contains specific disclosures pertaining to the product suppliers and the FSP.

These disclosures are designed to provide the client with relevant information

relating, inter alia, to the identity, physical location and contact details of the

compliance and complaints departments of the product supplier and FSP. It

further requires the FSP to disclose its contractual relationship with the product

supplier(s), restrictions that the FSP may have in respect of any financial

products, whether the FSP holds more than 10% of the product supplier‘s shares,

and whether during the preceding twelve-month (12-month) period the FSP


received more than 30% of its total remuneration from one product supplier. The

FSP must also advise the client should any of the above information change.

Additional information that the FSP must disclose about itself is the concise details

of the contractual status of the FSP.

Applying these broad principles, the FSP has to disclose information about itself,

the product supplier and the financial service being rendered.

4.1.3 Disclosures relating to the product supplier

An FSP, other than a direct marketer, must make the following disclosures about

the product supplier:

a) The name, physical location, postal and telephone contact details of the

product supplier;

b) The contractual relationship with the product supplier (if any), and

whether the provider has contractual relationships with other product

suppliers;

c) Names and contact details of the relevant compliance and complaints

departments of the product supplier;

d) The existence of any conditions or restrictions imposed by the product

supplier with regard to the types of financial products or services that

may be provided or rendered by the provider; and

e) Where applicable, the fact that the provider –

i. directly or indirectly holds more than 10% of the relevant product

supplier‘s shares, or has any equivalent substantial financial interest

in the product supplier;

ii. during the preceding twelve-month (12-month) period, received

more than 30% of total remuneration, including commission, from

the product supplier.

The FSP must convey any changes thereafter regarding such information at the

earliest opportunity.


4.1.4 Disclosures relating to the FSP

An FSP who is not a direct marketer and who renders financial services to a client

must at the earliest reasonable opportunity disclose to that client the full

particulars of the following:

a) Full business and trade names, registration number (if any), postal and

physical addresses, telephone and, where applicable, cellular phone

number, and Internet and email addresses, in respect of the relevant

business carried on, as well as the names and contact details of

appropriate contact persons or offices;

b) Concise details of the legal and contractual status of the provider,

including details as regards the relevant product supplier (or, in the case

of a representative, as regards the relevant provider and product

supplier), to be provided in a manner which can reasonably be expected

to make it clear to the client which entity accepts responsibility for the

actions of the FSP or representative in the rendering of the financial

service involved and the extent to which the client will have to accept

such responsibility;

c) Names and contact details of the relevant compliance department or, in

the case of a representative, such detail concerning the FSP to which the

representative is contracted;

d) Details of the financial services which the FSP is authorised to provide in

terms of the relevant license and of any conditions or restrictions

applicable thereto;

e) Whether the FSP holds guarantee or professional indemnity or fidelity

insurance cover or not;

f) Whether a representative of a provider is rendering services under

supervision as defined in the Determination of Fit and Proper

Requirements; and

g) The existence of a specific exemption that the Registrar may have granted

to the FSP with regard to any matter covered by FAIS.


Where these disclosures are made orally to the client, they must be confirmed in

writing within thirty (30) days. Once again we encounter rules intended to create

a measure of transparency so that the client is made aware of the FSP with whom

s/he/it is contracting. The client can therefore make an informed decision prior to

entering into a contract with the FSP.

4.1.5 Disclosure requirements relating to the financial service being rendered

The General Code requires the FSP to disclose an ―appropriate general explanation

of the nature and material terms of the relevant contract or transaction‖ in order

to enable the client to make an informed decision. The General Code further

requires the FSP, whenever reasonable and appropriate, to provide the client with

material illustrations, projections or forecasts in the FSP‘s possession.

Specific disclosures to be made at the earliest reasonable opportunity are:

i. name, class or type of financial product concerned;

ii. nature and extent of benefits to be provided, including details of the

manner in which such benefits are derived or calculated and the manner

in which they will accrue or be paid;

iii. where the financial product is marketed or positioned as an investment or

as having an investment component –

a. concise details of the manner in which the value of the investment

is determined, including concise details of any underlying assets

or other financial instruments;

b. separate disclosure (and not mere disclosure of an all inclusive fee

or charge) or any charges and fees to be levied against the

product, including –

A. the amount and frequency thereof;

B. the identity of the recipient;

C. the services or other purpose for which each fee or charge

is levied;


D. where any charges or fees are to be levied in respect of

investment performance, details of the frequency,

performance measurement period (including any part of

the period prior to the client‘s particular investment) and

performance benchmarks or other criteria applicable to

such charges or fees; and

E. where the specific structure of the product entails other

underlying financial products, disclosure must be made in

such a manner as to enable the client to determine the

net investment amount ultimately invested for the benefit

of the client; and

c. on request, information concerning the past investment

performance of the product over periods and at intervals which

are reasonable with regard to the type of product involved,

including a warning that past performances are not necessarily

indicative of future performances;

d. any rebate arrangements and thereafter on a regular basis (but

not less frequently than annually): Provided that where the rebate

arrangement is initially disclosed in percentage terms, an example

using actual monetary amounts must be given and disclosure in

specific monetary terms must be made at the earliest reasonable

opportunity thereafter: Provided further that for the purposes of

this subparagraph, ―rebate‖ means a discount on the

administration, management or any other fee that is passed

through to the client, whether by reduced fees, the purchase of

additional investments or direct payment, and that the term

―rebate‖ must be used in the disclosure concerned, to describe

any arrangement complying with this definition, and disclosure

must include an explanation of the arrangement in line with this

definition.

e. any platform fee arrangements, which may be disclosed by

informing the client that a platform fee of up to a stated

percentage may be paid by the product supplier to the

Administrative FSP concerned, rather than disclosing the actual

monetary amount: Provided that for the purposes of this

subparagraph ―platform fee‖ means a payment by a product

supplier to an Administrative FSP for the administration and/or

distribution and/or marketing cost savings represented by the


distribution opportunity presented by the administrative platform,

and may be structured as a stipulated monetary amount or a

volume-based percentage of assets held on the platform, and that

the term ―platform fee‖ must be used in the disclosure concerned,

to describe any arrangement complying with this definition, and

the disclosure must include an explanation of the arrangement in

line with this definition.

iv. the nature and extent of monetary obligations assumed by the client, directly

or indirectly, in favour of the product supplier, including the manner of

payment or discharge thereof, the frequency thereof, the consequences of

non-compliance and, subject to paragraph (xiv), any anticipated or contractual

escalations, increases or additions;

v. the nature and extent of monetary obligations assumed by the client, directly

or indirectly, in favour of the FSP, including the manner of payment or

discharge thereof, the frequency thereof, and consequences of non-

compliance;

vi. the nature, extent and frequency of any incentive, remuneration,

consideration, commission, fee or brokerages (―valuable consideration‖), which

will become payable to the FSP, directly or indirectly, by any product supplier

or any person other than the client, or for which the FSP may become eligible,

as a result of rendering the financial service, as well as the identity of the

product supplier or other person providing or offering the valuable

consideration: Provided that where the maximum amount or rate of such

valuable consideration is prescribed by any law the FSP may (subject to clause

3(1)(a)(vii) of the General Code) elect to disclose either the actual amount

applicable or such prescribed maximum amount or rate;

vii. concise details of any special terms or conditions, exclusions of liability,

waiting periods, loadings, penalties, excesses, restrictions or circumstances in

which benefits will not be provided;

viii. any guaranteed minimum benefits or other guarantees;

ix. to what extent the product is readily realisable or the funds concerned are

accessible;

x. any restrictions on or the penalties for early termination of or withdrawal from

the product, or other effects, if any, of such termination or withdrawal;


xi. material tax considerations;

xii. whether cooling off rights are offered and, if so, procedures for the exercise of

such rights;

xiii. any material investment or other risks associated with the product, including

any risk of loss of any capital amount(s) invested due to market fluctuations;

and

xiv. in the case of an insurance product in respect of which provision is made for

increase of premiums, the amount of the increase premium for the first five

(5) years and thereafter on a five-year (5-year) basis but not exceeding

twenty (20) years.

The FSP must also fully inform the client regarding the completion or submission

of any transaction requirement:

i. that all material facts must be accurately and properly disclosed, and that

the accuracy and completeness of all answers, statements or other

information provided by or on behalf of the client, are the client‘s own

responsibility;

ii. that if the FSP completes or submits any transaction requirement on

behalf of the client, the client should be satisfied as to the accuracy and

completeness of the details;

iii. of the possible consequences of the misrepresentation or non-disclosure

of a material fact or the inclusion of incorrect information; and

iv. that the client must on request be supplied with a copy, written or printed

record of any transaction requirement within a reasonable time.

The FSP must at the request of the client provide the client with a statement of

account in respect of the financial services rendered by the FSP to the client.

Where an FSP advises the client or is rendering ongoing financial services to the

client, that FSP must on a regular basis (but not less frequently than annually)

provide the client with a written statement identifying such products where they

are still in existence, and providing brief current details (where applicable), of:


a) any ongoing monetary obligations of the client in respect of such

products;

b) the main benefits provided by the products;

c) where any product was marketed or positioned as an investment or as

having an investment component, the value of the investment and the

amount of such value which is accessible to the client; and

d) any ongoing incentives, consideration, commission, fee or brokerage

payable to the provider in respect of such products;

provided that such a statement need not be provided where the client is aware, or

ought reasonably to be aware, that the FSP concerned does not render or has

ceased rendering ongoing financial services in respect of the client or the products

concerned.

You will note that the criteria of this disclosure are geared towards transparency

to enable the client to make as informed a decision as possible. Prior to the

promulgation of FAIS few clients understood the nature of the financial product

they were purchasing.

Summary

In this chapter we looked at the minimum disclosures that must be made by the

Administrative FSP in terms of the General Code and the Administrative Code.

These disclosures may be made verbally but must then be followed up with

confirmatory correspondence within thirty (30) days.

The principles underpinning these disclosures are that the client can make

informed decisions, can communicate with the product supplier, the FSP and also

know what intermediary services are being contracted for.



1. Any disclosures made by the Administrative FSP must be:

a) factually correct

b) made in plain language

c) adequate and appropriate in the circumstances

d) all of the above

2. The three main categories of disclosures that the FSP must make relate

to:

a) the product supplier

b) the product provider

c) the type of financial service to be provided

d) all of the above

3. These disclosures must, as regards all amounts, sums, values, charges,

fees, remuneration or monetary obligations payable by the client to the

product supplier or FSP, be disclosed in:

a) words and figures

b) percentages of assets under management

c) specific monetary terms (provided that where this is not

possible, the basis for the calculation is adequately described)

d) all of the above

4. An Administrative FSP must disclose whether it has:

a) received more than 20% of its remuneration from one product

supplier in the previous 12 months

b) received more than 30% of its remuneration from one product


c) received more than 40% of its remuneration from one product



5. An Administrative FSP must disclose whether it:

a) holds more than 2.5% of the product supplier‘s shares

b) holds more than 5% of the product supplier‘s shares

c) holds more than 10% of the product supplier‘s shares

d) holds more than 15% of the product supplier‘s shares


6. An Administrative FSP who is not a direct marketer must make the

following disclosures about the product supplier:

a) the complaints procedure to be followed when complaining

about a product supplier

b) the full names of the board of directors of the product supplier

c) the names and contact details of the relevant compliance and

complaints departments of the product supplier

d) all of the above

7. An FSP who is not a direct marketer must disclose (to the client)

whether the representative of the FSP is rendering services under

supervision:

a) at the earliest reasonable opportunity

b) within 10 days prior to the conclusion of the contract

c) at quotation stage

d) within 30 days of conclusion of the contract

8. Where the Administrative FSP makes disclosures orally, the

Administrative FSP must confirm these disclosures in writing within:

a) 10 days

b) 20 days

c) 30 days

d) 45 days

9. The Administrative FSP must also disclose:

a) the name, class or type of financial product concerned

b) on request, information concerning the past investment


are reasonable with regard to the type of product involved

(including a warning that past performances are not necessarily

indicative of future performances)

c) concise detail about the manner in which the value of the

investment is determined, including concise details of any

underlying assets or other financial instruments

d) all of the above


10. Where an Administrative FSP discloses fees it must ensure that it

discloses a platform fee. A platform fee in this context means:

a) a payment by a product supplier to an Administrative FSP for

the administration and/or distribution and/or marketing cost

savings represented by the distribution opportunity presented

by the administrative platform. It may be structured as a

stipulated monetary amount or a volume-based percentage of

assets held on the platform.

b) an investment vehicle asset management fee payable by the

manager to the underlying asset manager

c) a payment by an Administrative FSP to a representative of the

Administrative FSP for providing distribution services as a part

of an established distribution force

d) all of the above



1. Any disclosures made by the Administrative FSP must be:

a) factually correct

b) made in plain language

c) adequate and appropriate in the circumstances

d) all of the above

2. The three main categories of disclosures that the FSP must make relate

to:

a) the product supplier

b) the product provider

c) the type of financial service to be provided

d) all of the above

3. These disclosures must, as regards all amounts, sums, values, charges,

fees, remuneration or monetary obligations payable by the client to the

product supplier or FSP, be disclosed in:

a) words and figures

b) percentages of assets under management

c) specific monetary terms (provided that where this is not

possible, the basis for the calculation is adequately described)

d) all of the above

4. An Administrative FSP must disclose whether it has:

a) received more than 20% of its remuneration from one product


b) received more than 30% of its remuneration from one product


c) received more than 40% of its remuneration from one product



5. An Administrative FSP must disclose whether it:

a) holds more than 2.5% of the product supplier‘s shares

b) holds more than 5% of the product supplier‘s shares

c) holds more than 10% of the product supplier‘s shares

d) holds more than 15% of the product supplier‘s shares


6. An Administrative FSP who is not a direct marketer must make the

following disclosures about the product supplier:

a) the complaints procedure to be followed when complaining

about a product supplier

b) the full names of the board of directors of the product supplier

c) the names and contact details of the relevant compliance and

complaints departments of the product supplier

d) all of the above

7. An FSP who is not a direct marketer must disclose (to the client)

whether the representative of the FSP is rendering services under

supervision:

a) at the earliest reasonable opportunity

b) within 10 days prior to the conclusion of the contract

c) at quotation stage

d) within 30 days of conclusion of the contract

8. Where the Administrative FSP makes disclosures orally, the

Administrative FSP must confirm these disclosures in writing within:

a) 10 days

b) 20 days

c) 30 days

d) 45 days

9. The Administrative FSP must also disclose:

a) the name, class or type of financial product concerned

b) on request, information concerning the past investment


are reasonable with regard to the type of product involved

(including a warning that past performances are not necessarily

indicative of future performances)

c) concise detail about the manner in which the value of the

investment is determined, including concise details of any

underlying assets or other financial instruments

d) all of the above


10. Where an Administrative FSP discloses fees it must ensure that it

discloses a platform fee. A platform fee in this context means:

a) a payment by a product supplier to an Administrative FSP for

the administration and/or distribution and/or marketing cost

savings represented by the distribution opportunity presented

by the administrative platform. It may be structured as a

stipulated monetary amount or a volume-based percentage of

assets held on the platform.

b) an investment vehicle asset management fee payable by the

manager to the underlying asset manager

c) a payment by an Administrative FSP to a representative of the

Administrative FSP for providing distribution services as a part

of an established distribution force

d) all of the above


Chapter

5

Conflicts of interest


KNOWLEDGE CRITERIA:

Ensure transparency and manage conflicts of interest.


Purpose

FSP‘s interact with various parties on a daily basis. These parties include the

relevant parties described in Chapter 1 above. In an attempt to ensure that the

client‘s best interests are always advanced - above that of the FSP and/or product

supplier, the Registrar has now published an amendment to the General Code

placing the responsibility on the FSP to avoid, and where avoidance is not possible,

mitigate, and where mitigation is not possible, disclose any interest that conflicts

with the client‘s interests and that potentially detracts from the FSP or

representative providing the best, as well as impartial advice.

5.1 CONFLICTS OF INTEREST

5.1.1 Conflicts of interest

The Registrar recently published amendments to the General Code in Board Notice

58 of 2010 (―BN58‖) introducing stricter regulation in respect of conflicts of

interest. Whilst these amendments have received considerable attention from the

financial services industry, conflicts of interest is not a new concept.

In 2001 The Financial Institutions (Protection of Funds) Act (Act 28 of 2001) was

promulgated and prescribes that where individuals who are employed with

financial institutions deal or hold financial institution‘s or trust property then they

act in a fiduciary capacity in relation to those assets. In essence, the Financial

Institutions Act requires those individuals to declare their personal interests and

to ensure that they do not directly or indirectly benefit at the expense of the other

financial institution or principal.

Similarly, in the retirement fund environment, Pension Fund Circular 130

incorporated many of these principles. PF 130 was not, however, couched in

peremptory (obligatory) language and merely made recommendations relating to

good governance, the disclosure and avoidance of conflicts of interest. PF 130 has

now been repealed and its principles have been incorporated into a Pension Fund

Directive compelling Retirement Fund Trustees to disclose and avoid, where

possible, any conflicts of interest.


BN58 further advances these conflicts of interest principles. The difference

between the amendments to the General Code brought about by BN58 and the

Financial Institutions (Protection of Funds) Act, is that the latter Act laid down

general principles to which the affected individuals were compelled to comply.

This type of regulation is commonly referred as ―principles-based‖ regulation.

Contrary to principled-based regulation, the General Code (introduced by BN58)

now contains specific rules that affected individuals must comply with.

A conflict of interest is now defined in the General Code as any situation in which

an FSP or a representative has an actual or potential interest that may, in the

rendering of a financial service to a client:

a) influence the objective performance of his, her or its obligations to that

client, or

b) prevent a provider or representative from rendering an unbiased and fair

financial service to that client, or from acting in the interest of that client,

including but not limited to –

i. a financial interest;

ii. an ownership interest;

iii. any relationship with a third party.

The recent conflict of interest amendments have a wide range of implications for

FSP‘s and representatives. The core conflict of interest principles introduced into

the General Code compels the FSP to by 19 July 2010:

1. avoid any possible conflicts of interests.

2. where it is not possible to avoid the conflicts of interest, mitigate the

negative effects of the conflict of interest on the client.

3. at the earliest possible opportunity, disclose any conflicts of interest to the

client, including –

i. the measures taken by the FSP in accordance with the FSP‘s

Conflicts of Interest Management Policy to avoid or mitigate the

conflict;


ii. any ownership interest or financial interest, other than an

immaterial financial interest, that the FSP or representative may be

or become eligible for;

iii. the nature of the relationship or arrangement with a third party that

gives rise to a conflict of interest, in sufficient detail to a client to

enable that client to understand the exact nature of the relationship

or arrangement and the conflict of interest.

4. inform the client of the conflict of interest management policy and how it

may be accessed.

With effect from 19 October 2010 FSP‘s and representatives may only receive or

offer from or to a third party the following:

1. commission in terms of the Long-term Insurance Act, (Act 58 of 1998) or

the Short-term Insurance Act of 1998, (Act 53 of 1998);

2. commission in terms of the Medical Schemes Act, (Act 53 of 1998);

3. fees in terms of the Long-term Insurance Act, Short-term Insurance Act

or the Medical Schemes Act, provided that those fees are reasonably

commensurate to the service being rendered;

4. fees for rendering financial services in respect of which commission or

fees referred to in 1, 2 and 3 above are not paid and:

a) are specifically agreed to by the client in writing; and

b) may be stopped at the discretion of that client;

5. fees or remuneration for the rendering of a service to a third party, which

are reasonably commensurate to the service being rendered;

6. subject to any other law, an immaterial financial interest; and

7. a financial interest, not referred to under 1 to 6 above, for which a

consideration, fair value or remuneration that is reasonably

commensurate to the value of the financial interest, is paid by that FSP or

representative, i.e. paying or receiving a market-related price for the

financial interest received or provided.


Where the FSP is also the product supplier of the financial product, the points 1 to

7 do not apply to that FSP. In this instance the amendment states that, with

effect from 19 April 2011, an FSP may not offer a financial interest to a

representative of that FSP for giving preference to:

1. the quantity of business secured by a representative for that FSP, to the

exclusion of the quality of service rendered to clients;

2. a specific product supplier, where a representative may recommend more

than one product supplier to a client; or

3. a specific product supplier, where a representative may recommend more

than one product of that product supplier to a client.

In essence, the FSP‘s who are also product suppliers have twelve (12) months in

which to amend their remuneration systems and benefits in respect of their

representatives. This does not mean that an FSP who is also a product provider is

totally untouched by the amendment for the next twelve (12) months. It still has

to ensure, when dealing with third parties, such as independent FSP‘s, that it

complies with the other provisions of the amendment, considering these

provisions in isolation create the impression that an FSP can easily comply with it.

However, when considering the definitions relevant to this provision, a totally

different scenario becomes evident. The FSP and representative will experience a

substantial amount of difficulty in complying with these new requirements. It is

therefore necessary to consider some of the relevant definitions that are key to

unlocking the true implications of these amendments.

Section 1 of the General Code defines the following:

―Associate‖:

a) in relation to a natural person means –

i. a person who is recognised in law or the tents of religion as a

spouse, life partner or civil union partner of that person;

ii. a child of that person, including a stepchild, adopted child and a

child born out of wedlock;

iii. a parent or stepparent of that person;


iv. a person in respect of which that person is recognised in law or

appointed by a court as the person legally responsible for managing

the affairs of or meeting the daily care needs of the first mentioned

person;

v. a person who is the spouse, life partner or civil union partner of a

person referred to in subparagraphs (ii) to (iv);

vi. a person who is in a commercial partnership with that person;

b) in relation to a juristic person:

i. which is a company, means any subsidiary or holding company of

that company, or other subsidiary of that holding company and any

other company of which that holding company is a subsidiary;

ii. which is a close corporation registered under the Close Corporations

Act of 1984 (Act 69 of 1984), means any member thereof as defined

in section 1;

iii. which is not a company or a close corporation as referred to in (b)(i)

or (ii), means another juristic person which would have been a

subsidiary or holding company of the first mentioned juristic person

–

a) had such first-mentioned juristic person been a company; or

b) in the case where that other juristic person, too, is not a

company, had both the first-mentioned juristic person and

that other juristic person been a company;

iv. means any person in accordance with whose directions or

instructions the board of directors of, or, in the case where such

juristic person is not a company, the governing body of such juristic

person is accustomed to act;

c) in relation to any person –

i. means any juristic person of which the board of directors, or, in the

case where such juristic person is not a company, of which the

governing body is accustomed to act in accordance with the

directions or instructions of the person first-mentioned in this

paragraph;


ii. includes any trust controlled or administered by that person.

Section 3(A)(3) of the General Code prohibits an FSP or a representative from

circumventing the conflict of interest provisions through the use of an associate.

You will note from the above definition that ―associate‖ is intended to be a ―catch

all‖ definition attempting to cover all types of legal entities and all permutations of

relationships.

―‘Financial interest‘ means any cash, cash equivalent, voucher, gift, service,

advantage, benefit, discount, domestic or foreign travel, hospitality,

accommodation, sponsorship, other incentive or valuable consideration, other

than –

a) an ownership interest;

b) training, that is not exclusively available to a selected group of providers

or representatives, on –

i. products and legal matters relating to those products;

ii. general financial and industry information;

iii. specialised technological systems of a third party necessary for

the rendering of financial service; but excluding travel and

accommodation associated with that training;‖

Once again the Registrar‘s intention to create a ―catch all‖ situation is evident in

this definition. In essence, the receipt or offer by an FSP or representative to a

third party of the above financial interests is prohibited unless it falls within the

categories listed in (i), (ii) and (iii) above, i.e. product-related training, general

financial information, etc.

―‘Immaterial financial interest‘ means any financial interest with a determinable

monetary value, the aggregate of which does not exceed R1 000 in any calendar

year from the same third party in that calendar year received by –

a) an FSP who is a sole proprietor;

b) a representative for that representative‘s direct benefit;


c) an FSP, who for its benefit or that of some or all of its representatives,

aggregates the immaterial financial interest paid to its representatives.‖

In essence, an FSP (who is a sole proprietor) and a representative (for his own

benefit) may only in one calendar year receive an immaterial financial interest

from a third party. An immaterial financial interest‘s value is limited to R1 000. An

FSP (whether or not a sole proprietor) may elect to aggregate the immaterial

financial interests paid in one year to its representatives by a third party but then

the total value (being all the amounts added together) may not exceed R1 000.

The latter rule means that an FSP who employs twenty (20) representatives, may

receive R1 000 instead of R20 000 in one (1) calendar year from a third party.

―Third party‖ means –

a) a product supplier;

b) another FSP;

c) an associate of a product supplier or a provider;

d) a distribution channel;

e) any person who in terms of an agreement or arrangement with a person

referred to in (a) to (d) provides a financial interest to a provider or its

representatives.

The amendments promulgated by BN58 create an unequivocal and intricate set of

rules that FSP‘s and representatives are compelled to comply with. Unfortunately

they also bring with them a host of unintended consequences that will, in time, be

tested against the Registrar‘s intent.

Finally, on this score, the amendments require that an FSP must, by no later than

19 April 2011, adopt, maintain and implement a Conflicts of Interest Management

Policy (―Policy‖). This Policy must contain the following:

i. Provide for the management of conflicts of interest, and provide:

a) mechanisms for the identification of conflicts of interest;

b) measures for the avoidance of conflicts of interest, and where

avoidance is not possible, the reasons therefore and the measures

for the mitigation of such conflicts of interest;


c) measures for the disclosure of conflicts of interest;

d) processes, procedures and internal controls to facilitate

compliance with the policy; and

e) consequences of non-compliance with the policy by the FSP‘s

employees and representatives; and

ii. specify the type of and basis on which representatives will qualify for a

financial interest that the FSP will offer a representative and motivate how

that financial interest complies with Section 3A(1)(b) of BN58;

iii. include a list of all the FSP‘s associates;

iv. include the names of any third parties in which the FSP holds an

ownership interest;

v. include the names of any third parties that hold an ownership interest in

the FSP; and

vi. include the nature and extent of the ownership interest referred to in (iv)

and (v) above.

The policy must be adopted by the FSP who is sole proprietor, the Board of

Directors of an FSP where the FSP is a company or close corporation, and, where

not an incorporated entity, the governing body of the FSP (e.g. a trust).

The FSP must ensure that all employees, representatives and associates are made

aware of the conflicts of policy. Compliance with the policy must be included in the

compliance-monitoring process. The policy must be reviewed on an annual basis.

The compliance officer is also compelled to include in his/her/its Compliance

Report, that it must include the following:

1. Implementation of the policy;

2. Monitoring and compliance with the policy; and

3. Accessibility to the policy.

Students are urged to read the entire Board Notice to gain a comprehensive

understanding of these requirements.


Summary

The purpose of the Conflicts of Interests amendments to the General Code is to

prevent the FSP or representative from putting clients‘ interests second to their

own.

A perception exists that the Conflicts of Interests were only introduced with these

recent amendments. This perception is incorrect. The General Code has had

Conflict of Interest provisions for quite some time. These provisions have now

been amended to provide wider application and more harsh penalties.


1. A conflict of interest is defined as any situation which an Administrative

FSP or representative may have that would:

a) influence the subjective performance of his, her or its

obligations to that client

b) prevent an FSP or representative from rendering an unbiased

and fair financial service to that client, or from acting in the

interest of that client

c) none of the above

d) a) and b)

2. The Conflicts of Interest amendments to the General Code have

staggered implementation dates. These dates are:

a) 19 July 2010, 19 October 2010 and 19 January 2010 and

19 April 2011

b) 19 April 2010, 19 July 2010, 19 October 2010 and

19 January 2010 and 19 April 2011

c) 19 October 2010 and 19 January 2010 and 19 April 2011,

19 July 2011



3. By the 19th of July 2010, the Administrative FSP must:

a) avoid conflicts of interest

b) mitigate the negative effects that conflicts of interest which

could not be avoided could have on the client

c) disclose all conflicts of interest to the client

d) all of the above

4. Disclosures relating to the conflicts of interest include:

a) any ownership interest that the representative may have in the

Administrative FSP that exceeds 10% of the Administrative

FSP‘s equity

b) where the representative earns more than 30% of his/her

income from the Administrative FSP

c) measures taken by the Administrative FSP in accordance with

the Administrative FSP‘s Conflicts of Interest Management Policy

to avoid or mitigate the conflict

d) all of the above

5. An immaterial financial interest is:

a) any financial interest given to a representative or FSP that does

not exceed R300

b) any financial interest given to or received by a representative or

FSP that does not exceed R1 000 in any calendar year

c) any financial interest given to or received by a representative or

FSP that does not exceed R1 000 in any financial year

d) any financial interest given to or received by a representative or

FSP that does not exceed the aggregated amount of

R1 000 per representative of an Administrative FSP

6. An Administrative FSP or representative may only receive or offer from

or to a third party the items listed in the General Code with effect from:

a) 19 October 2010

b) 19 January 2011

c) 19 April 2011



7. An Administrative FSP who is also a product provider has to:

a) comply with the conflicts of interest provisions immediately

b) comply with the conflicts of interest provisions by 19 July 2010

c) comply with the conflicts of interest provision by 19 April 2011


8. An associate of an FSP includes:

a) in relation to a natural person - a child or spouse of that

person

b) in relation to a juristic person - a holding company or subsidiary,

or a subsidiary of the holding company or subsidiary

c) in relation to a closed corporation - a member of that closed

corporation

d) all of the above

9. An Administrative FSP must develop and adopt a Conflicts of Interest

Management Policy by no later than:

a) 19 July 2010

b) 19 October 2010

c) 19 January 2011

d) 19 April 2011

10. The Conflicts of Interest Management Policy must be published by the

Administrative FSP on/in its:

a) brochures and transaction forms

b) reception area so that it is visible to all visitors

c) appropriate media; and ensure that it is readily available to

members of the public




1. A conflict of interest is defined as any situation which an Administrative

FSP or representative may have that would:

a) influence the subjective performance of his, her or its

obligations to that client

b) prevent an FSP or representative from rendering an unbiased

and fair financial service to that client, or from acting in the

interest of that client

c) none of the above

d) a) and b)

2. The Conflicts of Interest amendments to the General Code have

staggered implementation dates. These dates are:

a) 19 July 2010, 19 October 2010 and 19 January 2010 and

19 April 2011

b) 19 April 2010, 19 July 2010, 19 October 2010 and

19 January 2010 and 19 April 2011

c) 19 October 2010 and 19 January 2010 and 19 April 2011,

19 July 2011


3. By the 19th of July 2010, the Administrative FSP must:

a) avoid conflicts of interest

b) mitigate the negative effects that conflicts of interest which

could not be avoided could have on the client

c) disclose all conflicts of interest to the client

d) all of the above

4. Disclosures relating to the conflicts of interest include:

a) any ownership interest that the representative may have in the

Administrative FSP that exceeds 10% of the Administrative

FSP‘s equity

b) where the representative earns more than 30% of his/her

income from the Administrative FSP

c) measures taken by the Administrative FSP in accordance with

the Administrative FSP‘s Conflicts of Interest Management Policy

to avoid or mitigate the conflict


d) all of the above

5. An immaterial financial interest is:

a) any financial interest given to a representative or FSP that does

not exceed R300

b) any financial interest given to or received by a representative or

FSP that does not exceed R1 000 in any calendar year

c) any financial interest given to or received by a representative or

FSP that does not exceed R1 000 in any financial year

d) any financial interest given to or received by a representative or

FSP that does not exceed the aggregated amount of

R1 000 per representative of an Administrative FSP

6. An Administrative FSP or representative may only receive or offer from

or to a third party the items listed in the General Code with effect from:

a) 19 October 2010

b) 19 January 2011

c) 19 April 2011


7. An Administrative FSP who is also a product provider has to:

a) comply with the conflicts of interest provisions immediately

b) comply with the conflicts of interest provisions by 19 July 2010

c) comply with the conflicts of interest provision by 19 April 2011


8. An associate of an FSP includes:

a) in relation to a natural person - a child or spouse of that

person

b) in relation to a juristic person - a holding company or subsidiary,

or a subsidiary of the holding company or subsidiary

c) in relation to a closed corporation - a member of that closed

corporation

d) all of the above

9. An Administrative FSP must develop and adopt a Conflicts of Interest

Management Policy by no later than:

a) 19 July 2010

b) 19 October 2010

c) 19 January 2011

d) 19 April 2011


10. The Conflicts of Interest Management Policy must be published by the

Administrative FSP on/in its:

a) brochures and transaction forms

b) reception area so that it is visible to all visitors

c) appropriate media; and ensure that it is readily available to

members of the public



Chapter

6

Manage and oversee typical daily transactions


KNOWLEDGE CRITERIA:

Explain how different products have different turnaround times that should be adhered to.

Describe how there should be adequate controls in place to manage risk.

Explain how Category III FSP‘s are only allowed to take in one day‘s interest.


Purpose

This chapter focuses on the daily (business-as-usual) items as well as the risk

management requirements that should be in place in order to mitigate these risks.

6.1 DAILY TRANSACTIONS

6.1.1 Introduction

As Administrative FSP‘s administer their clients‘ investments in various underlying

securities, it is extremely important that these Administrative FSP‘s understand

the relevant legislation and product rules relating to each underlying investment.

Various securities have different rules relating to whether they may be redeemed

or how they may be taxed, i.e. either as income or capital. In order to avoid

prejudice to clients, Administrative FSP‘s must not only understand the nature and

rules of the financial products in which the client is invested but also have

systems, procedures and sufficient resources available to manage transactions in

respect of these financial products, and meet their specific requirements on a

daily basis.

In particular the Administrative Code requires the Administrative FSP to:

1. in relation to the financial products offered by it, ensure that it has

appropriate forms available to enable the client or the other FSP to

conduct business with it. These forms include application, instruction,

transfer, switch, withdrawal or additional investment forms;

2. ensure that –

a) within fourteen (14) days of receipt of a notice from a product

supplier, of an increase in costs, notify the client or the other FSP

(if any) in writing of such increase, who in turn must inform the

client in writing within fourteen (14) days;

b) if the Administrative FSP wishes to increase costs unrelated to

the costs referred to above, give the client or such other FSP

three (3) months prior written notice of the effective date of such


increase in costs, who in turn must notify the clients of the other

FSP in writing within fourteen (14) days;

3. where a client notifies the Administrative FSP in writing that the client has

terminated the client‘s relationship with a particular FSP (e.g. a Category

I FSP) and wishes to continue with the relationship with the

Administrative FSP through another FSP, that a notification be sent by the

Administrative FSP to the FSP whose mandate is being terminated.

4. where telephonic or electronic instructions are received by the

Administrative FSP from the client without written confirmation, provided

that appropriate controls and personal identification procedures have

been put in place:

a) ensure security of information and transactions;

b) record and store such telephonic or electronic instructions for a

period of five (5) years from the date when the instruction was

received.

5. where another FSP intends to provide a client with its own personalised

range of financial products, through the Administrative FSP, ensure that

the other FSP and the Administrative FSP first enter into a written

agreement that provides for termination of their agreement by either

party on not less than thirty (30) days written notice.

6. enter into an appropriate written agreement with each product supplier

from or to whom it buys or sells financial products on behalf of clients,

which agreement records their particular arrangements and makes

provision for termination of the agreement by either party on written

notice of not less than thirty (30) days.

7. ensure, in relation to new investments placed with an Administrative FSP,

that no interest shall be payable to a client until the expiry of the first

completed day after receipt of the funds. After the expiry of the first

completed day, interest earned shall be payable to the client.

8. ensure that no interest shall be payable to clients in relation to funds held

in bulk during the execution of a switching instruction, provided that the

Administrative FSP adheres to the time standards which are stipulated as

part of the service levels to clients. In the event of non-adherence, the


client shall be entitled to interest for the period in excess of the stipulated

time period.

9. where an Administrative FSP has made a mistake in executing an

instruction or allocating client funds, ensure that the client is placed in

the position that the client would have been in had the Administrative FSP

not made the mistake. In this event, the client shall only be entitled to

compensation to the extent that the client is placed in said position. The

Administrative FSP shall not be required to pay interest to the client in

addition to restoration.

Where an Administrative FSP effects payment of an investment to a client,

whether in whole or in part, no interest shall be payable to that client on funds

that are paid within the first complete day after the receipt of the funds from the

liquidation of the underlying investment by the Administrative FSP: Provided that

should the Administrative FSP issue a cheque for the amount received within the

abovementioned time period, the issuing of the cheque shall be deemed to be

payment and no interest liability shall accrue to the Administrative FSP in respect

of the time period between the issuing of the cheque and the actual payment of

the cheque by the drawee bank.

6.1.2 Risk management

Section 11 of the General Code requires an FSP to at all times have and

effectively employ the resources, procedures and appropriate technological

systems that can reasonably be expected to eliminate as far as reasonably

possible, the risk that clients, product suppliers and other FSP‘s or representatives

will suffer a financial loss through:

theft;

fraud;

other dishonest acts;

poor administration;

negligence;

professional misconduct; or

culpable omissions.


The General Code further requires an FSP, excluding a representative, to structure

the internal control procedures concerned as to provide reasonable assurance that

–

a) the relevant business can be conducted in an orderly and efficient

manner;

b) financial and other information used or provided by the FSP will be

reliable; and

all applicable laws are complied with.

6.1.3 Oversee and manage the compliance function

Section 17 of FAIS compels an FSP who has more than one key individual or who

has representatives, to appoint one or more compliance officers to monitor

compliance with FAIS by the FSP and the representative(s), particularly in

accordance with Subsection 17(3), and to take responsibility for the liaison with

the registrar.

The compliance officer may be a director, member, auditor, trustee, principal

officer, public officer or company secretary of the FSP, or any other person with

suitable qualifications and experience determined by the Minister by way of

government notice.

Where the appointment of the compliance officer is terminated, the compliance

officer must submit to the Registrar a statement of what the compliance officer

believes to be the reasons for the termination of his/her/its appointment.

If the compliance officer would, but for the termination, have had reason to

submit a written report of any irregularity or suspected irregularity in the conduct

of affairs by the FSP of which the compliance officer became aware in the

execution of his duties, that compliance officer must submit that report to the

Registrar even though his/her/its appointment has been terminated.

The compliance officer may only act in the capacity as compliance officer after

approval for such appointment has been granted by the Registrar. The FSP must

establish and maintain procedures to be followed by the FSP and any

representative in order to ensure compliance with FAIS. The compliance officer, or


where one has not been appointed, the FSP, must submit reports to the registrar

in the format and manner prescribed by the Registrar.

Section 35(1)(c) of FAIS empowers the Minister of Finance, after consulting the

Advisory Committee, by way of government notice, to make regulations relating

to, inter alia, the compliance arrangements, compliance monitoring systems and

the keeping of records. These regulations have been promulgated and reinforce

the proviso that the compliance officer may only act in the capacity of compliance

officer where such compliance officer has been approved by the Registrar. The

regulations stipulate that the Registrar will prescribe the format, supporting

requirements and manner of submission of the application for approval of the

compliance officer.

Further provisions contained in the regulations, are that the FSP must ensure that

the compliance function exists within the Risk Management Framework, that the

compliance function must be managed with due diligence, care and degree of

competency as may reasonably be expected from a person responsible for that

function. The compliance officer is further compelled to provide the FSP with

written progress reports in respect of the compliance monitoring and make

recommendations to the FSP relating to any aspect of the compliance monitoring

functions.

6.1.4 Requirements for approval of the compliance officer

As stated above, a person may only act as a compliance officer of an FSP where

that person has been approved by the Registrar. This approval is subject to the

compliance officer possessing personal qualities of honesty and integrity as well as

satisfying the prescribed competency requirements. In order to provide certainty,

the Registrar published Board Notice 48 of 2008 (―BN48‖), which details the

qualifications that a compliance officer must possess in order to act as a

compliance officer. Please note that these requirements are applicable to FSP‘s

who have more than one key individual or who have representative(s).

These qualifications are:

a) hold a legal or business diploma or degree at NQF level 6, and have at

least three (3) years' experience in a compliance or risk management

function in the financial services industry; or

b) have attained any specific financial services industry, or compliance-

related certificate, diploma or degree at NQF level 5 recognised by the


Registrar by notice in the Gazette as being appropriate for this purpose,

and have at least three (3) years' experience in a compliance or risk

management function in the financial services industry; or

c) be an accredited member of the Compliance Institute of South Africa, or

be a member of any other organisation recognised by the Registrar by

notice in the Gazette as being appropriate for this purpose and have at

least three (3) years' experience in the compliance or risk management

function in the financial services industry.

The Registrar also published transitional provisions that, inter alia, allow

compliance officers that have been approved by the Registrar on the date of

commencement of this Notice who do not meet these requirements to comply

with these educational requirements within three (3) years.

Board Notice 84 of 2003 (―BN84‖) prescribes the functions that a compliance

officer has to perform. These functions are:

1. to have adequate resources available to ensure proper compliance

monitoring of the FSP and any representative‘s activities, have and be

permitted direct access to and demonstrable support from the senior

management of the business and in respect of any representative;

2. to function adequately independently or objectively;

3. to function regarding the internal organisational structure of the business,

in a manner ensuring that no actual or potential conflicts of interests arise

as regards the duties and functions of other employees and, in particular,

the internal audit and control functions, and as regards the functions of

any representative;

4. to be able and enabled to keep written records of all activities undertaken

in the course of compliance monitoring, to provide the FSP concerned with

written reports on at least a quarterly basis on the course of, and

progress achieved with such monitoring duties, and to make

recommendations to the applicant as regards any aspect of the required

compliance or the monitoring functions; and

5. to liase directly with the registrar particularly as regards reporting.

It is evident from the above, that the compliance officer is required to act

independently and objectively in order to submit impartial reports to the


Registrar. In order to facilitate this requirement, BN84 prescribes that the

compliance officer must avoid all conflicts of interest regarding the execution of

their duties. Mechanisms such as the internal audit and control functions further

enable the compliance officer to avoid actual or potential conflicts of interest

regarding the duties and functions of other employees.

The compliance officer must demonstrate an understanding of the content of the

compliance report in order to be able to sign it off.

Summary

The purpose of this chapter was to focus attention on the treatment of daily

transactions.

Focus was also placed on the compliance function, the nature of the underlying

investments, notice periods, taxation, etc. Systems and resources should be made

available to deal with these underlying securities.


1. An Administrative FSP must understand the respective tax and product

rules relating the underlying securities, as:

a) the Administrative FSP has to administer these investments on

behalf of clients

b) the Administrative FSP can engage in netting so as to make a

profit

c) the Administrative FSP can delay investments into the

underlying securities so that it can invest at the best possible

time


2. An Administrative FSP must ensure that it has appropriate forms

available to enable:

a) the client to conduct business with it

b) the client to instruct another FSP to conduct business with the

Administrative FSP on the client‘s behalf

c) the client or another FSP to conduct business with the

Administrative FSP


d) a product supplier to instruct the Administrative FSP to remove

products from its platform

3. Where a product supplier increases its costs, the Administrative FSP

must:

a) notify the client in writing within 30 days

b) notify the client in writing within 14 days

c) notify the client in writing within 7 days


4. Where an Administrative FSP wants to increase its costs, it must:

a) give the product supplier 14 days written notice of such increase

b) give the client 14 days written notice of such increase

c) give the product supplier 3 months written notice of such

increase

d) give the client 3 months written notice of such increase

5. An Administrative FSP must, where telephonic instructions are

received/accepted from a client,

a) record such telephonic or electronic instructions for a period of

three years from the date when the instruction was received

b) record such telephonic or electronic instructions for a period of

five years from the date when the instruction was received

c) record such telephonic or electronic instructions for a period of 7

years from the date when the instruction was received

d) record such telephonic or electronic instructions for a period of

10 years from the date when the instruction was received

6. An Administrative FSP must ensure that it enters into written

agreements with each product supplier from whom it buys or sells

financial products on behalf of clients, where:

a) the agreement can be terminated on 30 days written notice

b) the agreement can be terminated on 60 days written notice

c) the agreement can be terminated on 90 days written notice

d) the agreement can be terminated on 120 days written notice

7. An Administrative FSP must ensure that it has sufficient:

a) structure and internal control procedures in place to conduct

business in an orderly manner

b) computer systems to conduct business

c) service providers to conduct business



8. An Administrative FSP who has more than one key individual must:

a) appoint ten representatives for each key individual

b) appoint two compliance officers for every twenty representatives

appointed

c) appoint a compliance officer


9. A compliance officer can be a:

a) director, company secretary or trustee

b) auditor, member of a professional body or principal officer

c) public officer, company secretary of an FSP or principle officer

d) all of the above

10. Where a compliance officer becomes aware of an irregularity and

subsequently resigns or is dismissed, the compliance officer must:

a) report such irregularity to the Registrar as if the appointment as

compliance officer has not terminated

b) report such irregularity to the key person of the Administrative

FSP

c) report such irregularity to the key person of the Administrative

FSP and to the Registrar

d) agree to sign a confidentiality agreement with the

Administrative FSP



1. An Administrative FSP must understand the respective tax and product

rules relating the underlying securities, as:

a) the Administrative FSP has to administer these investments on

behalf of clients

b) the Administrative FSP can engage in netting so as to make a

profit

c) the Administrative FSP can delay investments into the

underlying securities so that it can invest at the best possible

time


2. An Administrative FSP must ensure that it has appropriate forms

available to enable:

a) the client to conduct business with it

b) the client to instruct another FSP to conduct business with the

Administrative FSP on the client‘s behalf

c) the client or another FSP to conduct business with the

Administrative FSP

d) a product supplier to instruct the Administrative FSP to remove

products from its platform

3. Where a product supplier increases its costs, the Administrative FSP

must:

a) notify the client in writing within 30 days

b) notify the client in writing within 14 days

c) notify the client in writing within 7 days


4. Where an Administrative FSP wants to increase its costs, it must:

a) give the product supplier 14 days written notice of such increase

b) give the client 14 days written notice of such increase

c) give the product supplier 3 months written notice of such

increase

d) give the client 3 months written notice of such increase


5. An Administrative FSP must, where telephonic instructions are

received/accepted from a client,

a) record such telephonic or electronic instructions for a period of

three years from the date when the instruction was received

b) record such telephonic or electronic instructions for a period of

five years from the date when the instruction was received

c) record such telephonic or electronic instructions for a period of 7

years from the date when the instruction was received

d) record such telephonic or electronic instructions for a period of

10 years from the date when the instruction was received

6. An Administrative FSP must ensure that it enters into written

agreements with each product supplier from whom it buys or sells

financial products on behalf of clients, where:

a) the agreement can be terminated on 30 days written notice

b) the agreement can be terminated on 60 days written notice

c) the agreement can be terminated on 90 days written notice

d) the agreement can be terminated on 120 days written notice

7. An Administrative FSP must ensure that it has sufficient:

a) structure and internal control procedures in place to conduct

business in an orderly manner

b) computer systems to conduct business

c) service providers to conduct business


8. An Administrative FSP who has more than one key individual must:

a) appoint ten representatives for each key individual

b) appoint two compliance officers for every twenty representatives

appointed

c) appoint a compliance officer


9. A compliance officer can be a:

a) director, company secretary or trustee

b) auditor, member of a professional body or principal officer

c) public officer, company secretary of an FSP or principle officer

d) all of the above


10. Where a compliance officer becomes aware of an irregularity and

subsequently resigns or is dismissed, the compliance officer must:

a) report such irregularity to the Registrar as if the appointment as

compliance officer has not terminated

b) report such irregularity to the key person of the Administrative

FSP

c) report such irregularity to the key person of the Administrative

FSP and to the Registrar

d) agree to sign a confidentiality agreement with the

Administrative FSP


Chapter

7

Understand the legal environment of Category

III FSP‘s


KNOWLEDGE CRITERIA:

Explain the liquidity requirements for Category III FSP‘s.

Explain the implications of the liquidity requirements.

Describe the fidelity cover requirements.

Explain the implications of the fidelity cover requirements.

Describe the applicable capital requirement for Category III FSP‘s.

Explain the implications of the capital requirements.

Explain why the Category III FSP is not allowed to engage in netting of transactions.

Explain how a Category III FSP must ensure that it only conducts business with another FSP

that has the appropriate categories/subcategories on its license, and that business must also

be conducted within the parameters of the client mandate.

Describe what the continual compliance with the license requirements and conditions are.


Purpose

A myriad of legal requirements pertaining to Administrative FSP‘s exist. In order to

address and to remain in compliance with these legal requirements, it is important

to grasp these principles.

These principles are not intended to be a closed list and the student should raise

any other principles relevant to this topic.

7.1 FINANCIAL SOUNDNESS

7.1.1 Introduction

Section 8 of FAIS requires the FSP to maintain the fit and proper requirements of

honesty and integrity, competency and operational ability, and financial

soundness. Financial soundness translates into two criteria, namely, Capital

Adequacy and Liquidity. Board Notice 106 of 2008 (―BN106‖) regulates these

requirements in respect of Category III FSP‘s. BN106 stipulates as general criteria

to be met by all FSP‘s that the FSP must not be an unrehabilitated insolvent or

under liquidation of provisional liquidation.

7.1.2 Category III FSP‘s

Section 9(5) of BN106 stipulates that Category III FSP‘s must maintain a specific

rand amount in reserve to meet their capital adequacy requirement. Category III

FSP‘s are required to ensure that their assets (excluding goodwill, other intangible

assets and investments in related parties) exceed the Category III FSP‘s liabilities

(excluding loans validly subordinated in favour of all other creditors) by at least

R3 million.

The Category III FSP is also required to maintain current assets that are equal to

or exceed current liabilities. This liquidity requirement is geared towards ensuring

that the Category III FSP can meet any short-term claims that may arise from

creditors. In addition to the aforesaid liquidity requirement, the Registrar expects

the Category III FSP to maintain liquid assets equal to or greater than 13/52

weeks of its annual expenditure.


7.1.3 Implications of liquidity requirements

On face value these liquidity requirements do not appear to present any

problems. However, when one considers the definition of liquid assets it does

raise the question of where the Category III FSP may invest its capital adequacy

and liquidity reserves. BN106 defines liquid assets as cash or cash equivalents

that can be liquidated within seven (7) days without realising a loss on liquidation.

Expenses and liabilities in either of these Categories of FSP‘s are probably

substantial. It becomes apparent that the ―seven (7) days without realising a loss

on liquidation‖ restriction, limits these FSP‘s investment avenues. Having these

substantial amounts of money in reserve, without being able to invest in

appropriate investments, results in substantial opportunity cost losses.

7.2 FIDELITY COVER

7.2.1 Introduction

Section 16(2)(e) of FAIS prescribes that the Registrar must issue a code of

conduct for categories of FSP‘s that, inter alia, contain provisions requiring FSP‘s

to, where appropriate, put in place or hold suitable guarantees, professional

indemnity or fidelity insurance cover, and mechanisms for adjustments of such

guarantees or cover by the Registrar.

Section 13 of the General Code requires an FSP, excluding a representative, to

and to the extent required by the Registrar, maintain in force suitable guarantees

or professional indemnity or fidelity insurance cover. Similarly, Section 8 of the

Administrative Code requires the FSP, where and to the extent required by the

Registrar, to hold and maintain suitable guarantees, professional indemnity or

fidelity insurance cover. The Administrative Code does not, however, provide any

further clarity on the minimum cover amounts and any terms and conditions to be

contained in such cover or guarantee.

On 25 March 2009 the Registrar in Board Notice 37 of 2009 (―BN37‖) prescribed

that a Category III FSP who receives or holds the client‘s financial products or

funds on the date of commencement of BN37 must, with effect from a date six (6)

months after that date, maintain in force in respect of clients:


1. suitable guarantees of a minimum amount of R5 million; or

2. suitable professional indemnity or fidelity insurance cover of a minimum

of R5 million.

This requirement was amended on 21 September 2009 by the Registrar in Board

Notice 123 of 2009 (―BN123‖). Other than in the case of a Category III FSP,

BN123 distinguishes between whether the FSP holds clients‘ financial products or

funds (money), on the one hand, and whether the FSP merely administers the

clients‘ financial products or funds (money) without receiving or holding same.

This distinction is not relevant in the case of an Administrative FSP (Category III

FSP) as the Administrative FSP is required to receive and hold (bulk) clients‘ funds

and thereafter administers the clients‘ funds according to the clients‘ instructions.

In terms of BN123 FSP‘s who existed at the time of the Registrar issuing this

Board Notice had a period of six (6) months in which to comply with the minimum

cover or guarantee requirements. New FSP‘s have a period of six (6) weeks in

which to obtain the relevant cover or guarantee.

A Category III FSP who receives or holds clients' financial products and/or assets

must maintain suitable guarantees of a minimum of R5 million, or, suitable

professional indemnity and fidelity insurance cover of not less than R5 million.

7.3 NETTING OF TRANSACTIONS

Section 1 of the Codes of Conduct of Administrative and Discretionary FSP‘s

defines ―netting‖ as the offsetting of offers to purchase and repurchase financial

products and where Administrative FSP‘s buy and sell financial products on behalf

of clients.

In essence, this is where an Administrative FSP is faced with at least two (2)

instructions from different clients, namely, an investment(s) instruction and a

disinvestment instruction(s) from the same underlying securities. These

instructions, in respect of the same underlying securities, allow the Administrative

FSP an opportunity to enter a book entry re-allocating the underlying securities

from the seller(s) to the purchaser(s), without actually disinvesting or investing

the respective investors‘ money. This practice is contrary to the provisions of

Section 10(1)(e) of the General Code. The General Code requires the

Administrative FSP to take reasonable steps to ensure that the client‘s financial

products or funds are dealt with strictly in accordance with the mandate given to

the FSP. Furthermore, should the Administrative FSP be entitled to conduct


―netting‖ the Administrative FSP will an opportunity to charge fees in respect of

the investment and disinvestment transactions, without these transactions

actually existing. For these reasons Section 3(2) of the Administrative Code

provides that the Administrative FSP may not directly or indirectly engage in

netting.

7.4 CONDUCTING BUSINESS WITH OTHER AUTHORISED FSP‘S

Section 7(3) of FAIS prescribes that an authorised FSP or representative may only

conduct financial services-related business with a person rendering financial

services, if that person has, where lawfully required, been issued with a license for

the rendering of such financial services and the conditions and restrictions of that

license authorises the rendering of those financial services, or is a representative

as contemplated in FAIS.

This means that the Category III FSP may only conduct business with FSP‘s or

representatives who have been licensed in the Category and sub-category of

financial services and financial products, respectively. A look-through principle is

applied by the Registrar in this regard. Failure by the Category III FSP to conduct

the necessary due diligence procedures will result in the Category III FSP

attracting liability for being in breach of FAIS. Practically, this means that the

Category III FSP must obtain a copy of the other FSP or representative‘s license

to ensure that they hold the necessary licenses or meet the minimum fit and

proper requirements. From a representative or a Category I FSP perspective, the

FSP or compliance officer will have to ensure that the representative or FSP, as

the case may be, meets the minimum category and sub-category criteria.

In addition to the aforesaid, Section 10(1)(e) of the General Code requires the

Administrative FSP to take reasonable steps to ensure that the client‘s financial

products or funds are dealt with strictly in accordance with the mandate given by

the client to the FSP. Compliance will conduct regular monitoring to ensure that

the relevant licenses are held. Compliance will also ensure on a sample-

monitoring basis that clients‘ mandates are being adhered to.


7.5 CONTINUAL COMPLIANCE

In terms of Section 9(1), the Registrar may, subject to FAIS, at any time, suspend

or withdraw any license (including the license of a licensee under provisional or

final suspension) if satisfied, on the basis of available facts and information, that

the licensee:

a) no longer meets the requirements contemplated in Section 8;

b) did not, when applying for the license, make a full disclosure of all

relevant information to the registrar, or furnished false or misleading

information;

has failed to comply with any other provision of this Act.

Please note that Subsection (a) requires continual satisfaction of the fit and

proper requirements stipulated in Section 8(1). This translates into a requirement

of continual compliance. In addition to the aforesaid, please note that Subsection

(c) does not specify a time. This means that the FSP could lose its license at any

stage where non-compliance with FAIS has occurred.

7.6 CIVIL REMEDIES AVAILABLE TO THE REGISTRAR

Section 33 of FAIS grants the Registrar the authority, when satisfied on the basis

of available facts and information, that a person has contravened any provision of

FAIS, or is likely to contravene or not to comply with FAIS, to apply to a court for

an order restraining such person from continuing to commit any such act or

omission or from committing it in future. The Registrar may also request the court

to order that person to take such remedial steps as the court deems necessary to

rectify the consequences of the act or omission, including consequences that

prejudiced or may prejudice any client.

The registrar may institute action in a court against any person who has

contravened or not complied with any provision of FAIS, for payment of:


a) an amount determined by the court as compensation for losses suffered

by any other person in consequence of such contravention or non-

compliance;

b) a penalty for punitive purposes in a sum determined in the discretion of

the court to a maximum of three (3) times the amount of any profit or

gain which accrued or may have accrued to the person involved, as a

direct result of any such act or omission;

c) interest; and

d) costs of suit on such scale as may be determined by the court.

Any amount recovered by the Registrar must be deposited by the Registrar

directly into a specially designated trust account, and thereupon:

a) the Registrar is, as a first charge against the trust account, entitled to

reimbursement of all expenses reasonably incurred in bringing

proceedings and in administering the distributions made to affected

persons.

b) the balance, if any (the "distributable balance"), must thereafter be

distributed by the Registrar to the affected persons.

c) any funds remaining after payment to affected persons will accrue to the

Registrar in the Registrar's official capacity.

The distributable balance must be distributed on a pro rata basis to all affected

persons who prove to the reasonable satisfaction of the Registrar that they are

affected persons: Provided that no money may be distributed to a person who has

contravened or failed to comply with any provision of this Act.

Any amount not claimed by an affected person within three (3) years from the

date of the first distribution of payments, accrues to the Registrar in the

Registrar's official capacity.

A court issuing any order under this section must order it to be published in the

Gazette and by such other appropriate public media announcement as the court

considers appropriate.

The Registrar may withdraw, abandon or compromise any civil proceedings

instituted under this section, but any agreement or compromise must be made an

order of court and the amount of any payment made in terms of any such


compromise must be published in the Gazette and by such other public media

announcement as the court considers appropriate.

Where civil proceedings have not been instituted, any agreement or settlement (if

any) may, on application to the court by the registrar after due notice to the other

party, be made an order of court and must be published in the Gazette and by

such other public media announcement as the court considers appropriate.

Summary

In this chapter we attempted to deal with the more prominent legal issues

pertaining to Administrative FSP‘s.

Under the topic ―Financial Soundness‖, we sought to distinguish the capital

adequacy requirements from the liquidity requirements, as contained in the Board

Notice.

We also provided information relating to the fidelity cover that is required to be in

place for Category III FSP‘s.

We dealt with the netting of transactions as prohibited by Administrative Code.

We briefly considered the requirements when dealing with other FSP‘s and

therefore also touched on the monitoring responsibility in respect of this action.

We discussed the need for continual compliance with FAIS and the impact that

non-compliance could have on the FSP‘s license.

Finally, we consider the civil remedies available to FSP‘s.



1. Section 8 of FAIS requires an FSP to maintain:

a) sufficient risk management plans

b) sufficient financial soundness

c) systems

d) procedures

2. BN106 prescribes that the Administrative FSP must maintain:

a) capital adequacy of R3 million

b) capital adequacy of R3 million and liquidity of 13 weeks of

expenditure

c) capital adequacy of R3 million and liquidity of 13/52 weeks of

expenditure

d) capital adequacy of R3 million and liquidity of 13/52 weeks of

annual expenditure

3. The Administrative FSP must ensure, should it elect to invest the capital

adequacy reserve, that:

a) the investment matches the risk profile of the pool of investors

investing through the Administrative FSP

b) the investment is readily available within 7 days

c) the investment is readily available within 7 days and may not

realise a loss

d) the investment is readily available within 7 days and may not

realise a loss on liquidation

4. An Administrative FSP is required to have Fidelity cover or guarantees in

place in the sum of:

a) R3 000 000

b) R4 000 000

c) R5 000 000

d) R6 000 000

5. An Administrative FSP may not engage in:

a) bulking

b) netting




6. Section 10(1)(e) of the General Code prescribes that the Administrative

FSP must:

a) ensure that the client is not prejudiced when dealing with client

assets

b) deal with client assets strictly in accordance with the client‘s

instructions

c) when engaging in netting, ensure that the records are audited


7. Section 3(2) of the Administrative Code:

a) prescribes the conditions under which an Administrative FSP

may engage in netting

b) prescribes the due diligence procedures to be followed by the

Administrative FSP when engaging in netting

c) prohibits the Administrative FSP from engaging in netting


8. An Administrative FSP need(s):

a) to satisfy the fit and proper requirements at all times

b) only satisfy the fit and proper requirements when applying for

the FSP license

c) to satisfy the fit and proper requirements at each annual review

d) to ensure that Registrar can access client documents

immediately.

9. In terms of section 33 of FAIS, the Registrar is empowered to:

a) investigate any suspected irregularity

b) demand access to all documents in the Administrative FSP‘s

possession or control

c) approach court on an urgent basis ordering the Administrative

FSP to do something or refrain from doing something


10. The Registrar may request the Court to order the Administrative FSP to:

a) pay compensation to any person who suffered losses

b) pay a penalty for punitive purposes

c) pay interest

d) all of the above



1. Section 8 of FAIS requires an FSP to maintain:

a) sufficient risk management plans

b) sufficient financial soundness

c) systems

d) procedures

2. BN106 prescribes that the Administrative FSP must maintain:

a) capital adequacy of R3 million

b) capital adequacy of R3 million and liquidity of 13 weeks of

expenditure

c) capital adequacy of R3 million and liquidity of 13/52 weeks of

expenditure

d) capital adequacy of R3 million and liquidity of 13/52 weeks of

annual expenditure

3. The Administrative FSP must ensure, should it elect to invest the capital

adequacy reserve, that:

a) the investment matches the risk profile of the pool of investors

investing through the Administrative FSP

b) the investment is readily available within 7 days

c) the investment is readily available within 7 days and may not

realise a loss

d) the investment is readily available within 7 days and may not

realise a loss on liquidation

4. An Administrative FSP is required to have Fidelity cover or guarantees in

place in the sum of:

a) R3 000 000

b) R4 000 000

c) R5 000 000

d) R6 000 000

5. An Administrative FSP may not engage in:

a) bulking

b) netting




6. Section 10(1)(e) of the General Code prescribes that the Administrative

FSP must:

a) ensure that the client is not prejudiced when dealing with client

assets

b) deal with client assets strictly in accordance with the client‘s

instructions

c) when engaging in netting, ensure that the records are audited


7. Section 3(2) of the Administrative Code:

a) prescribes the conditions under which an Administrative FSP

may engage in netting

b) prescribes the due diligence procedures to be followed by the

Administrative FSP when engaging in netting

c) prohibits the Administrative FSP from engaging in netting


8. An Administrative FSP need(s):

a) to satisfy the fit and proper requirements at all times

b) only satisfy the fit and proper requirements when applying for

the FSP license

c) to satisfy the fit and proper requirements at each annual review

d) to ensure that Registrar can access client documents

immediately.

9. In terms of section 33 of FAIS, the Registrar is empowered to:

a) investigate any suspected irregularity

b) demand access to all documents in the Administrative FSP‘s

possession or control

c) approach court on an urgent basis ordering the Administrative

FSP to do something or refrain from doing something


10. The Registrar may request the Court to order the Administrative FSP to:

a) pay compensation to any person who suffered losses

b) pay a penalty for punitive purposes

c) pay interest

d) all of the above


Chapter

8

Record-keeping requirements


KNOWLEDGE CRITERIA:

Explain the period for which records must be kept.

Describe the requirements specifically applicable to telephone and/or electronic requirements.


Purpose

FAIS and its subordinate legislation have specific record-keeping requirements that

have to be satisfied by an Administrative FSP. In addition to these FAIS

requirements, other legislation such as FICA also prescribes record-keeping

requirements that FSP‘s have to satisfy.

This chapter deals with these requirements.

8.1 APPLY THE RECORD-KEEPING REQUIREMENTS

8.1.1 FAIS

Section 18 of FAIS requires an FSP, except to the extent exempted by the

Registrar, to maintain records for a minimum period of five (5) years regarding:

a) known premature cancellations of transactions or financial products by

clients of the provider;

b) complaints received together with an indication of whether or not any

such complaint has been resolved;

c) the continued compliance with the requirements referred to in Section 8

of FAIS;

d) cases of non-compliance with FAIS, and the reasons for such non-

compliance; and

e) the continued compliance by representatives with the requirements

referred to in Section 13(1) and (2) of FAIS.

Whilst it is commonly understood that the FSP must maintain records for five (5)

years, you will note that the Section 18 requirements do not relate to the

maintenance of ―advice‖ records. In addition to the FSP‘s responsibilities in terms

of Section 18, Section 9 of the General Code compels the FSP to keep a record of

advice provided to the client reflecting:


a) a brief summary of the information and material on which the advice was

based;

b) the financial product(s) that was/were considered;

c) the financial product(s) recommended with an explanation of why the

product(s) was/were selected, is or are likely to satisfy the client‘s needs

and objectives; and

provided that such record of advice is only required to be maintained where, to

the knowledge of the FSP, a transaction or contract in respect of a financial

product is concluded by or on behalf of the client, as a result of the advice

furnished to the client.

d) where the financial product(s) recommended is a replacement product –

i. the comparison of fees, charges, special terms and conditions,

exclusions of liability, waiting periods, loadings, penalties,

excesses, restrictions or circumstances in which benefits will not

be provided, between the terminated product and the

replacement product; and

ii. the reasons why the replacement product(s) was considered to be

more suitable to the client‘s needs than retaining or modifying the

terminated product.

A written copy of this record of advice must be provided to the client by the FSP

(who is not a direct marketer).

Section 3(2) of the General Code goes further to require an FSP to maintain

appropriate procedures and systems in place to:

i. record the verbal and written communications relating to the financial

service rendered to a client;

ii. store and retrieve these records and any other material documentation

relating to the client or financial service rendered to the client; and

iii. keep such client records and documentation safe from destruction.

In terms of this section the FSP must maintain these records for a period of five

(5) years after termination of the product or the rendering of the financial

services, whichever occurs last in time. FSP‘s are not required to keep these

records themselves but must ensure that these records can be produced to the

Registrar within seven (7) days of the Registrar‘s request. These records may be


kept in an electronic format which is accessible and readily reducible to written or

printed format.

Finally, Section 14 of the General Code requires an FSP that advertises a financial

service by telephone needs to do the following:

a) An electronic, voice-logged record of all communications must be

maintained. Where no financial service is rendered as a result of the

advertisement, such record need not be maintained for a period

exceeding forty-five (45) days.

b) A copy of all such records must be provided on request by the client or

the Registrar within seven (7) days of the request.

c) All the information required by Sections 4(1)(a) and (c) and 5(a) and (c)

shall not be required: Provided that the client is provided with basic

details (such as business name and telephone number or address) of the

FSP or relevant product supplier, and of their relevant compliance

departments: Provided further that, if the promotion results in the

rendering of a financial service, the full details required by those sections

are provided to the client in writing within thirty (30) days of the relevant

interaction with the client.

One of the functions of the compliance officer is to monitor the FSP‘s compliance

with the requirements to maintain records.

8.1.2 FICA

In conjunction with the sections of FAIS and Subordinate Legislation discussed

above, Section 22 of the Financial Intelligence Centre Act of 2001, (Act 38 of

2001) (―FICA‖) requires an accountable institution to maintain records of the

identity of clients for a period of five (5) years after the date of the establishment

or termination of the business relationship or last transaction, whichever occurs

last in time. The records to be kept in terms of FICA are:

a) the identity of the client;

b) if the client is acting on behalf of another person —

i. the identity of the person on whose behalf the client is acting; and

ii. the client‘s authority to act on behalf of that other person;

c) if another person is acting on behalf of the client —


i. the identity of that other person; and

ii. that other person‘s authority to act on behalf of the client;

d) the manner in which the identity of the persons referred to in paragraphs

(a), (b) and (c) was established;

e) the nature of that business relationship or transaction;

f) in the case of a transaction—

i. the amount involved; and

ii. the parties to that transaction;

g) all accounts that are involved in—

i. transactions concluded by that accountable institution in the course

of that business relationship; and

ii. that single transaction;

h) the name of the person who obtained the information referred to in

paragraphs (a), (b) and (c) on behalf of the accountable institution; and

i) any document or copy of a document obtained by the accountable

institution in order to verify a person‘s identity in terms of Section 21(1)

or (2) of FICA.

Section 24 of FICA allows an accountable institution to outsource its responsibility

to keep records to a third party, provided that the accountable institution has free

and easy access to these records. Should any such third party fail to properly

comply with the record-keeping requirements of Section 22, the accountable

institution shall be liable for that failure.

Where an accountable institution outsources its responsibility to keep records to a

third party, the accountable institution must provide the Financial Intelligence

Centre with the prescribed particulars regarding that third party.

The lists of accountable institutions are:

1. An attorney, as defined in the Attorneys Act, 1979 (Act 53 of 1979);


2. A board of executors or a trust company or any other person that invests,

keeps in safe custody, controls or administers trust property within the

meaning of the Trust Property Control Act, 1988 (Act 57 of 1988);

3. An estate agent as defined in the Estate Agents Act, 1976 (Act 112 of

1976);

4. A financial instrument trader as defined in the Financial Markets Control

Act, 1989 (Act 55 of 1989);

5. A management company registered in terms of the Unit Trusts Control

Act, 1981 (Act 54 of 1981);

6. A person who carries on the "business of a bank" as defined in the Banks

Act, 1990 (Act 94 of 1990);

7. A mutual bank as defined in the Mutual Banks Act, 1993 (Act 124 of

1993);

8. A person who carries on a "long-term insurance business" as defined in

the Long-Term Insurance Act, 1998 (Act 52 of 1998), including an

insurance broker and an agent of an insurer;

9. A person who carries on a business in respect of which a gambling license

is required to be issued by a provincial licensing authority;

10. A person who carries on the business of dealing in foreign exchange;

11. A person who carries on the business of lending money against the

security of securities;

12. A person who carries on the business of rendering investment advice or

investment broking services, including a public accountant as defined in

the Public Accountants and Auditors Act, 1991 (Act 80 of 1991), who

carries on such a business;

13. A person who issues, sells or redeems travellers‘ cheques, money orders

or similar instruments;

14. The Postbank referred to in Section 51 of the Postal Services Act, 1998

(Act 124 of 1998);


15. A member of a stock exchange licensed under the Stock Exchanges

Control Act, 1985 (Act 1 of 1985);

16. The Ithala Development Finance Corporation Limited;

17. A person who has been approved or who falls within a category of

persons approved by the Registrar of Stock Exchanges in terms of

Section 4 (1) (a) of the Stock Exchanges Control Act, 1985 (Act 1 of

1985);

18. A person who has been approved or who falls within a category of

persons approved by the Registrar of Financial Markets in terms of

Section 5 (1) (a) of the Financial Markets Control Act, 1989 (Act 55 of

1989);

19. A person who carries on the business of a money remitter.

Where the FSP is also a registered long-term insurer in terms of the Long-term

Insurance Act of 1998, (Act 52 of 1998), an additional requirement has to be

satisfied. In terms of Directive 148.A.i (LT) of 2007 a long-term insurer who

outsources its record-keeping responsibility to a third party must conduct regular

compliance reviews to ensure that the second accountable institutions are

properly keeping the prescribed records.

These records may be kept in electronic format. The industry standard is to store

and to retrieve these records electronically. The FSB, in its FAIS Newsletter

Volume 6 of June 2008, recommends that where hardcopy client records and files

are kept, that these files and records are to be backed up electronically. Section

25 of FICA goes further to encourage the keeping of records in electronic format,

as a certified extract of these electronic records are rendered admissible in terms

of this section as evidence in a court of law.


8.2 SECURITY, CONFIDENTIALITY AND ACCESS TO RECORDS

Section 3(3) of the General Code compels the FSP to keep all records relating to

the client, a product supplier in relation to the client or a supplier, confidential,

unless the client has provided the FSP with a written consent to disclose such

information. The Protection of Personal Information Bill contains substantially

more onerous requirements that have to be satisfied in this regard. As this Bill is

still to be promulgated we shall refrain from dealing with these provisions at this

stage.

8.3 ADDITIONAL RECORD-KEEPING REQUIREMENTS

Section 7 of the Administrative Code prescribes further record-keeping

responsibilities for Administrative FSP‘s. In terms of these additional

requirements, an Administrative FSP must:

1. specifically record the financial products owned by each client, clearly

maintaining the linkage between the client and each of the client‘s

financial product(s);

2. where the client is a pension fund as defined in the Pension Funds Act,

1956 (Act No. 24 of 1956), or another financial institution whose

members, policyholders or participants have the right to select the

financial products allocated to their accounts, maintain the link between

those members, policyholders or participants and the financial product(s)

selected by them if the Administrative FSP has undertaken to provide

such record-keeping service to the client, provided that the foregoing is

not to be construed so as to mean that ownership of such a financial

product vests in such a member, policyholder or participant, as ownership

remains with the said pension fund or other financial institution.

It is therefore evident that the Administrative FSP must at all times be able to

identify the financial products belonging to each client and be in a position to

exercise a type of look-through approach, where the Administrative FSP deals

with institutional clients such as pension funds or long-term insurance companies.

Please note the specific caveat, i.e. that whilst the underlying assets may be

identified as belonging to a specific client, ownership in those assets do not vest in

the client but in the institution with which the client invests.


Summary

In this chapter we dealt with the record-keeping requirements applicable to FSP‘s.

We started by looking at the record-keeping requirements specified in FAIS.

We then considered the additional requirements stipulated in the General Code.

We then considered the maintenance of confidentiality and access to records.

Finally, we considered the requirements stipulated in FICA.


1. Section 18 of FAIS requires an FSP to retain records for a period of:

a) three years

b) five years

c) seven years


2. The records that must be kept by FSP‘s relate to:

a) known premature cancellations or transactions or financial

products clients of the FSP

b) complaints received together with an indication of whether or

not any such complaint has been resolved

c) the continued compliance with the fit and proper requirements

d) all of the above


a) maintain records of advice for a period of 3 years

b) maintain records of advice for a period of 5 years

c) maintain records of advice for a period of 7 years


4. An Administrative FSP must maintain systems and procedures in place

to:

a) record all verbal and written communications relating to the

client‘s financial product

b) record all verbal and written communications relating to the

client‘s communications with the FSP


c) record all verbal and written communications relating to the

financial service rendered to the client


5. An Administrative FSP who advertises its services by telephone must

maintain an electronic, voice-logged record of all communications for a

period of:

a) 45 days

b) 60 days

c) 90 days


6. Where an Administrative FSP advertises its services by telephone, but

does not secure any business with a particular client, that Administrative

FSP must maintain an electronic or voice-logged record of all

communications for a period of:

a) 45 days

b) 60 days

c) 120 days


7. FICA requires the Administrative FSP to maintain records for a period of:

a) 5 years after expiry of the 5 year period referred to in FAIS

b) 5 years running concurrently with the 5 year period referred to

in FAIS

c) 5 years after inception of the financial product


8. Accountable institutions are:

a) grocery stores

b) stokvels

c) management companies of Collective Investment Schemes

d) schools

9. Directive 148.A.i (LT) allows a Long-term Insurance Company to:

a) hold records for a shorter period of time

b) rely on another accountable institution‘s FICA

c) rely on another accountable institution‘s FICA provided that

regular compliance reviews are conducted



10. Where the client of the Administrative FSP is a pension fund the

Administrative FSP must also ensure that the:

a) underlying assets are allocated to each member even though it

is the Fund‘s assets

b) pension fund holds the FICA documents for an additional period

of 3 years

c) Administrative FSP reports to the Registrar of Pension Funds on

its record-keeping activities during the previous year




1. Section 18 of FAIS requires an FSP to retain records for a period of:

a) three years

b) five years

c) seven years


2. The records that must be kept by FSP‘s relate to:

a) known premature cancellations or transactions or financial

products clients of the FSP

b) complaints received together with an indication of whether or

not any such complaint has been resolved

c) the continued compliance with the fit and proper requirements

d) all of the above


a) maintain records of advice for a period of 3 years

b) maintain records of advice for a period of 5 years

c) maintain records of advice for a period of 7 years


4. An Administrative FSP must maintain systems and procedures in place

to:

a) record all verbal and written communications relating to the

client‘s financial product

b) record all verbal and written communications relating to the

client‘s communications with the FSP

c) record all verbal and written communications relating to the

financial service rendered to the client


5. An Administrative FSP who advertises its services by telephone must

maintain an electronic, voice-logged record of all communications for a

period of:

a) 45 days

b) 60 days

c) 90 days



6. Where an Administrative FSP advertises its services by telephone, but

does not secure any business with a particular client, that Administrative

FSP must maintain an electronic or voice-logged record of all

communications for a period of:

a) 45 days

b) 60 days

c) 120 days


7. FICA requires the Administrative FSP to maintain records for a period of:

a) 5 years after expiry of the 5 year period referred to in FAIS

b) 5 years running concurrently with the 5 year period referred to

in FAIS

c) 5 years after inception of the financial product


8. Accountable institutions are:

a) grocery stores

b) stokvels

c) management companies of Collective Investment Schemes

d) schools

9. Directive 148.A.i (LT) allows a Long-term Insurance Company to:

a) hold records for a shorter period of time

b) rely on another accountable institution‘s FICA

c) rely on another accountable institution‘s FICA provided that

regular compliance reviews are conducted


10. Where the client of the Administrative FSP is a pension fund the

Administrative FSP must also ensure that the:

a) underlying assets are allocated to each member even though it

is the Fund‘s assets

b) pension fund holds the FICA documents for an additional period

of 3 years

c) Administrative FSP reports to the Registrar of Pension Funds on

its record-keeping activities during the previous year



Chapter

9

Reporting to clients


KNOWLEDGE CRITERIA:

Explain why clients must receive written reports at quarterly intervals that provide them with

investment and related information.


Purpose

In this chapter we briefly look at the reporting obligations of an Administrative FSP.

FAIS and its subordinate legislation have specific reporting requirements that have

to be satisfied by Administrative FSP‘s. These requirements encompas reporting to

clients and reporting to the Registrar.

In this chapter we will only deal with client reporting.

9.1 REQUIREMENTS WHEN REPORTING TO CLIENTS

Section 10.1 of the Administrative Code requires the Administrative FSP to furnish

the client with a written report that complies with Subsection 10.2 of the

Administrative Code. This written report must be provided:

a) on request; and

b) at regular intervals, which may not exceed three (3) months at a time,

unless the client consents in writing not to receive the report because the

other FSP or client, as the case may be, is able to access the information

continuously, as made available by the Administrative FSP, through other

means such as the Internet or a facsimile service: Provided that

Administrative FSP may only furnish such a report on behalf of a client to

another FSP, on the written instruction of that client.

Section 10.2 requires the Administrative FSP to furnish the client or another FSP

on behalf of a client with a written report containing such information as is

reasonably necessary to enable the other FSP or client to:

a) produce a set of financial statements;

b) determine the composition of the financial products comprising the

investment and the changes therein over the period reported on; and

c) determine the market value of the financial products comprising the

investment and the changes therein over the period reported on.


In addition to the above, Section 10(3) requires an Administrative FSP, on request

by a client, to furnish the client with detailed information regarding:

a) all monies received by the Administrative FSP, from the other FSP or

client, as the case may be;

b) the financial products purchased with the monies referred to in paragraph

(a) and the price at and date on which purchased;

c) the financial products repurchased on the instructions of the other FSP or

client, as the case may be, in order to disinvest from a particular financial

product;

d) the payment of the proceeds to the other FSP or the client or the

Administrative FSP, as the case may be;

e) the financial products purchased with the proceeds and the price at and

date on which purchased;

f) the price at and date on which financial products referred to in paragraph

(e) were repurchased; and

g) all the financial products held on behalf of the client and the current

market value thereof, as at the date of the report.

Summary

The General Code prescribes that FSP‘s must provide their clients with written

reports.

These reports must be provided on a quarterly basis.

The content of the written reports is prescribed in the General Code and was

detailed in this chapter.



1. An Administrative FSP must provide the client with:

a) reports on request

b) written reports on request

c) reports within 7 days of the their request


2. The Administrative FSP must provide the client with written reports at

regular intervals, not exceeding:

a) 2 months

b) 4 months

c) 6 months


3. The written reports provided by the Administrative FSP must have

sufficient information to enable the client to:

a) calculate the income tax deducted from the financial product by

the product supplier

b) calculate the capital gains tax deducted from the financial

product by the product supplier

c) produce a set of financial statements


4. The Administrative FSP must also, on request of the client, provide the

client with information relating to:

a) all monies received by the Administrative FSP from the other

FSP or the client

b) the financial products repurchased on the instructions of the

other FSP or client

c) the payment of the proceeds to the other FSP or the client

d) all of the above

5. An Administrative FSP must provide the client with a:

a) summary of the taxes for which the client will be liable for,

should he or she elect to disinvest today

b) all the financial products held on behalf of the client and the

projected market value as at a specific date

c) all the financial products held on behalf of the client and the

current market value thereof



Chapter

10

Miscellaneous


KNOWLEDGE CRITERIA:

Explain how intermediaries must be licensed before they can do business.

Explain how rebates work.

Explain all the related disclosures as they apply to rebates.


Purpose

In this chapter we consider the licensing requirements for intermediaries so that

Administrative FSP‘s can properly assess whether intermediaries hold the licenses in

the appropriate categories and/or subcategories prior to conducting business.

We also briefly consider the rebate system and the relevant disclosures that an

Administrative FSP has to make in this regard.

10.1 LICENSING REQUIREMENTS FOR INTERMEDIARIES

As stated above, Section 7 of FAIS stipulates that no person may act or offer to

act as a financial services provider unless licensed thereto by the Registrar.

Section 7(3) goes further to prohibit an FSP from conducting business with a

person who has not been issued by the Registrar with a license relevant to the

category of financial services being offered. Subsection (3) reads as follows:

―(3) An authorized financial services provider or representative may only

conduct financial services related business with a person rendering financial

services if that person has, where lawfully required, been issued with a license

for the rendering of such financial services and the conditions and restrictions of

that license authorizes the rendering of those financial services, or is a

representative as contemplated in this Act.‖

Subsequent sections (e.g. Section 8) go further to deal with the qualifying

criteria that have to be satisfied in order to become an FSP or representative

and further provide for the Registrar to be able to issue subordinate legislation

to further regulate the rendering of financial services. Prior to the promulgation

of FAIS very little regulation existed.

Section 8 of FAIS stipulates that an applicant may apply to be approved as an

authorised FSP in the manner and form prescribed by the Registrar and must

provide the Registrar with all supporting information in order to satisfy the

Registrar that the applicant is fit and proper to be approved as a key individual of

an FSP. Fit and proper requirements are then distilled into the following:


Personal character qualities of honesty and integrity

Competence and operational ability of the applicant to fulfil the

responsibilities imposed by FAIS; and

Financial soundness.

FAIS goes further to require that the key individuals of FSP‘s who are

partnerships, trusts, corporate or unincorporated bodies must also satisfy the

Registrar that they possess:

personal character qualities of honesty and integrity; and

competence and operational ability.

Several Board Notices were then published by the Registrar prescribing the

Registrar‘s requirements in order to consider an applicant fit and proper. BN106 of

2008 prescribes the required qualifications, experience and operational ability that

these FSP‘s must possess in order to conduct business in a particular category and

sub-category.

Essentially, the Administrative FSP may only conduct business with a person

rendering financial services where that person is an authorised FSP or

representative of an authorised FSP and where either of these two persons

possess the relevant authorisation by the Registrar to render financial services in

the particular category and/or sub-category. Failure by the Administrative FSP to

ensure that these persons are appropriately licensed will result in the

Administrative FSP incurring liability.

10.2 REBATES

The concept of a rebate is dealt with in both the General Code and the Code for

Discretionary FSP‘s. The General Code defines a rebate as:

―‘rebate‘ means a discount on the administration, management or any other fee

that is passed through to the client, whether by reduced fees, the purchase of

additional investments or direct payment…‖

In the Discretionary Code reference is made to rebates provided by product

suppliers or Administrative FSP‘s for the placing of business by the Discretionary


FSP with these entities. These extracts provide us with sufficient information to

ascertain what is meant by rebates.

A rebate is a reduction in fees which is effected through the levying of a standard

fee with a concomitant repayment of a percentage or portion of the initial fee back

to the client, i.e. all clients are charged the same fee and some of these clients

(depending on the nature of their relationship with the Administrative FSP or

product supplier) will receive a repayment of a portion of the fee from the

Administrative FSP or product supplier.

This practice is particularly prevalent in the Collective Investment Scheme

environment where collective investment schemes are required to charge all

participatory interest (unit) holders the same administration fee. In order to

award certain clients a reduction in fees, a rebate is effected in favour of selected

clients, resulting in either a repayment of the reduction (rand amount) or the

purchase of further participatory interests. The administration relating to these

rebates are sometimes extremely intensive.

The General Code further requires FSP‘s to disclose any rebate arrangements on

at least an annual basis. Where a rebate arrangement is initially disclosed in

percentage terms, an example using actual monetary amounts must be given and

disclosure in specific monetary terms must be made at the earliest reasonable

opportunity thereafter. The General Code further requires that the term "rebate"

must be used in the disclosure, to describe any rebate arrangement complying

with the definition of ―rebate‖, and the disclosure must include an explanation of

the arrangement in line with this definition.

Summary

In this chapter we briefly considered the licensing requirements for

intermediaries.

We also considered the rebates system and the disclosures that an Administrative

FSP has to make in this regard.



1. Section 7(3) of FAIS prescribes that the Administrative FSP may not:

a) conduct financial services related business with another person

if that other person is a Category I FSP

b) conduct financial services related business with another person

if that other person is a Category II or IIA FSP

c) conduct financial services related business with another person

if that other person is licensed in the category or sub-category

to conduct such financial services related business

d) all of the above

2. An Administrative FSP may only conduct financial services related

business with another person where the other person is:

a) an FSP

b) a representative

c) a representative and an FSP

d) a FSP or a representative of an FSP

3. Rebate refers to:

a) a discount on the administration, management or any other fee

that is passed through to the client (whether by reduced fees,

the purchase of additional investments or a direct payment)

b) a discount on the administration or management fee that is

passed through by the product supplier to the Administrative

FSP for placing bulk business by the Administrative FSP with the

product supplier

c) a discount on the service fees provided by a manager to an

Administrative FSP


4. A rebate may be effected through:

a) the physical repayment of the fee to the client

b) the purchase of additional underlying investments for the benefit

of the client

c) the reduction in fees charged against the financial product

d) all of the above


5. Rebate arrangements must be disclosed by the Administrative FSP on:

a) an annual basis

b) within 6 months of the financial year-end of the Administrative

FSP

c) within 3 months of the financial year-end of the Administrative

FSP

d) within 9 months of the financial year-end of the Administrative

FSP

6. Where an Administrative FSP discloses a rebate in percentage, the

Administrative FSP must:

a) provide the client with a statement of the rand amount at the

end of the financial year-end

b) provide the client with a statement of the rand amount at the

end of each 6 month period

c) provide the client with an example sounding in money and at

the earliest reasonable opportunity provide the client with the

specific monetary terms




1. Section 7(3) of FAIS prescribes that the Administrative FSP may not:

a) conduct financial services related business with another person

if that other person is a Category I FSP

b) conduct financial services related business with another person

if that other person is a Category II or IIA FSP

c) conduct financial services related business with another person

if that other person is licensed in the category or sub-category

to conduct such financial services related business

d) all of the above

2. An Administrative FSP may only conduct financial services related

business with another person where the other person is:

a) an FSP

b) a representative

c) a representative and an FSP

d) a FSP or a representative of an FSP

3. Rebate refers to:

a) a discount on the administration, management or any other fee

that is passed through to the client (whether by reduced fees,

the purchase of additional investments or a direct payment)

b) a discount on the administration or management fee that is

passed through by the product supplier to the Administrative

FSP for placing bulk business by the Administrative FSP with the

product supplier

c) a discount on the service fees provided by a manager to an

Administrative FSP


4. A rebate may be effected through:

a) the physical repayment of the fee to the client

b) the purchase of additional underlying investments for the benefit

of the client

c) the reduction in fees charged against the financial product

d) all of the above


5. Rebate arrangements must be disclosed by the Administrative FSP on:

a) an annual basis

b) within 6 months of the financial year-end of the Administrative

FSP

c) within 3 months of the financial year-end of the Administrative

FSP

d) within 9 months of the financial year-end of the Administrative

FSP

6. Where an Administrative FSP discloses a rebate in percentage, the

Administrative FSP must:

a) provide the client with a statement of the rand amount at the

end of the financial year-end

b) provide the client with a statement of the rand amount at the

end of each 6 month period

c) provide the client with an example sounding in money and at

the earliest reasonable opportunity provide the client with the

specific monetary terms


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