RE-5 Material PDF

Representative Regulatory Exam Workshop Material (RE5) RE5 Training Manual – Updated December 2022 1  Table of Contents Table of Cont...

Representative Regulatory Exam Workshop Material (RE5) RE5 Training Manual – Updated December 2022 1  Table of Contents Table of Contents..................................................................................................................... 2 Introduction to the material..................................................................................................... 7 The History of FAIS – FAIS Act 37 (2002)................................................................................ 10 Objectives of the FAIS Act...................................................................................................... 11 Latest updates in the Financial Services Sector...................................................................... 12 The relationship between the FAIS Act and the Financial Sector Regulation Act............... 13 The FSB – now referred to as FSCA........................................................................................ 13 FAIS Division........................................................................................................................ 14 FAIS Departments........................................................................................................... 15 Glossary of terms, including the Role Players..................................................................... 16 Registrar vs Commissioner..................................................................................................... 18 What is Financial Services....................................................................................................... 19 What is Advice.................................................................................................................... 19 What is automated advice.............................................................................................. 20 Advice is not about:............................................................................................................ 21 What is Intermediary Services?.......................................................................................... 22 The Representative................................................................................................................ 24 Appointment of representatives........................................................................................ 25 Entry level requirement for Reps........................................................................................ 26 Recruiting Reps................................................................................................................... 27 Supervision of Reps............................................................................................................. 28 What does it mean when a rep works under supervision............................................... 28 Selection of Supervisor.................................................................................................... 28 Supervision agreement................................................................................................... 29 Supervisor responsibilities.............................................................................................. 29 Representative under supervision (supervisee)’s responsibilities.................................. 30 The requirements of a Rep................................................................................................. 30 The roles and responsibilities of a Rep............................................................................... 31 When a Rep provides advice............................................................................................... 33 Steps to be taken when providing advice to the client:.................................................. 33 RE5 Training Manual – Updated December 2022 2  When a client receives advice from a rep........................................................................... 34 Incomplete or no FNA..................................................................................................... 34 Choosing a different product.............................................................................................. 35 The Fit & Proper Requirements that apply to Representatives.......................................... 35 What does Honesty and Integrity refer to?.................................................................... 36 CPD.................................................................................................................................. 39 COMPETENCE:................................................................................................................. 41 Experience requirements for Reps.................................................................................. 46 Experience applies to all FSP’s, KI’s and Reps..................................................................... 47 Experience lapses for an FSP, KI or rep if particular service for particular financial product not worked with for 5 years................................................................................................ 47 Operational requirements for Reps................................................................................ 47 Representative Register...................................................................................................... 48 What information must be contained in the Representative Register?......................... 48 What is the purpose of the Rep Register?...................................................................... 48 Debarring a Representative................................................................................................ 49 Right of appeal................................................................................................................ 50 Process of Appeal............................................................................................................ 50 Reappointment of debarred reps.................................................................................... 50 Key Individuals........................................................................................................................ 51 A Key Individual is someone who....................................................................................... 51 Responsibilities of a KI........................................................................................................ 51 Fit and Proper Requirements that apply to KI’s.................................................................. 52 All Fit & Proper requirements that relate to Reps, also relate to Key Individuals. Over and above that, KI’s need the following –................................................................................. 52 Qualification requirements............................................................................................. 52 Experience requirements relating to KI’s............................................................................ 53 Management Responsibilities of the KI.............................................................................. 53 The Financial Services Provider.............................................................................................. 55 Responsibilities of the FSP.................................................................................................. 55 An FSP must ensure that:.................................................................................................... 55 Fit & Proper Requirements that apply to FSP’s.................................................................. 56 All Fit & Proper requirements that relate to Reps and Key Individuals, also apply to FSP’s. Over and above that, FSP’s need the following –............................................................... 56 Operational Ability.......................................................................................................... 56 Financial Soundness........................................................................................................ 57 RE5 Training Manual – Updated December 2022 3  Application requirements to become an FSP..................................................................... 58 Changes that must be reported to the FSCA................................................................... 60 Licenses granted by the Commissioner.............................................................................. 60 After granting the license, the Commissioner may:........................................................... 61 Displaying and disclosing the FSP License........................................................................... 62 Responsibilities of the FSP to ensure the KI’s Fit and Proper Status.................................. 62 What must a Financial Services Provider (FSP) do?............................................................ 62 Control measures required by the FSP relating to Risk Management............................ 62 How Risk Management relates to the FSP:..................................................................... 62 FSP’s Governance Framework......................................................................................... 64 Additional requirements applicable to FSPs that provide automated advice.................... 65 OUTSOURCING.................................................................................................................... 66 Outsourcing of functions to a person other than a representative of the FSP............... 66 Maintaining a license.............................................................................................................. 67 Undesirable Business Practice............................................................................................ 67 Suspension or Withdrawal of License................................................................................. 68 Process to be followed when suspending or withdrawing the license........................... 68 Lapsing a license................................................................................................................. 70 Process to be followed when lapsing a license............................................................... 70 Format of communication with the Regulator................................................................... 71 General Code of Conduct....................................................................................................... 71 The purpose of the Code of Conduct.................................................................................. 71 The Code of Conduct must make provision for.................................................................. 71 Disclosure requirements:.................................................................................................... 72 When rendering financial services to clients,................................................................. 72 What information needs to be disclosed?...................................................................... 74 Ethical conduct................................................................................................................... 75 Termination........................................................................................................................ 75 A provider that ceases to operate must.......................................................................... 75 Where a representative ceases to operate, the provider must...................................... 75 Record of advice................................................................................................................. 76 Client confidentiality and access to records....................................................................... 76 FSP’s who receive or hold client funds or products............................................................ 76 Conflict of Interest.............................................................................................................. 77 What does conflict of interest refer to?.......................................................................... 77 RE5 Training Manual – Updated December 2022 4  Ensuring transparency and manage conflict of interest:................................................ 78 The conflict of interest management policy must.......................................................... 79 Complaints handling........................................................................................................... 80 Internal Complaints resolution system........................................................................... 81 Advertising.......................................................................................................................... 87 When a provider advertises by telephone...................................................................... 91 Record keeping................................................................................................................... 91 Penalties in terms of the Act.................................................................................................. 93 The Compliance Officer:......................................................................................................... 94 Roles and functions of a Compliance officer...................................................................... 94 Approval of a Compliance Officer by the Commissioner.................................................... 95 Phase 1 approval............................................................................................................. 95 Phase 2 approval............................................................................................................. 95 Application as an Officer or Practice............................................................................... 98 Reportable Irregularities..................................................................................................... 99 Responsibilities of the Compliance Officer and FSP............................................................ 99 Withdrawal of approval...................................................................................................... 99 The FAIS Ombudsman.......................................................................................................... 100 Roles and powers of the Ombud...................................................................................... 100 Submission of a complaint to the Ombud........................................................................ 100 Instances of when the FAIS Ombud will not accept the complaint.................................. 101 Prescription period........................................................................................................... 101 Decline to investigate....................................................................................................... 101 Investigation of the complaint.......................................................................................... 101 Matters not settled or not accepted by all parties........................................................... 102 Monetary awards.............................................................................................................. 102 The determination by the Ombud.................................................................................... 103 Rules of proceedings by the office of the Ombud............................................................ 104 Penalties........................................................................................................................... 104 Schedule 1 – Laws amended or repealed by the FAIS Act:................................................... 105 Product Categories............................................................................................................... 105 The product categories in FAIS......................................................................................... 105 FICA....................................................................................................................................... 117 Purpose of FICA................................................................................................................. 118 Training and compliance with FICA................................................................................... 118 RE5 Training Manual – Updated December 2022 5  Record Keeping................................................................................................................. 119 Accountable institutions need to keep records of the following:................................. 119 Methods of Record Keeping.......................................................................................... 119 Records kept by a 3rd party.............................................................................................. 119 Admissibility of the Records............................................................................................. 120 Centre’s access to Records............................................................................................... 120 Internal Rules.................................................................................................................... 120 What is Money Laundering............................................................................................... 121 Additional sources for money laundering:.................................................................... 121 Offences and Penalties..................................................................................................... 121 Transactions to be reported............................................................................................. 124 Cash Reporting.............................................................................................................. 124 What is the prescribed limit?........................................................................................ 124 International Electronic Transfers................................................................................. 124 Exemptions....................................................................................................................... 125 Verifying the residential address of a client:.................................................................... 126 Manner of identification................................................................................................... 127 List of accountable institutions......................................................................................... 128 Reportable Institutions..................................................................................................... 131 Glossary of Terms on FICA................................................................................................ 131 Transitional Provisions......................................................................................................... 133 Qualifications;................................................................................................................... 133 Experience........................................................................................................................ 133 Product Specific Training.................................................................................................. 133 Class of Business training.................................................................................................. 134 However (Very Important)............................................................................................ 134 Reps register and FSP licence........................................................................................... 134 Summary of timelines........................................................................................................... 136 Annexure 1........................................................................................................................... 139 Tier 1 and Tier 2 Financial Products.................................................................................. 139 Annexure 2........................................................................................................................... 140 CLASSES OF BUSINESS....................................................................................................... 140 Sources:................................................................................................................................ 143 RE5 Training Manual – Updated December 2022 6  Introduction to the material The following tasks are necessary to know for the RE5 exams (updated April 2018) TABLE 4: REGULATORY EXAMINATION: REPRESENTATIVES IN ALL CATGORIES OF FSPs TABLE 4 Task Task QC Qualifying Criteria Knowl No edge (K) or Skills (S) 1 Demonstrate 1 Describe the FAIS Act and subordinate K understanding of the legislation. FAIS Act as a 2 Provide an overview of the financial services K regulatory and different types of financial products a framework Representative can deal with. 3 Apply knowledge of the financial products S within the financial services environment. 4 Describe the role and functions of a K Compliance Officer. 2 Contribute towards 1 Explain the requirements an FSP must meet K maintaining an FSP to maintain an FSP license. license. 2 Assist in maintaining an FSP license by S executing the required actions as a Representative, in terms of the Act. 3 Discuss the requirements around the display K of licenses. 4 Explain the implication for a Representative if K an accreditation is suspended or withdrawn or lapsed in terms of the Medical Schemes Act, 1998, or any other enabling legislation. 5 Explain what is meant by “undesirable K practices.” 6 Check that the execution of duties and S actions as a Representative does not constitute as undesirable business practices. 7 Describe the implication for a Representative K if the Registrar declares a business practice to be undesirable. 8 Explain the reparation measures available to K the Registrar if a Representative continues with undesirable business practices. RE5 Training Manual – Updated December 2022 7  9 Describe the offences prescribed by the FAIS K Act. 3 Define the role of 1 Describe the role and responsibilities of key K the Key Individual in individuals as defined in the FAIS act. terms of the FAIS 2 Describe the regulated management and K Act. oversight responsibilities of a key individual. 3 Explain the implications for a representative K should a key individual no longer meet the good standing, honesty and integrity requirements. 4 Code of Conduct 1 Describe the general and specific duties of a K provider. 2 Describe what could possibly a conflict of K interest. 3 Define the requirements and impact of the K disclosure rules on the FSP. 4 Apply the requirements of the General Code S of Conduct for FSPs and Representatives 5 Explain the disclosures that need to be made K by a Representative before rendering a financial service. 6 Explain disclosures that must be made by a K Representative when rendering a financial service. 7 Describe the required disclosures regarding K the provider, product supplier and financial service. 8 Explain the specific disclosure requirements K regarding fees and commission. 9 Apply disclosure requirements in terms of S financial services. 10 Explain the process of advice that should be K followed by a Representative. 11 Explain the requirements when a K Representative receives custody of financial products and funds. 12 Explain the manner in which complaints are K to be handled by a Representative as required by the General Code of Conduct for FSPs and Representatives. 13 Follow the complaints procedures and S processes that are in place for Representatives. 14 Explain the requirements of the General K Code of Conduct for FSPs and Representatives relating to the termination RE5 Training Manual – Updated December 2022 8  of an agreement. 5 Comply with 1 Explain the record keeping obligations by a K regulated record Representative as prescribed by the FAIS and keeping FIC Acts. requirements 2 Carry out the record keeping and retrieval of S records functionality correctly. 6 Comply with the 1 Explain the requirements specific to an FSP K requirement of the prescribed by the FIC Act. FIC Act and Money 2 Describe how the FIC Act impacts a K Laundering and Representatives’ interaction with a client. Terrorist Financing control regulations, as it applies to the FSP. 7 Dealing with 1 Explain the role and authority of the Ombud K complaints that have for FSPS been submitted to the Ombud for FSPs. 8 Operate as a 1 Describe the role and responsibilities of K Representative in Representative as defined in the FAIS Act. terms of the FAIS 2 Apply knowledge of the role of S Act. Representatives in terms of the FAIS Act. 3 Explain the fit and proper requirements that K apply to Representatives ( good standing, honesty, integrity, qualifications, experience, knowledge tested through regulated examinations and continues professional development) 4 Distinguish between advice and intermediary K services in terms of the FAIS Act. 5 Describe the purpose and requirements of K the register of Representatives. 6 Explain when a Representative should be K under supervision. 7 Explain the disclosure requirements for a K Representative under supervision. 8 Describe the implications if a Representative K no longer meets the fit and proper requirements. 9 Define the purpose of debarment. K 10 Describe when debarment should be K considered. 11 Explain the debarment process that should K be followed in the event of a possible contravention of the FAIS Act. 12 Explain what recourse a debarred K representative may have. RE5 Training Manual – Updated December 2022 9 For the purposes of the training manual, we did not follow the tasks in chronological order, however, we have designed the material to make it easier to follow and study. A combination of the FAIS Act, subordinate legislation, FSCA communication, tools used by compliance officers, our own knowledge and INSETA material was used to design and develop the material. The History of FAIS – FAIS Act 37 (2002) The Financial Services Board was established in 1990, aimed at creating an independent body to supervise and regulate the non-banking financial services industry. The Financial Services Board (FSB) is the government of South Africa’s financial regulatory agency responsible for the non-banking financial services industry in South Africa. It is an independent body that supervises and regulates the financial services industry in the public interest. In the past, South Africa never had a formal system of regulating financial advisors and intermediary services. The FAIS Act came into law in November 2002, however, drafting of the Act (then still termed a Bill before being enacted) started as early as 1993. The idea behind bringing in new legislation was to: - Provide consumer protection in terms of financial products; and - Enhance the integrity of the South African financial services industry. During the drafting process, several drafts of the Bill were put on the FSB’s website, followed by statements in the media inviting comments. In addition to this, and given the fact that the Bill attracted interest from all the different industry players within the financial services sector, a number of workshops, as well as several road shows were hosted by the FSB. These events covered discussions around the contents of the then Bill and its possible impact on the industry. The purpose of the Financial Advisory and Intermediary Services Act (FAIS Act) is to regulate the activities of all financial service providers who give advice or provide intermediary RE5 Training Manual – Updated December 2022 10 services to clients as regards to certain financial products. The Act requires that such providers be licensed and that professional conduct be controlled through a code of conduct and specific enforcement measures. One of the main reasons behind the enactment of FAIS was to create uniform standards that must be adhered to by all applicants and holders of an FSP license. The FAIS Act applies to anybody that offers financial advice and/or provides an intermediary service to a client on any transaction that has to do with a financial product. FAIS aims to regulate the giving of advice and rendering of intermediary services to clients, and imposes responsibility by requiring that i) the financial needs of the client has to be evaluated, ii) appropriate advice - having established the relevant facts – is to be given, and iii) clients be assisted to make informed decisions, whilst establishing a complaints resolution mechanism. The Act requires that competent and qualified persons render services and give advice (so called “fit and proper requirements”) in order for clients to receive sound financial advice, services and products tailored to their individual needs. An untrained representative should never be allowed to give advice, hence the requirement that an advisor be FAIS accredited. FAIS Act aims to achieve the following: 1. Professional Conduct 2. Better informed client 3. Professional and responsible sector Objectives of the FAIS Act To regulate the rendering of certain financial advisory and intermediary services to clients to repeal or amend certain laws to provide for matters incidental thereto RE5 Training Manual – Updated December 2022 11  Latest updates in the Financial Services Sector As from the 1st of April 2018, the FSB is now being replaced with FSCA – The Financial Sector Conduct Authority. This is as a result of the Twin Peaks Model of financial sector regulation (regulating both the banking and non-banking financial services sector) The FSCA’s key objectives are to: Protect customers by promoting their fair treatment by financial institutions, providing education and promoting financial literacy; Enhance and support the efficiency and integrity of financial markets; Assist in maintaining financial stability; and Support inclusion and transformation in the financial sector. The FSCA says there won’t be a “big bang” approach to the implementation of its mandate, but gradual changes over the course of the year as sections of the FSRA come into operation. “In the main, financial institutions can expect their interactions with us to be business as usual in the short term.” It says there are, however, a few immediate changes: All communications, regulatory actions and decisions will now be in the name of the FSCA. The new website, www.fsca.co.za, is live. All the key information that was available on the FSB website is still accessible. A Financial Services Tribunal has been established, which any entity aggrieved by an FSCA decision can approach for adjudication. The tribunal replaces the FSB Appeal Board. In terms of the FSRA (Financial Sector Regulation Act, signed into law on the 21st of August 2017) , a commissioner and deputy commissioners will make up the executive committee that will lead the FSCA. RE5 Training Manual – Updated December 2022 12 The minister published regulations setting out the process whereby the commissioner and deputy commissioners will be appointed, and it is expected that this process will start soon, says the FSCA. Source: https://www.iol.co.za/personal-finance/fsb-makes-way-for-fsca-14316164 published 9 April 2018 The relationship between the FAIS Act and the Financial Sector Regulation Act A reference in this Act to the Board or the registrar (now Commissioner) must be read as reference to the Authority. The powers and duties of the Authority in terms of this Act are in addition to the powers and duties it has in terms of the FSRA (Financial Sector Regulation Act, also known as Twin Peaks). The FSB – now referred to as FSCA The Financial Services Board (FSB) – now referred to as the FSCA (The Financial Sector Conduct Authority) is an independent institution established by statute to oversee the South African Non-Banking Financial Services Industry in the public interest. Its mission and vision are to promote and maintain a sound financial investment in South Africa. The FSCA is there to ensure that clients are treated fairly by the financial services providers they deal with, and that they enjoy a safe investment environment. The FSCA prevents many South Africans from losing their hard earned money to illegal money making schemes. A client can confirm with the FSCA whether the entity they are dealing with has a valid FSCA licence because only licensed providers are authorised to sell financial products. It is important to note that the FSCA does not regulate or follow up on pyramid schemes, as the South African Reserve Bank takes on this responsibility. RE5 Training Manual – Updated December 2022 13 The Financial Services Board (FSB) oversees the non-banking financial services industry, which includes retirement funds, short-term & long-term insurance, companies, funeral insurance, schemes, collective investment schemes (unit trusts and stock market) and financial advisors and brokers. The FSCA has the following departments: Actuarial Capital Markets Collective Investment Schemes Consumer Education Credit Ratings FAIS Information Centre Insurance International and Local Affairs Unit Legal and Policy Market Abuse Market Conduct Strategy Unit Retirement Funds Only one department within the FSCA deals with FAIS, which again consists of a further four departments, being: FAIS Division FAIS is a division within the FSCA that is set up to administer the Financial Advisory and Intermediary Services Act, 37 of 2002 whose aim is to protect the investors and to professionalise the financial services industry. They register FSP’s after being satisfied that they meet the fit and proper requirements, supervise such providers on an on-going basis to ensure that they comply with the duties imposed by the Act at all times and take the necessary regulatory action against those who do not comply, which include unregistered entities or persons. RE5 Training Manual – Updated December 2022 14 FAIS Departments Registration: New licence applications; profile changes; (amendments to licenses) updating the central representative register approval of mandates and application forms for Cat II and III FSP’s liaison with Finance Department of FSCA relating to collection of levies Supervision: lapsing of licenses receipt and analysis of financial statements and compliance reports conduct onsite visits to FSP’s and compliance officers liaison with industry relating to changes and subordinate legislation Compliance deals with complaints against FSP’s that cannot be referred to FAIS Ombud investigations into the affairs of FSP’s regulatory action – suspensions and withdrawals of licenses debarments related to regulatory action Enforcement interaction between the FAIS Division and the FSCA Enforcement Committee updating debarments on the central representatives register reinstatement of representatives on the central register Source: www.fsb.co.za Please note that even though the Acts and Board Notices still refer to the FSB and Registrar, we have amended our material with the latest changes and therefore the Registrar is now referred to as the Commissioner, and the FSB is now referred to as the FSCA. The exams have already been updated. RE5 Training Manual – Updated December 2022 15 Glossary of terms, including the Role Players Term Definition from the Act Representative These are the persons who render a financial service to clients for or on behalf of an FSP, in terms of any employment or other mandatory agreement. These persons must be Employed or Mandated. Key Individual These are natural persons within the FSP who are either managing or overseeing the activities of the FSP relating to financial services. It also includes a corporate or unincorporated body, a trust or a partnership, where the the “natural person” is responsible for managing or overseeing, either alone or together with other so responsible persons, the activities of the body, trust or partnership relating to the rendering of any financial service. Auditor Means an auditor registered in terms of the Auditing Profession Act, 2005 (Act No. 26 of 2005 Compliance Officer Means a compliance officer for an authorised financial services provider referred to in section 17 (which refers to the compliance officers) This is the person who embeds compliance within the FSP and reports to the FSCA on compliance issues within the FSP. The Compliance Officer could be an internal person or an outsourced function. 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. However, very important! For the purposes under section 14 as it pertains to advertising, client includes the general public Support staff These are the staff that supports the function of the operational staff within the administrative functions of an FSP. If they do not furnish advice or deal with clients in terms of an intermediary service, they do not have to be FAIS Fit & Proper RE5 Training Manual – Updated December 2022 16 Term Definition from the Act The Registrar The executive officer and deputy executive officer of the Board are In future to be respectively the registrar and deputy registrar of financial services providers called the and have the powers and duties provided for by or under this Act or any Commissioner other law. The executive officer referred to in section 1 of the Financial Services Board Act, 1990 (Act No. 97 of 1990), is the registrar of financial services providers and has the powers and duties provided for by or under this Act and any other law. The deputy executive officer referred to in section 1 of the Financial Services Board Act, 1990 (Act No. 97 of 1990), is the deputy registrar of financial services providers. The deputy registrar of financial service providers exercises the powers and duties of the registrar of financial services providers to the extent that such powers and duties have been delegated to the deputy registrar under section 20 of the Financial Services Board Act, 1990 (Act No. 97 of 1990). In future, a commissioner and deputy commissioners will make up the executive committee that will lead the FSCA. The FSB The FSB is a regulatory body within the financial services industry. They are (to be replaced by in essence the “custodians” of the FAIS legislation. They are responsible for the FSCA – see the authorisation process; they ensure compliance and act on aspects of below) non-compliance. It also means the Financial Services Board established by section 2 of the Financial Services Board Act The FSCA The Financial Services Board (FSB) has officially taken up its new mandate as the Financial Sector Conduct Authority (FSCA), effective 1 April 2018. This marks the formal implementation of the Twin Peaks model of financial sector regulation, as envisaged in the Financial Sector Regulation Act 2017 (FSRA). Finance Minister Nhlanhla Nene, has now signed the Commencement Notice for the FSRA, formally establishing both the FSCA and its sister organisation, the Prudential Authority (PA). RE5 Training Manual – Updated December 2022 17 Term Definition from the Act Authorised FSP’s or Means a person who has been granted an authorisation as a financial Providers services provider by the issue to that person of a licence under section 8 CPD – Continuous Means a process of learning and development with the aim of enabling a Professional financial services provider, key individual, representative or compliance Development officer to maintain the competency to comply with this Act Court Means any court having jurisdiction Product supplier Means any person who issues a financial product Publish Means any direct or indirect communication transmitted by any medium, or any representation or reference written, inscribed, recorded, encoded upon or embedded within any medium, by means of which a person, other than the registrar, seeks to bring any information to the attention of any other person, or all or part of the public Employed Means that there is a service contract that exists between the employer, FSP or Product supplier and the representative Mandate Means any authorisation that was given to the representative to act on behalf of the FSP or Product Supplier. This is usually an agency agreement that was signed between the FSP and Rep. DOFA Date of First Appointment Registrar vs Commissioner As stated earlier in this manual, in terms of In terms of the FSRA (Financial Sector Regulation Act, signed into law on the 21st of August 2017) , a commissioner and deputy commissioners will make up the executive committee that will lead the FSCA. This means that in future, the Registrar of the FSB/FSCA will be referred to as the Commissioner of the FSCA. RE5 Training Manual – Updated December 2022 18  What is Financial Services Financial services, in terms of the Act, refer to: Advice and Intermediary Services TIP: Please note that most professions include a certain amount of administration. Do not get caught out in the exam when you see administration or administrative services as one of the options for the Financial Services. It is simple. In terms of the Act, two things and two things only make up Financial Services. Advice and Intermediary Services ONLY. It is one, or the other, or both, but nothing but these two! What is Advice Any recommendation, guidance or proposal Of a financial nature furnished By any means or medium To any client or group of clients regarding o Purchasing any financial product o Investing in any financial product o The conclusion of any other transaction (including a loan or session aimed at incurring liability OR acquisition of any right or benefit in respect of any financial product) o Varying any term or condition (including replacing, terminating or investment in a financial product) o Irrespective of whether the advice § Is furnished in the course of or incidental to financial planning or § Results in purchasing, investing, transacting, varying, replacing or terminating RE5 Training Manual – Updated December 2022 19 What is automated advice Means the furnishing of advice through an electronic medium that uses algorithms and technology without the direct involvement of a natural person See the illustrations below copied from the INSETA manual to assist you with: ADVICE: Make Provide guidance Provide recommendation proposal Financial nature To a client or group of clients About buying a financial product About investing in a financial product About using a financial product in another transaction to cede or pledge or to get benefits or rights in respect of a financial product. About changes in terms or conditions of financial products on replacement or on termination of buying the products or on termination of investing in the products. It does not matter if the advice was given during or incidental to financial planning with the client OR if it results in buying, investing, transacting, variation, replacement or termination. RE5 Training Manual – Updated December 2022 20 Advice is not about: Very important to know! See the illustrations below copied from the INSETA manual to assist you with ADVICE IS NOT ABOUT: Procedures to do a financial transaction. Describing a financial product. Advice is not factual Answering routine admin queries. advice/inf ormation Displaying or distributing promotional material. Giving objective information about a financial product. An analysis or report on a financial report without an express or implied recommendation, guidance or proposal that Advice is a transaction in respect of the product meet not the client's needs investment objectives or financial situation. Advice by a board member of any pension fund organisation or friendly society, to their members on benefits to be enjoyed by the members. Advice by the board of trustees of a medical scheme to members of the medical scheme on healthcare benefits. (Source: INSETA Representative Training Material) RE5 Training Manual – Updated December 2022 21 What is Intermediary Services? Any act, other than furnishing of advice Performed by a person for or on behalf of a client or product supplier v Which results in a client entering, or offers to enter into any transaction in respect of any financial product with a product supplier v With a view to § Buy, sell or otherwise deal in, manage, administer, keep in safe custody, maintain or service a financial product purchased or invested in by a client § Collect or account from premiums § Receive, submit or process client claims against a product supplier TIP! The best way to remember is that as soon as your job entails the following: o Technical work o Clerical work o Administrative work o Legal work o Accounting o or other services in a subsidiary or subordinate capacity Then you DO NOT deliver advice, but you are performing intermediary services Be careful, however, as soon as you make a judgement call (i.e. decide to whether to pay a claim or not), then you are seen as to be a representative and must be registered. Claims staff could possibly be registered as representatives for intermediary services only, not giving advice. See the illustrations on the following page copied from the INSETA manual to assist you with RE5 Training Manual – Updated December 2022 22  INTERMEDIARY SERVICE IS Any act, except giving advice by a person For a client or on behalf of a product supplier Resulting in OR With a view to the client entering into or offering Do the following in respect of a to enter into a transaction in financial product purchased by a respect of a financial product with client from a product supplier or a product supplier. in which a client has invested: buying, selling or dealing in (discretionary or not); managing; administering; keeping in safe custody; maintaining or servicing OR With a view to collecting or accounting for premiums; or other money which a client has to pay to a product supplier in respect of a financial product. OR With a view to receiving; submitting or processing the claims of a client against a product supplier. (Source: INSETA Representative Training Material) RE5 Training Manual – Updated December 2022 23  The Representative A representative (Rep) is a person who: renders financial services (advice and/or intermediary services) to a client on behalf of an FSP A rep must either be employed, or mandated by the FSP to render financial services but excludes someone who renders o Technical o Clerical o Administrative o Legal o Accounting o or other services in a subsidiary or subordinate capacity This service does not require Judgment o Does not lead a client to any specific transaction in respect of a financial product Important note: 1. The rep must be employed or mandated and act on behalf of an authorised FSP (unless the FSP is exempted from the Act). If not employed or mandated by an authorised FSP and delivering financial services, they will face the FAIS penalties, which is up to R10 million or 10 years imprisonment or both. 2. If the rep works in a “back office” and does not make judgement calls (settle or reject a claim), they will NOT be required to be registered as a rep. BUT if they make judgement calls, they will be required to be fit & proper as they need to be registered as a representative. 3. Mandate refers to that there is an “agency agreement / agreement” to act on behalf RE5 Training Manual – Updated December 2022 24  of the supplier, FSP etc. If a Rep was acting as a Rep (mandatory or employed) on behalf of an FSP on the date that the FSP is registered by the FSCA as an authorised FSP, that person will be regarded as a Rep Appointment of representatives An FSP must ensure that where it appoints a (natural) person as a representative as a: That the person: o has not been declared insolvent or provisionally insolvent o has not been placed under liquidation, provisional liquidation or business rescue; and o is not subject to any pending proceedings which may lead to an outcome above Please note, in the 2008 Fit & Proper requirements, it has not been necessary for KI’s or Reps to be financially sound, however, with the April 2018 updates, the above now apply. Therefore, financial soundness & operational ability again is now part of the Fit & Proper for Reps, but only insofar it applies to Reps. And if a JURISTIC Representative is appointed (not a natural person, i.e. a company), that: sufficient operational ability and financial resources to perform the activities for which it is appointed as a representative; and such appointment does not: § materially increase any risk to the FSP or to the fair treatment of its clients; § materially impair the quality of the governance framework of the FSP, including the FSP’s ability to manage its risks and meet its legal and regulatory obligations; § compromise the fair treatment of or continuous and satisfactory service to clients; § prevent the FSP from acting in the best interests of its clients; RE5 Training Manual – Updated December 2022 25  § result in key decision-making responsibilities being removed from the FSP Remuneration or fee must be; Reasonable and commensurate with actual activities May not increase risk of TCF (Treating Customers Fairly) An FSP must have contingency plans to ensure continued function and service on the event that a rep is terminated. An FSP may not allow a rep to outsource or sub-delegate an activity relating to any services the rep performs on its behalf. A rep must have the operational ability to carry out their functions. A Juristic representative must have a KI responsible for overseeing their services Entry level requirement for Reps When a representative is appointed, they must have a recognised qualification as per the Board Notice applicable to the Product Categories they will be registered for. UNLESS – The rep has an entry level qualification and will work under SUPERVISION until the qualification is obtained (a maximum period of 6 years from first date of appointment at the FSCA as a representative) The following entry-level qualifications will be accepted: Reps working under subcategories 1.1 (Long Term Cat A – Assistance Business) & 1.19 (Friendly Society Benefits) must have the following: ABET Level 1 (Grade 3 / Standard 1) Or (not and) the proven ability to read, write and calculate to the satisfaction of the FSP Category I FSP’s – Execution of Sales o Reps only require a Grade 10 RE5 Training Manual – Updated December 2022 26  o or an academic achievement equivalent to a Grade 10 All other FSP’s Matric, or Grade 12, or An appropriate certificate at NQF Level 4 Recruiting Reps Recruitment checks need to include: 1. Entry level qualification 2. Class of business training (must be completed within 12 months from DOFA) 3. Product specific training (if not completed, must be done before advice is given) 4. Experience 5. Relevant recognised qualification 6. Regulatory exams (also referred to as examinations determined by the Commissioner) 7. Honesty, integrity & good standing 8. Whether the person has been debarred 9. Financial soundness as it relates to representatives (not insolvent, not under liquidation or business rescue) 10. Operational ability as it related to representatives RE5 Training Manual – Updated December 2022 27 To be registered as a Health Schemes Representative, a person must be accredited by the Council of Medical Schemes as a broker or, if working under supervision, an apprentice broker. If the Rep does not meet the following requirements, they can be employed, but need to work under supervision: Experience Relevant recognised qualification Regulatory exams (also referred to as examinations determined by the Commissioner) Due dates on Product & Class of Business training: Product Training must be completed BEFORE they are allowed to render advice, even if advice will be rendered under supervision. Class of Business Training must be completed within 12 months of DOFA. Recruitment decisions need to be made very carefully or declined if evidence of the following turned up: Compromised honesty, integrity and good standing Person has been debarred FSP’s and Key Individuals need to confirm that there are enough role-players, either KI’s or Reps that meet the criteria and can act as supervisors. Supervision of Reps What does it mean when a rep works under supervision It means that the rep is rendering services under guidance, instruction and supervision Selection of Supervisor FSP must ensure that there is a normal working relationship between the Supervisor and Supervisee to allow the Supervisor to oversee the activities of the Supervisee RE5 Training Manual – Updated December 2022 28  There must be regular contact to enable o Transfer of skills § Which could include face to face and / or § Contact via electronic means Supervision agreement Must be a written agreement detailing procedure regarding rendering services under supervision Supervisor responsibilities FSP to ensure that supervisees are supervised at all times when executing duties Supervisor to ensure that supervisee has a good understanding and exposure to the Categories & Subcategories providing services in Supervisor must observe selected meetings between the supervisee and customers The frequency will depend on o Complexity of service provided o Complexity of products offered o Experience of supervisee o Qualifications of supervisee FSP must ensure that supervisor is able to provide evidence of supervision (available to Commissioner if requested) Supervisor must review the Record of Advice and assess the advice given Supervisor and supervisee must have properly documented evidence of supervision o Method followed o Frequency thereof If working under supervision, the representative is responsible for the following: RE5 Training Manual – Updated December 2022 29 Representative under supervision (supervisee)’s responsibilities Adhere to requirements of the supervision contract Provide the supervisor with records and documents regarding financial services provided Disclose to clients that s/he is acting under supervision Undertake the relevant product training, complete the qualification in the period provided and Request guidance from the supervisor when in doubt The requirements of a Rep The rep must provide certified proof (certified by the FSP) that an employment or mandate agreement exists (service contract) This certified proof must also include that the FSP will accept responsibility for the Rep (Section 13 certificate) Rep cannot act if s/he is debarred o When debarred, a Rep can only be reappointed if s/he meets all of the requirements to be reinstated (please refer to the debarment and reinstatement of representatives) Rep may not render financial services on behalf of any person who is not an authorised FSP (unless the FSP is exempted from the Act) Must be Fit & Proper (Competence, Good Standing, Honesty & Integrity and Financially Sound with Operational Ability insofar as it applies to a Representative) RE5 Training Manual – Updated December 2022 30  May work under supervision, whilst obtaining the relevant competence requirements (but must disclose to clients that he/she is working under supervision, and remember, Product Specific Training must be completed PRIOR to giving of advice, even if under supervision) Must comply with the FAIS Act and any other relevant laws o Important to note here that a Rep does not only have to adhere to the regulations as set out by FAIS, but they all need to adhere any other law that is applicable to them (Consumer Protection Act, POPI, FICA, OHSA etc…) The roles and responsibilities of a Rep In terms of the General Code of Conduct Act honestly and fairly, and with due skill, care and diligence in the interest of clients Information provided must be: o Factually correct o Provided in plain language o Must be adequate and appropriate, taking into consideration the level of knowledge of the client o Must be provided timeously to afford the client to make an informed decision Have and effectively use the resources, appropriate technological systems and processes to properly perform their activities professionally Obtain the necessary information (known as a Financial Needs Analysis - FNA). This now applies to all FSP’s, even direct marketers. The FNA includes: o Financial Product Experience (what does the client know and what products did they have, if any) - their past o Financial Situation (what is their current financial situation, which products do they have, if any – their present situation, and o Their objectives in connection with the financial service required (what they want, what their needs are) – the future § The type of information to be taken into consideration before giving advice now also includes the affordability of the client, their ability to RE5 Training Manual – Updated December 2022 31  bear the risk, the extent to which they understand risks and also extends to employee benefits/group schemes where the advisor must consider the collective needs and circumstances of the members Treat clients fairly in a situation of conflicting interest Comply with all applicable statutory and common law requirements The purpose of the Code of Conduct is to ensure that Clients are able to make informed decisions and that their financial needs will be satisfied appropriately and suitably The Code of Conduct must make provision for (each of these will be discussed later on in detail) Making adequate disclosures of relevant information, including own interests (actual or potential) Keeping adequate and appropriate records Avoiding fraudulent and misleading advertising Keeping documents and funds from clients safe and separate Suitable guarantees, Professional Indemnity cover or Fidelity Insurance Controlling, or prohibiting incentives given, or accepted, by the Provider Any other matter which is necessary or expedient to be regulated to better achieve the objects of the Act Other codes of conduct may be drafted for different financial products. Currently, over and above the GCoC, there are four other Codes of Conduct. RE5 Training Manual – Updated December 2022 32 When a Rep provides advice Steps to be taken when providing advice to the client: A provider (except a direct marketer), PRIOR to providing advice to a client, must: Take reasonable steps to seek from clients appropriate and available information regarding the client’s (See above page 31 & 32) o Financial situation o Financial product experience o Objectives § In other words, conduct a detailed FNA To enable the provider to provide the client with appropriate advice Identify the financial product or products that will be appropriate to the client’s risk profile and financial needs Make adequate disclosures Take all reasonable steps to ensure that the client understands the advice, and is able to make an informed decision Keep a record of advice (ROA) When replacing another product wholly or partially (when a client adds another risk on cover, or when a client accepts a new policy), fully disclose to the client the o Actual and potential financial implications o Costs and consequences of the replacements RE5 Training Manual – Updated December 2022 33  o Including, details of: § Fees and charges § Terms and conditions § Exclusions of liabilities § Waiting periods § Loadings § Penalties § Excesses § Restrictions or circumstances in which benefits will not be provided § In case of an insurance product, impact of age and health changes on the premium payable § Differences between tax implications § Material differences between investment risk § Penalties or unrecovered expenses deductible or payable due to termination § To what extent the replacement product is readily realisable § Vested rights, minimum guaranteed benefits or other guarantees or benefits which will be lost When the advice is to replace a long term insurance contract, the issuer of the current policy, must be notified When a client receives advice from a rep Incomplete or no FNA Previously, if a client did not give an advisor enough time or information to conduct an analysis, the advisor had to meet certain obligations, such as warning the client about the limitations of the advice. There is no longer any reference to being “unable to conduct such an analysis” – the amendments to the General Code of Conduct clarify that when performing an analysis there may be circumstanced that vary the extent or depth of the information needed to provide appropriate advice and that these circumstances can be taken into consideration. It goes further to RE5 Training Manual – Updated December 2022 34  require that where an analysis is performed in any of the circumstances set out in the amendments, the client must be warned of the limitations in the advice in light of these circumstances and take care to ensure that it is appropriate, particularly any aspects that were not considered in light of the circumstances. Choosing a different product If the client chooses another product that differs from which has been recommended to the client, the rep or provider must inform the client As soon as reasonably possible Of the clear existence of any risk to the client And advise the client to take care to consider whether the product is appropriate to the client’s needs, objectives and circumstances The Fit & Proper Requirements that apply to Representatives Please note that the Fit & proper requirements are ongoing – i.e. must be complied with at all times, it is not a once off event or occurrence Honesty, Integrity & Good Standing Competence o Experience (differs depending on product category, but in most cases 1 year from DOFA) o Qualification (within 6 years from DOFA) o Regulatory Exams (within 2 years from DOFA) o Class of business training (within 1 year from DOFA) & Product specific training (Before rendering any financial service) CPD Operational Ability (in so far as it applies to representatives) Financial Soundness (in so far as it applies to representatives) (remember – DOFA is Date Of First Appointment with the FSCA as a Rep/KI) RE5 Training Manual – Updated December 2022 35  What does Honesty and Integrity refer to? All FSP’s, KI’s and Reps must have honesty and integrity A person referred to as per above must be a person who: o Honest and has integrity, and o Of good standing When the Commissioner determines whether a person adheres to the requirements of Honesty and Integrity, the Commissioner may refer to any information in possession of the Commissioner or brought to the Commissioner’s attention What does it mean when a person needs to be of good standing There are several aspects (prima facie evidence) that would be evidence that a person is not in good standing. The time that has passed and circumstances could be considered, but is not limited to: Any previous judgements that has not been rescinded (withdrawn), includes criminal (found guilty) and civil matters (found liable) o Includes, but is not limited to: o Theft, fraud, forgery, uttering a forged document, perjury or an offence involving dishonesty, breach of fiduciary duty, misrepresentation, or negligent, dishonourable or unprofessional conduct o An offence under a law relating to the regulation or supervision of a financial institution as defined as a Financial Institution or a corresponding offence under the law of a foreign country o An offense under the Prevention of Corruption Act, Corruption Act or the Prevention and Combating of Corruption Activities Act, or a corresponding offence under the law of a foreign country. Lack of compliance with Regulatory deadlines, been the subject if frequent regulatory actions (frequent or material preventative, remedial or enforcement actions by the Commissioner or a regulatory authority) RE5 Training Manual – Updated December 2022 36  Demonstrated lack of willingness to comply with legal, regulatory or professional requirements Refusal or withdrawal of membership of professional bodies Offences relating to financial institutions Been disciplined by a professional or regulatory body Has been removed from an office of trust for theft, fraud, forgery, uttering a forged document, misrepresentation, dishonesty, breach of fiduciary duty or business conduct Has breached a fiduciary duty Has been suspended, dismissed or disqualified from acting as a director, managing executive, public officer, auditor or statutory actuary (or his or her alternate) under any law or any action to achieve one of the above-mentioned outcomes has been instituted against the person, Has been refused a registration, approval, authorisation or license to carry out a trade, business or profession, or has had that registration, approval, authorisation or license suspended, revoked, withdrawn or terminated by a regulatory authority Has been denied membership of any professional body or has had that registration or membership revoked, withdrawn or terminated by a professional body because of matters relating to honesty, integrity or business conduct Has been disciplined, reprimanded, disqualified, or removed in relation to matters relating to honesty, integrity, incompetence or business conduct by a o Professional body o Regulatory authority o Or any action to achieve one of the aforementioned outcomes has been instituted against the person Has knowingly been untruthful or provided false or misleading information to, or been uncooperative in any dealing with the Commissioner or a regulatory authority Has demonstrated a lack of readiness and willingness to comply with legal, regulatory or professional requirements and standards RE5 Training Manual – Updated December 2022 37  Has been found not to be fit and proper by the Commissioner or a regulatory authority in any previous assessments of fitness and propriety and the reason for being found not fit and proper have not been remedied Has been involved or is involved as a director, trustee, member, partner, controlling shareholder or managing executive, or is concerned in the management, of a business that has been: o The subject of any matter referred to above o Placed in liquidation or business rescue o Whilst that person has been connected with that organisation or within one year of that connection, or Has failed to disclose information required to be disclosed in terms of the Act, including a failure to disclose information relating to honesty, integrity and good standing The Commissioner must, in assessing whether a person meet the requirements have due regard to: The seriousness of a person’s conduct, whether by commission or omission, or behaviour and surrounding circumstances that has or could potentially have a negative impact on a person’s compliance with honesty, integrity, and of good standing The relevance of such conduct or behaviour that has or could potentially have a negative impact on the person’s compliance with honesty, integrity, and good standing, to the duties that are or are to be performed and the responsibilities that are or are to be assumed by that person The passage of time since the occurrence of the conduct or behaviour that had a negative impact on the person’s compliance with honesty, integrity, and good standing Disclosure of information to honesty, integrity, and good standing An FSP and Key Individual must disclose to the Commissioner, RE5 Training Manual – Updated December 2022 38  and a representative must disclose to its FSP, o promptly and on own initiative, o fully and accurately, o all information, not limited to information in relation to matters referred to above (incidents when a person lack honesty, integrity, and good standing) o which may be relevant in determining whether a person complies or continues to comply with the requirements relating to honesty, integrity, and good standing. CPD Applies to all FSPs, KIs and Reps and comes into effect from 1 June 2018 Except for those working only with; Long Term Insurance Subcategory A Friendly Society Benefits Cat I reps rendering financial services for Tier 2 financial products Cat 1 reps rendering Tier 1 intermediary services A KI, Representative and FSP must comply with the CPD requirements The CPD Activities undertaken must; Be approved by a Professional Body that confirmed that the activity is verifiable Be relevant and appropriate to what they work with Contribute to their knowledge , skill, ethical standards, expertise Address identified needs or gaps in knowledge, generic understanding of product and laws Takes into account changing conditions relevant to product An FSP must establish procedures and policies that ensure how the FSP, KI and reps will maintain, update and develop new, relevant knowledge RE5 Training Manual – Updated December 2022 39  Plans must be implemented for each CPD cycle to obtain the requirement Record keeping and reporting requirements of CPD KI & Reps to supply the FSP, within 15 days of expiry of each CPD cycle, With evidence of CPD activities completed FSP must, within 30 days of expiry of each cycle, record the activities of the FSP, KI and reps in the competency register record the dates of CPD activities completed Note any reductions (if absent due to maternity, paternity or adoption leave; long term disability or illness or absence due to caring for a loved one with a long term illness or disability) o Reduction due to the above only allowed for 3 consecutive CPD cycles Obtain relevant supporting evidence Retain the evidence for at least five years after every cycle Recognised CPD Activities: MUST be accredited and tracked by a Professional Body, recognised by SAQA, that confirmed that the activity is verifiable EXCLUDES an activity performed towards a qualification and product specific training CPD Cycles The CPD Cycle refers to a period of 12 months, commencing from 01 June and ending 31 May in the following year Minimum CPD hours FSP’s, Representatives and KI’s must complete the following number of hours of CPD activities relevant and appropriate to their class(es) of product categories RE5 Training Manual – Updated December 2022 40  Single sub-class of business within single class of business = 6 hours More than one sub-class of business within a single class of business = 12 hours More than one class of business = 18 hours A KI, rep or FSP authorised or appointed for less than 12 months may pro rate their hours COMPETENCE: Competence must be maintained on an ongoing basis and consists of; Skills, knowledge and expertise Comply with Experience, Qualifications. RE exams, Class of Business Training, Product Specific Training and CPD Recognised Qualifications The Commissioner will publish a list of recognised qualifications on the official website, where anyone will be able to check if their qualification will be recognised by the FSCA. The Commissioner, on application or on own initiative may recognise a qualification as appropriate for: o each of the categories of FSPs; o representatives of FSPs in each of the categories of FSPs; o key individuals in each of the categories of FSPs o different types of financial services and financial products. RE5 Training Manual – Updated December 2022 41  Minimum Qualifications: Does NOT apply to; Cat I FSP, KI’s or reps working only with Long Term Insurance subcategory A Friendly Society benefits Reps working only with; Cat I Execution of Sales Provided that ; Execution of sales; Reps working only with execution of sales must have; Grade 10 or equivalent Requirements The execution of sales is only by script There is direct oversight of a KI All calls are recorded There are controls to ensure no advice given Process will not result in unfair outcomes Recordings are reviewed on a regular basis Monitored to ensure no deviation Reviews adequacy of controls from script Reviews script for appropriateness and compliance Regulatory Examinations Applies to all FSPs, KIs and Reps, except; Does not apply to; Cat I FSP, KI’s reps working only with RE5 Training Manual – Updated December 2022 42  Long Term Insurance sub-category A Friendly Society benefits Reps working only with Execution of Sales for CAT I Tier 1 reps CAT I reps rendering financial services for Tier 2 financial products Representatives have 2 years from their DOFA date to pass the 1st level regulatory exam (RE5) Table A Column A Column B Column C Column D Column E Category I Category II Category IIA Category III Category IV FSP RE 1 RE 1 & RE 3 RE 1 & RE 3 RE 1 & RE 4 RE 1 Key Individual RE 1 RE 1 & RE 3 RE 1 & RE 3 RE 1 & RE 4 RE 1 Representative RE 5 RE 5 RE 5 RE 5 RE 5 Regulatory exams may be set and delivered by the examination bodies CLASS OF BUSINESS and PRODUCT SPECIFIC TRAINING Applies to all FSPs, KIs and Reps Except; Cat I FSP, KI’s reps working only with Long Term Insurance sub-category A Friendly Society benefits Reps working only with Execution of Sales for Cat I Tier 1 reps Cat I reps rendering financial services for Tier 2 financial products RE5 Training Manual – Updated December 2022 43 Product specific training does not apply to Cat II, CAT IIA, Cat III FSP or its reps KI’s for all Cats provided they comply with sec 12 – General Competence requirements Class of business training applies to KI’s only for the classes of business they are actually registered for. BEFORE rendering any financial service, an FSP and Rep must complete Product Specific training for the products they are authorised to render services. A KI must have completed the Class of Business and Product Specific training for training before overseeing or managing the relevant product. An FSP must ensure its KI and Reps are proficient, and have completed training in, their particular products. Class of Business training to include ; Range of products General; characteristics, terms, features Typical fee structures, charges and other costs General risks Investment and risk principles Appropriateness of product Typical role players and markets Impact of legislation incl. tax Impact of environmental and economic factors Inter-relationship between classes of business Industry standards and relevant codes of conduct Product Specific training to include; Characteristics, terms and features RE5 Training Manual – Updated December 2022 44  Any specific complexities Material differentiation Nature and complexity or any underlying component How the underlying components are structured and priced Fee structure, charges and any other costs Nature of any guarantee Risks Tax impact Potential impact of abnormal market conditions Investment strategies Flexible benefit or service options Accessibility of benefits or funds Level of liquidity of product and underlying components Intended target market Identity of product supplier and intended outcomes delivery Identity of product suppliers and providers of underlying components Particular disclosures, prescribed or not Lock-in periods and relevant termination conditions Expected outcomes for clients Class of Business training may be separate or with; Product Specific training Or Recognised qualification Where a financial product incorporates one or more other underlying financial products, the training and assessment referred to above must include class of business and product RE5 Training Manual – Updated December 2022 45 specific training in respect of the underlying products and the class or classes of business in which the underlying product falls. Record keeping and reporting requirements of training Training must be recorded within 15 days of the Class of Business or Product Specific training Records must be kept in the competence register for at least 5 years after; o KI has ceased to oversee or manage that product o FSP, Rep have ceased to render services for that product Must be able to provide the confirmation to o product supplier o former KI, or Rep within a reasonable time Experience requirements for Reps Experience must meet specific financial product and particular category requirements Category I Reps must meet the minimum experience applicable to the subcategories The experience must be practical experience gained in the rendering of financial services in respect of Category I and the subcategories concerned. The practical experience must o Have involved the active and ongoing gaining of knowledge, skills and expertise required by the Act o The experience must have been obtained through the active involvement in the rendering of Financial Services o This experience could have been gained under supervision o The experience could have been gained in or outside the RSA o The experience gained lapses when the FSP or rep has NOT rendered the applicable financial service for 5 consecutive years RE5 Training Manual – Updated December 2022 46  o The experience could have been gained simultaneously in multiple subcategories § Provided that proof can be provided Experience applies to all FSP’s, KI’s and Reps Experience lapses for an FSP, KI or rep if particular service for particular financial product not worked with for 5 years Operational requirements for Reps A representative of an FSP must have the operational ability to effectively function as a representative of the FSP for which that person was appointed. Sole Compliance Fit & Proper Reps K.I.’s FSP Proprietor officer Honesty, Yes Yes Yes Yes Yes Integrity & Good Standing Competence: Yes Yes Yes Yes Yes Experience Competence: Yes Yes Yes – Yes – Yes Qualification Exemptions Exemptions apply to Cat I apply to Cat I Competence: Yes Yes – Yes – Yes – Yes Knowledge excluding Exemptions Exemptions exams C.o.B and PS apply to Cat I apply to Cat I training - III - III Operational Limited to Yes Yes Yes Yes Ability being able to function effectively, solvency & risk to FSP Financial No No Yes Yes Limited to Soundness solvency CPD Yes Yes Yes – Yes – Yes Exemptions Exemptions apply to Cat I apply to Cat I RE5 Training Manual – Updated December 2022 47 Representative Register An FSP must: Maintain a register of representatives and key individuals of the representatives Which must regularly be updated and available to the