Amendments to the FAIS General Code of Conduct
FAIS General Code of Conduct
The FSCA submitted draft amendments to Parliament relating to the General Code of Conduct for Authorised Financial Services Providers and Representatives, 2003 (General Code of Conduct). The Authority will publish the final amendments once parliament has approved the same. Below we will take a look at the proposed amendments in more detail.
The proposed amendment to the following definitions
“financial interest” - allows qualifying beneficiaries to receive enterprise development contributions whereas they are currently prohibited from accepting same under the conflict of interest requirements;
“Replacement” - the definition will clarify which types of transactions constitute a replacement, and
“variation” is also defined to clarify which types of variations constitute a replacement.
The requirement to act honestly at all times (section 2)
This requirement is extended from only being applicable to a provider when rendering financial services, to when a provider acts. Although broadly phrased, it is limited by the context, the purpose and objective of the Code and the Act as a whole.
Referencing of authorisation status (section 3)
Additional specific requirements are proposed that aim to prevent a provider’s referencing of its licence or the fact that it is regulated by the FSCA in respect of business for which it is not licensed or regulated. This is in response to members of the public being placed under the false impression that a provider's authorisation extends to activities not regulated by the FSCA.
Retail Distribution Review (“RDR”)
4.1 Enhanced disclosure requirements
The Registrar proposes enhanced disclosure requirements regarding intermediary remuneration to ensure clients fully understand and agree to fees payable and the services they can expect in exchange for those fees. The current requirement that certain financial interests must be reasonably commensurate with the service being rendered has been expanded to clarify what “reasonably commensurate" entails. It further aligns with the RDR intermediary remuneration principles and proposed amendments to the Regulations to the Long-term and Short-term Insurance Acts.
4.2 Financial interests offered by a provider to its representatives
The General Code currently determines that a provider may not offer financial interests to its representatives for giving preference to the quantity of business secured for the provider “to the exclusion of” the quality of service rendered to clients. The Authority will clarify its expectations, including the adoption of measurable indicators of the quality of client treatment and compliance with the FAIS Act. This requirement also aims to level the playing field between incentives for tied and non-tied advice in the insurance sector by strengthening the principle of “Equivalence of Reward”.
4.3 Suitability of advice to clients transacting to provide benefits to underlying natural persons
Providers who render advice to pension funds, medical schemes, friendly societies, employers or other entities providing benefits to underlying members, employees or other natural persons will be required to consider the reasonably identified needs and circumstances of those persons.
4.4 Suitability of advice in case of legal or contractual limitations
The General Code currently requires identification of a suitable financial product or products “subject to the limitations imposed on the provider under the Act or any contractual arrangement". Supervisory experience has shown that, in situations where a provider is legally or contractually limited, the risk increases that the provider will recommend a potentially unsuitable product in order to make a “sale". An amendment is proposed that where the provider is not able to identify a suitable product, the provider must not recommend a product and must advise the client accordingly.
4.5 Clarification that suitability analysis may be tailored to specific circumstances of the client
It was decided that the FSCA will clarify the existing FAIS suitability analysis requirements and they will provide supporting guidance in this regard in due course.
Record of Advice (section 9)
An amendment is proposed to enable the Registrar to prescribe the format and the matters to be addressed in the record of advice. A prescribed format will potentially improve compliance, the quality of the record of advice and it may reduce costs for FSPs.
Advertising, marketing and complaints management requirements
The proposed amendments seek to raise the standards applicable to advertising and marketing activities by FSPs to ensure clients are not subjected to aggressive, misleading or unwanted marketing and are able to make informed decisions. Furthermore, the amendments seek to ensure a straightforward, transparent and fair complaints process for consumers and align complaints management and record-keeping requirements with the outcomes of the TCF framework.
7.1 Advice and disclosures
The proposed amendments remove the current distinction regarding the level of disclosure required by a provider that provides financial services to clients in person, as opposed to a provider providing financial services through another medium as it levels the playing field between distribution models.
Furthermore, it is proposed to clarify that providers are to provide the information referred to in section 7 of the FAIS act at the "earliest reasonable opportunity" being prior to the conclusion of a transaction. This enables clients to make an informed decision before the transaction is concluded.
7.2 Furnishing of information to clients in writing
A provider is now required to furnish certain information in writing to a client at the earliest reasonable opportunity after the conclusion of a transaction. It is important to note that in terms of the Electronic Communications and Transactions Act, 2002 (ECTA), a requirement that a document or information must be in writing is met if it is in the form of a data message and accessible in a manner usable for subsequent reference.
The proposed amendments to the General Code make certain provisions for transitional periods between 6 to 12 months which will give Financial Services Providers sufficient time to align its business with the amendments.