FAIS Product Categorisation
New product definitions and Tier 1&2 product categorisation
With the introduction of the amended fit and proper requirements in 2018, we have seen numerous changes and new requirements but some of these are not so clear seeing that we don’t deal with them on a daily basis. I want to draw your attention to the categorisation of financial product into tiers and some of the new product definitions that were introduced.
The Fit and proper determination, Board Notice 197 of 2017 introduced 6 new product categories financial products and categorized the financial products into 2 tiers as illustrated in the table below.
New product categories
The new product categories are as follows:
Long-term insurance subcategory B1-A;
Long-term insurance subcategory B2-A;
Short-term insurance personal lines A1;
Securities and instruments; and
Participatory interest in a hedge fund.
Some of the new product categories were previously included in existing product categories and has now been “extracted” from the previous product category and has been given a new name. FSP’s who were authorised to render financial services in relation to the aforesaid categories ( save for securities and instruments) were either automatically given authority or had to apply to obtain authority to render services in relation to the “new” products.
The categorisation of financial products
Tier 1 - Financial Products
Tier 2 - Financial Products
From the table above it is clear that the products listed in Tier 1 are products that are more complex whereas the products listed in Tier 2 are in general easily understood and simpler.
In 2016 the then FSB published an explanatory memorandum which accompanied the proposed fit and proper determination. The explanatory memorandum sheds some light on the Authority’s rationale with the division of products into 2 tiers.
One of the principles which informed the amendments to the competency requirements were the principle of proportionality. The competency requirements should be proportionate and dependant on the nature, scale and complexity of the financial products and financial services rendered in relation to those products. As a result of the aforementioned principle, the Authority differentiate between the competence requirements required to rendered services in relation to Tier 1 and Tier 2 products.
For instance, a representative that is appointed to only render services in Long-term Insurance subcategory A and/or Friendly society benefits (Tier 2 products) are not required have a Qualification recognised by the FSCA, complete regulatory exams, CPD or class of business training.
To have a look and the definitions of the new categories and all fit and proper requirements please familiarise yourself with the Board Notice 194 of 2017.