BANKSETA Sponsored Project
Fit and Proper
Module 2: Lesson 2
FAISLEARNING GUIDE / MODULE 2
LESSON
2
Inter-Bank Compliance Training Project Sponsored by BANKSETA
Fit and Proper
Topics:
1 The meaning of Fit and Proper
2 Differences between Fit and Proper for FSPs, KIs and Representatives
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Learner guide Developed by Gray Training 011-472-3516 Jan 2004
BANKSETA Sponsored Project
Fit and Proper
Module 2: Lesson 2
FIT AND PROPER
Link/ FAIS requires that competent and qualified persons render services and give advice. FAIS defines the qualities that an individual should exhibit in order to meet the quality and competency requirements of the role assumed. These standards appear in the subordinate legislation called Determination of Fit and Proper requirements for FSPs.
In this lesson we focus upon the Fit and Proper requirements in detail.
Relevance to you / All FSPs, KIs and Representatives have to meet specific Fit and Proper requirements as defined in FAIS.
· FSPs, KIs and Representatives all need to meet specific requirements relating to:
o Honesty and integrity
o Competence (qualifications and experience).
· FSPs and KIs also need to meet specific requirements relating to:
o Operational ability (The operational ability requirements for the KI are limited to his ability to act as a KI for a financial product category).
· The FSP needs to meet the Fit and Proper requirements for:
o Financial soundness.
We will cover all of these aspects of Fit and Proper in more detail in this lesson.
KIs and Representatives operate under the licence of a FSP. In order to do so they have to comply with the Fit and Proper requirements stipulated in FAIS.
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Learner guide Developed by Gray Training 011-472-3516 Jan 2004
BANKSETA Sponsored Project
Fit and Proper
Module 2: Lesson 2
FIT AND PROPER
Learning outcomes / In this lesson we take a close look at Fit and Proper. In particular we focus on the following outcomes:1 Explain the meaning of Fit and Proper
2 Differentiate between Fit and Proper requirements for FSPs, Key Individuals and Representatives.
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Learner guide Developed by Gray Training 011-472-3516 Jan 2004
BANKSETA Sponsored Project
Fit and Proper
Module 2: Lesson 2
THE MEANING OF FIT AND PROPERL/O# 1 / Explain the meaning of Fit and Proper.
Fit and Proper
/ To be considered Fit and Proper requires compliance with personal and role-related competence and formal qualification levels specified by FAIS. FSPs, KIs and Representatives must:
· Have the honesty and integrity to be entrusted with a client’s investments and money
· Have the knowledge and skills (qualification levels) to understand the financial product or service
· Have the experience to understand the financial requirements of the client.
FSPs have to meet the additional requirement that they have the operational ability to comply with FAIS by having:
· A fixed business address
· Adequate storage and filing facilities
· Adequate access to communication facilities ie telephone, email, etc,
and
· Have in place an adequate money laundering control system and procedures.
Finally the FSP needs to
· Demonstrate financial soundness.
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Learner guide Developed by Gray Training 011-472-3516 Jan 2004
BANKSETA Sponsored Project
Fit and Proper
Module 2: Lesson 2
L/O #1 THE MEANING OF FIT AND PROPER - contHonesty and Integrity: The words / A person must be honest and have integrity to be fit and proper.
FAIS includes the following actions as actions which disqualify a person in terms of the requirements of honesty and integrity:
· Dishonesty
· Fraud
· Negligence
· Incompetence
· Mismanagement of funds
· Breach of fiduciary duty (breach of a relationship of trust).
If these actions take place in the preceding 5 years, that person fails to meet the Fit and Proper requirements.
However, there are other grounds on which a person may not meet the requirements of honesty and integrity.
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Learner guide Developed by Gray Training 011-472-3516 Jan 2004
BANKSETA Sponsored Project
Fit and Proper
Module 2: Lesson 2
L/O #1 THE MEANING OF FIT AND PROPER - contActivity 1 / In FAIS, different financial product categories each have certain competence requirements for KIs, Representatives and FSPs.
The following situations are all examples of ways in which a person may NOT meet the Fit and Proper requirements.
Think carefully about each situation.
How do you think the person breaches the Fit and Proper requirements for honesty and integrity?
1 Moses Mokoene devises a way of diverting 5c from every interest payment from customers’ accounts.
Your thoughts:
2 James Beech meets a friend at the gym. While they chat he discovers that his friend knows one of his clients, Jay Noran, well. He tells his friend about the large sums of money that Jay deposits into his account every week.
Your thoughts:
3 Mr and Mrs Koen visit their financial advisor on their retirement. They ask him to invest their retirement pay-out into a conservative financial option. He invests their money into a friend’s company.
Your thoughts:
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Learner guide Developed by Gray Training 011-472-3516 Jan 2004
BANKSETA Sponsored Project
Fit and Proper
Module 2: Lesson 2
L/O #1 THE MEANING OF FIT AND PROPER - contActivity 1– cont. / 4 Peter Brown has a sales target to meet for the opening of money market accounts. A client requests an easy access savings account and Peter strongly suggests that a money market account would be a preferred option.
Your thoughts:
5 Sally Naidoo joined the bank last year as a portfolio executive. She failed to disclose the fact that she was debarred as an attorney at the beginning of last year due to mismanagement of trust funds, when she completed the application form. She tells herself it isn’t important, as she is not working as a legal advisor.
Your thoughts:
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Learner guide Developed by Gray Training 011-472-3516 Jan 2004
BANKSETA Sponsored Project
Fit and Proper
Module 2: Lesson 2
L/O #1 THE MEANING OF FIT AND PROPER - contCheck your thinking –
Activity 1 / Your answers should be along these lines.
1 Moses was committing fraud and should be charged for that offence. At the same time, he is dishonest, and breaking the trust that your clients place in your bank.
2 James is showing a serious lack of professionalism. He is breaking the trust of Jay Noran who is entitled to believe that his accounts are confidential.
3 Mr and Mrs Koen’s financial advisor has contravened his client’s mandate. He did not follow his client’s request for a conservative investment and may be disciplined for lack of professionalism and mismanagement of funds.
4 Peter Brown has acted dishonestly in placing his own interests before the client’s interests.
5 Sally Naidoo fails the test of honesty and integrity twice – as a recently debarred attorney she does not meet the Fit and Proper requirements of honesty and integrity. The failure to disclose her debarred status again means that she fails the requirements of honesty and integrity.
In summary you can see that the Fit and Proper requirements have a direct impact upon our professional behaviour at the bank.
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Learner guide Developed by Gray Training 011-472-3516 Jan 2004
BANKSETA Sponsored Project
Fit and Proper
Module 2: Lesson 2
L/O #1 THE MEANING OF FIT AND PROPER - contCompetence / FAIS is very clear about the meaning of competence. It specifies the formal qualifications and/or experiences that KIs and Representatives must have to be declared competent.
The competence requirements differ for each financial product category. These are specified in the Determination of Fit and Proper requirements for FSPs (See the extract contained in Appendix 2.1).
Competence requirements:
An example
/ Thabo Khumalo works for a bank. He is a Representative who offers advice to clients on deposits exceeding 12 months. To be registered as a Representative of this financial product category he needs to meet the specific Fit and Proper requirements of competence. This means he needs the following minimum requirements:
· 1 year experience
and
· Qualifications / requirements such as:
o 12 credits on a registered skills programme at NQF level 4
or
o A Matriculation certificate (Grade 12).
To maintain his Fit and Proper status he needs to achieve the following over the next two years:
· Complete an appropriate skills programme earning 30 credits at NQF level 4
or
· Obtain a relevant NQF level 5 certificate.
(NB: Address your questions about your qualifications and experience and/or NQF requirements to your relevant Training or HR Department.)
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Learner guide Developed by Gray Training 011-472-3516 Jan 2004
BANKSETA Sponsored Project
Fit and Proper
Module 2: Lesson 2
L/O #1 THE MEANING OF FIT AND PROPER - contCompetence requirements: implications / These competence requirements create opportunities for continuing professional competence.
Fit and Proper demands competence and supports ongoing individual development.
Activity 2 / Jakes Tshabalala joined the bank three years ago after he matriculated. He is currently doing a Web Page Design course at a local college.
Jakes has been working as a Representative offering services to clients on deposits exceeding 12 months. His manager now wants him to extend his portfolio to include long-term insurance products (for example: fixed term savings plans and education options). He asks Jakes to check if he has the right qualifications to offer this set of products.
You will find the competence requirements for long term insurance (Category B) in Appendix 2.1. Please consult it and use the information you will find there to develop a program plan for Jakes.
Jakes now / Required for insurance now / Required for insurance in 2 years
Experience required
Qualification required
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Learner guide Developed by Gray Training 011-472-3516 Jan 2004
BANKSETA Sponsored Project
Fit and Proper
Module 2: Lesson 2
L/O #1 THE MEANING OF FIT AND PROPER - contCheck your thinking –
Activity 2 / Your answers should look like this.
Jakes now / Required for insurance now / Required for insurance in -- 2 years
Experience required / Meets / 1 year / No requirement
Qualification required / Meets / Grade 11, or an NQF level 3 qualification / Appropriate Level 4 skills programme - 30 credits/ appropriate Level 4 Certificate or an appropriate NQF Level 4 skills programme - 12 credits
As you can see, Jakes meets the minimum requirements, but he will need to start with a relevant skills programme or qualification very soon.
If Jakes plans to make a career in the bank, he will need to take this very seriously. The Web Page Design course he is doing at the local college does not provide him with appropriate credits towards dealing with Long Term Insurance, and that is what the next step in terms of meeting the Fit and Proper requirements is all about – making sure that your experience and qualifications are appropriate to the financial product categories you offer advice and intermediary services on.
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Learner guide Developed by Gray Training 011-472-3516 Jan 2004
BANKSETA Sponsored Project
Fit and Proper
Module 2: Lesson 2
L/O #1 THE MEANING OF FIT AND PROPER - contOperational ability - FSP / Very simply, operational ability means the ability to maintain an on-going business concern. Operational ability is a Fit and Proper requirement for FSPs and KIs.
These are the requirements that a FSP must meet:
· A fixed business address
· Adequate access to facilities to communicate with clients
· Storage and filing systems for the safekeeping of records business communications and correspondence
· An account with a registered bank including a separate bank account for client funds
· An appropriate money laundering control system and adequate provision for training staff.
Operational ability - KI / A KI needs to have the operational skills to manage and supervise the FSP’s activities for that specific product.
Financial soundness / FSPs need to prove financial soundness to be declared Fit and Proper. This means that the applicant must not be bankrupt or be in the process of being declared bankrupt.
The applicant must have more assets than liabilities.
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Learner guide Developed by Gray Training 011-472-3516 Jan 2004
BANKSETA Sponsored Project
Fit and Proper
Module 2: Lesson 2
L/O #1 THE MEANING OF FIT AND PROPER - contConsolidation exercise / By now you should have realised that FAIS is serious about raising and maintaining professional standards in the industry.
The Fit and Proper requirements are the basis for licensing. Jot down the key points relating to each of the four Fit and Proper requirements on the diagram below.
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Learner guide Developed by Gray Training 011-472-3516 Jan 2004
BANKSETA Sponsored Project
Fit and Proper
Module 2: Lesson 2
L/O #2 DIFFERENCES BETWEEN FIT AND PROPER FOR FSPs, KIs & REPRESENTATIVESL/O #2 / Differentiate between the Fit and Proper requirements for FSPs, KIs and Representatives.
Link / In the first part of this lesson, we examined the Fit and Proper requirements very closely.
The FSP itself plus all KIs and Representatives must meet the requirements stipulated for them in FAIS.
The key difference between these requirements lies in who approves the Fit and Proper status of each of these roles.
Financial Service Providers (FSPs) / The entity becomes an authorised FSP once it has been granted a licence.
FAIS clearly states that in order to get a licence, the applicant must satisfy the Registrar that it is Fit and Proper to conduct business. This means that it has to prove:
· Honesty and integrity
· Competence
· Operational ability
· Financial soundness.
The Registrar determines if the FSP is Fit and Proper.
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Learner guide Developed by Gray Training 011-472-3516 Jan 2004
BANKSETA Sponsored Project
Fit and Proper
Module 2: Lesson 2
L/O #2 DIFFERENCES BETWEEN FIT AND PROPER FOR FSPs, KIs & REPRESENTATIVES – cont.Key Individuals (KI)
/ Key Individuals are persons appointed to manage or oversee the financial services activities of the FSP.
Each entity would thus require at least one KI for each licence, but more likely would have more than one KI per licence.
FAIS section 8 (1) (i) and (ii) tells us that the application for licence must include information that will satisfy the Registrar that key individuals meet Fit and Proper requirements.
KIs must prove:
· Honesty and integrity
· Competence
· Operational ability (to be able to manage the representatives who advise on their financial products).
The Registrar determines if the KI is Fit and Proper, and formally approves a KI.
Representative
/ Representatives are appointed to advise clients about the financial products, which the FSP is licensed to offer. They are managed and supervised by the Key Individuals.
All representatives acting on behalf of a FSP must be listed in the Representatives Register maintained by the FSP. The KI is responsible for ensuring that the Representative is Fit and Proper.
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