FAIS Regulatory Examinations (RE1 & RE5) Study Guide

Comprehensive vocabulary flashcards covering the regulatory frameworks, key terminology, supervisory rules, licensing procedures, and statutory obligations under the South African FAIS Act and subordinate legislation for RE1 and RE5 preparation.

FAIS Act (Financial Advisory and Intermediary Services Act)

A market conduct regulation enacted in 2002 (effective 30 September 2004) designed to regulate the rendering of financial advisory and intermediary services, professionalise the financial services sector, and protect consumers.

Financial Sector Conduct Authority (FSCA)

The South African market conduct regulator of financial institutions that provide financial products and services, established to enhance market integrity, promote fair treatment of customers, and assist in maintaining financial stability.

Subordinate Legislation under FAIS

The regulatory framework surrounding the FAIS Act consisting of Codes of Conduct, Determinations, Exemptions, Board Notices, Regulations, Forms, and Reports.

Financial Services Provider (FSP)

Any business entity or individual authorised and licensed by the FSCA to offer financial advice and/or intermediary services to clients.

Key Individual (KI)

A natural person appointed by an FSP and approved by the FSCA who is responsible for managing or overseeing the activities relating to the rendering of any financial service.

Core Responsibilities of a Key Individual

The three pillars of oversight required of a Key Individual: managing Legislation FAIS Compliance, managing and overseeing Representatives and clients, and maintaining the Organisational Ability to run the business according to its licensed code of conduct.

Representative

Any person employed or mandated by an FSP who renders a financial service to a client on behalf of that provider, excluding individuals who render purely clerical, technical, or administrative services without exercising judgment.

Compliance Officer

A natural person or compliance practice approved by the Commissioner to oversee the provider's compliance function, monitor compliance with the FAIS Act, and liaise with the FSCA.

Financial Service

Under the FAIS Act, the provision of either advice, an intermediary service, or both regarding a financial product.

Advice

Any recommendation, guidance, or proposal of a financial nature furnished to a client regarding the purchase, investment, loan, cession, variation, replacement, or termination of a financial product.

Automated Advice

The furnishing of financial advice through an electronic medium utilizing algorithms and technology without the direct involvement of a natural person.

Intermediary Service

Any act other than the furnishing of advice performed for or on behalf of a client or product supplier the result of which is entering into a transaction, administering, keeping in custody, collecting premiums, or processing claims in respect of a financial product.

Execution of Sales

An intermediary service performed solely on the instruction of a client to buy, sell, deal, invest or disinvest in, replace, or vary one or more financial products without providing advice.

Share

A security representing shareholder equity and ownership in a company, which earns returns in the form of dividends.

Debenture

A debt instrument representing the indebtedness of a company to a lender, which earns income in the form of interest.

Money Market Instruments

Securities that provide businesses, banks, and the government with large amounts of low-cost capital for a period of less than $1\text{ year}$, such as treasury bills, commercial paper, and certificates of deposit.

Category I FSP

An ordinary FSP that renders financial services (advice and/or intermediary services) solely based on client instructions without discretionary management or bulking.

Category II FSP (Discretionary FSP)

An FSP that renders intermediary services of a discretionary nature regarding the choice of a particular financial product, without implementing any bulking.

Category IIA FSP (Hedge Fund FSP)

An FSP that renders intermediary services of a discretionary nature regarding the choice of a particular hedge fund or fund of hedge funds.

Category III FSP (Administrative FSP)

An FSP that renders intermediary services in respect of financial products on the instructions of a client or another FSP through the method of bulking.

Category IV FSP (Assistance Business FSP)

An FSP that performs the administration of assistance policies, including binder holders as defined under the Long-term Insurance Act regulations.

Short-term Insurance Personal Lines A1

Policies requiring no or limited underwriting, defining benefits as a sum insured, replacement, or settlement of credit balances, having terms of $24\text{ months}$ or less, and not subject to the principle of average.

Structured Deposit

A deposit combined with another Tier 1 product, or a deposit where the return or value is derived from the performance of underlying financial products, assets, rates, indices, economic measures, or default events.

No Underwriting

The absence of any requirement by a product supplier for medical, financial, demographic, or lifestyle information to accept risk or pay a claim.

Limited Underwriting

Risk assessment restricted solely to a health declaration containing no more than $8$ questions, an HIV test, or compliance with the National Credit Act.

Assistance Policy

A life insurance policy where the total value of the policy benefits does not exceed $R\,30\,000$.

Sinking Fund Policy

A policy other than a life policy that provides one or more sums of money on a fixed future date as policy benefits.

Date of First Appointment (DOFA)

The date on which an individual was first appointed to render financial services in any FAIS role across the financial services industry.

Fit and Proper Requirements

The mandatory statutory standards that FSPs, Key Individuals, and Representatives must meet, covering honesty, integrity and good standing, competence, continuous professional development, operational ability, and financial soundness.

Class of Business Training

Accredited training provided and assessed by an accredited provider or educational institution covering a broad sector or class of business products.

Product Specific Training

Assessed training focusing specifically on the features, risks, costs, benefits, and target market of an individual financial product and any amendments thereto.

CPD Cycle

An annual period of $12\text{ months}$ commencing on $1\text{ June}$ of every year and ending on $31\text{ May}$ of the subsequent year during which continuous professional development hours must be earned.

Direct Supervision

Supervision of financial services rendered by a representative that takes place under direct instruction and guidance on a daily to weekly basis.

Ongoing Level of Supervision

The phase of supervision exercised after the direct supervision period has ended, occurring on at least a bi-weekly to monthly basis.

Debarment

A regulatory or FSP-mandated action in terms of Section 14(1) that removes a representative from the register and prohibits them from rendering financial services due to non-compliance with fit and proper requirements or material contravention of the FAIS Act.

FAIS Ombud

An independent statutory functionary empowered to adjudicate and resolve disputes between clients and FSPs/representatives up to a monetary claim limit of $R\,3\,500\,000.00$ ($R\,800\,000$ under previous rules).

Lapsing of a License

The administrative termination of an FSP license initiated by the FSP due to events such as death, permanent physical/mental incapacity, final sequestration, liquidation, or dormancy, which cannot be reinstated.

FSP Licensing Process

The multi-step statutory procedure wherein an applicant submits an FSP license application (Step 1), the Commissioner considers it (Step 2), and either grants the license with conditions (Steps 3 & 4) or refuses it with written reasons (Steps 5 & 6).

Business Rescue

Proceedings under the Companies Act aimed at rehabilitating a financially distressed company through temporary supervision, management of affairs by a practitioner, and a moratorium on claimant rights.

Undesirable Business Practice

A business practice officially declared by the Commissioner via the Gazette that harms relations between providers and clients, unreasonably prejudices or deceives clients, or defeats the objectives of the FAIS Act.

Accountable Institution

Any entity listed under Schedule 1 of the Financial Intelligence Centre Act (FICA)—including banks, life insurers, attorneys, and FSPs—obliged to implement AML/CFT controls, verify identities, and report transactions.

Money Laundering

The process or activity that conceals or disguises the nature, source, location, disposition, or movement of the proceeds of unlawful activities to make them appear legitimate.

FICA Cash Threshold Reporting

The legal obligation of accountable institutions to report cash transactions of Reserve Bank notes and coins exceeding $R\,49\,999.99$ paid or received to/from a client to the Financial Intelligence Centre within $3\text{ days}$.

Tipping-Off Prohibition

The statutory provision in FICA forbidding an accountable institution or individual from disclosing to the client or any unauthorised party that a suspicious transaction report has been submitted.

Conflict of Interest

Any situation where an FSP or representative has an actual or potential interest that influences their objective duty to a client or prevents them from rendering unbiased, fair service in the client's interest.

Immaterial Financial Interest

Any financial interest with a determinable monetary value that does not exceed an aggregate of $R\,1\,000$ in any calendar year received from the same third party.

Puffery

Value judgments or subjective quality assessments used in advertising based purely on the evaluator's opinion with no pre-established objective measure or standard.

White Labelling

The marketing or offering of a financial product of an authorised product supplier wholly or partially under the brand name of another entity who is not the actual product supplier.

Compensation Payment

A monetary or non-monetary remedy provided by an FSP to a complainant for proven or estimated financial loss where the FSP explicitly accepts liability.

Goodwill Payment

A voluntary payment made by a provider to a complainant as a gesture of goodwill to resolve a dispute without admitting or accepting liability for financial loss.

Reportable Complaint

Any formal expression of dissatisfaction submitted to a provider that is not upheld immediately or within $5\text{ business days}$ through ordinary routine query processes.