Page 91 - Profile's Unit Trusts and Collective Investments 2021 issue 2

Legislation and Guidelines

Changes to FAIS
Certain amendments to FAIS were made by the Financial Services Laws General Amendment
Act (FSLGA), which came into effect in 2014. Some of the noteworthy changes were:
• The scrapping of the advisory committee on financial service providers (a committee of
industry representatives) in order to “further enhance the independence and impartiality of the
Registrar”
• Provision for “publication of administrative actions and notification of official acts on the FSCA
website” instead of in the Government Gazette
• A new section (8A) which made continuous professional development (CPD) a specific Fit and
Proper requirement
Other important updates to FAIS include:
• an increase of the maximum penalty from R1 million to R10 million (or a maximum 10 year prison
sentence)
• revised Fit and Proper requirements published in December 2017 (BN194)
• amendments to the General Code of Conduct for FSPs (June 2020)
• amendments to the determination of Fit and Proper (June 2020)

Outcomes-focused
The outcomes-based method to be implemented under COFI will mean that FSPs will not just
be measured on rules and compliance, but also on their ability to achieve good client outcomes.
This will include methods of assessing whether costs and charges are fair and justifiable.
Risk-based and proportionate
The COFI bill pursues a risk-based approach to monitoring outcomes which will enable the
regulator to identify areas of greatest risk and address such risks in a proportional manner. The
objective is to create a fairer environment for institutions of differing sizes and encourage new
entrants into the market by reducing barriers to entry.
Transformation
The COFI bill explicitly supports transformation, making the FSCA responsible for supporting
black-owned businesses that wish to provide financial products and services. The provisions of the
bill also strengthen protection of vulnerable consumers.
Under the second draft of the COFI bill, an institution’s transformation policies need to specify
tangible targets. The second draft also allows the FSCA to use its enforcement powers in relation
to an institution’s governance and transformation frameworks.

Financial Advisory and Intermediary Services (FAIS) Act
Legislation to protect investors from bad investment advisors was first mooted in the early
1990s. Before the implementation of the Financial Advisory and Intermediary Services (FAIS) Act,
only investment managers – people who actually invested money on behalf of their clients – had to
be registered with the FSCA, and gaps in legislation made it possible for virtually anybody to set up
shop as an advisor and begin giving advice. Due to the absence of a coherent body of law, recourse
in the event of disastrous advice often had to be made in terms of common law, which proved
costly and ineffective.
The hard-hitting remarks made by Judge Hendrik Nel in an assessment of the draft Financial
Advisors Bill gives some indication of public perception of agents and brokers in past decades.
“Most South African financial advisors cannot distinguish between a prospectus and marketing
information, are unaware of the legal requirements relating to a prospectus, cannot read or
understand financial statements, are unable to assess institutional risk, and are unlikely to make
intelligent inquiries about the nature of the security underlying secured debentures,” he said.
Judge Nel, who led the commission into the failure of investor protection after the Masterbond
collapse, went on to say that “...intermediaries are able to practice without being required to
demonstrate qualifications, skills or adherence to ethics.” FAIS was an attempt to correct these
deficiencies in SA’s regulatory system.

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Profile’s Unit Trusts & Collective Investments — Understanding Unit Trusts