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Disclosure guidelines – Code of Conduct principles revisited

A recent Financial Services Tribunal case to reconsider the ruling of the Ombud for Financial Services Providers, once again highlighted important provisions of the Code of Conduct for Financial Services Providers. The Tribunal specifically investigated whether the Ombud had made a mistake to conclude that the applicant failed to take reasonable steps to ensure that the client understood the investment and its associated risk.

As a result, the Tribunal highlighted some of the principles of the Code of Conduct:

Section 16 of the FAIS Act requires, amongst other things, that the FSP must ensure that the clients receiving financial services are enabled to make an informed decision and that their financial needs are appropriately and suitably satisfied.
Section 3(1)(a) of the Code of Conduct states that when a provider renders a financial service, representations made and information provided to a client by the FSP – must be factually correct and must be adequate and appropriate in the circumstances of the particular financial service, taking into account the factually established or reasonably assumed level of knowledge of the client.
Further, section 7(1Xa) provides that an FSP must provide a reasonable and appropriate general explanation of nature and material terms of the relevant contract or transaction to a client, and generally make full and frank disclosure of any information that would reasonably be expected to enable the client to make an informed decision.
Section B(1) further states that an FSP, must, prior to providing a client with advice, take reasonable steps to seek from the client appropriate and available information regarding the client’s financial situation, financial product experience and objectives to enable the FSP to provide the client with appropriate advice; conduct an analysis, for purposes of the advice, based on the information obtained; and identify the financial product or products that will be appropriate to the client’s risk profile and financial needs, subject to the limitations imposed on the FSP under the Act or any contractual arrangement.
Furthermore, an FSP must maintain a record of the advice furnished to a client as contemplated in section 8, which record must reflect the basis on which the advice was given.

These are just a few of the highlighted requirements, aspects that most FSPs do automatically, but it’s sometimes critical that we are reminded of these as a basic checklist.

Click here to download the specific Tribunal case that highlights all these requirements.

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