FSB on Execution of Sales

The FSB responded as follows to two articles we recently published on these topics.

In your articles, “Sticking to the script?” and “FSB Fit and Proper Requirements: Qualifications and execution of Sales”, published in the media on 11 October 2017, you express concern regarding the effectiveness of our new FAIS Fit and Proper requirements for intermediaries performing “execution of sales” in accordance with a script. It seems some of your concerns may be based on a misunderstanding of our proposals, and I would like to clear up a few aspects:

1. You have commented that the concept of ‘execution of sales’ was introduced in response to the challenge of determining “the levels of competence required by representatives who advise on the various products”. That is not quite correct. The competency requirements for the activity of ‘execution of sales’ (being a non-advice distribution model) are distinct from those for providing advice.

The new competency requirements for advice, and the differentiation based on Tier 1 and Tier 2 product complexity, are therefore not applicable to execution of sales.

2. You have commented that “Scripturers” (your term for persons performing the execution of sales in accordance with a script) and persons advising on Tier 2 financial products are “exempt” from the product specific training. That is a misreading of the requirements.

All persons performing the execution of sales must meet the competency requirements relating to product specific training. In fact, all Category I FSPs, their key individuals and representatives, irrespective of the financial service being rendered and irrespective of whether or not it is a Tier 1 or a Tier 2 financial product, must comply with the product specific training requirements. You may have confused the requirements for product specific training with those for line of business training. Persons performing execution of sales using a script will not be required to undergo the more holistic line of business training, focused on broad general aspects of various product classes, but will still need to understand the specific products the script relates to.

3. You also seem to suggest that a script that “guides the client to make a decision” will not be construed as advice. That is not the case.

Advice is defined to include any recommendation, guidance or proposal of a financial nature furnished, by any means or medium, to any client in respect of, inter alia, the purchase or investment in a financial product. Therefore, if a script provides “guidance” to a client regarding the purchase of a financial product it would constitute the furnishing of advice and would not be regarded as the execution of sales. All the competency requirements relating to advice would apply to a person using such a script.

4. Some background to the rationale underpinning the new requirements:

The current fit and proper requirements adopt a largely one-size-fits-all approach. Although there are elements of proportionality, on very a high level, the current framework does not fully recognise the nature, scale and complexity of the different types of financial services being rendered or that of the financial products in respect of which those services are rendered. As a result, we have had to implement a range of exemptions. The proposed new requirements seek to set requirements that are proportionate and appropriate to the risks inherent in the activities and (for advice) the products concerned, but without compromising on good outcomes for customers. So for example, in the case of non-advice, scripted sales models it makes more sense to focus our regulatory requirements on the specific operational, governance and content of the sales process, than on the generic technical competencies of the telesales operators. Conversely, in advice models, it makes more sense to focus on the overall competency of the adviser, and less on being prescriptive about operational business processes. In determining these requirements, the FSB was guided by the objectives of our broader market conduct regulatory reforms, such as TCF and RDR.

It is therefore important to view our new FAIS Fit & Proper requirements in the context of these broader reforms. In particular, some of the risks identified in your articles are being addressed through the additional RDR requirements that will be imposed on FSPs and product suppliers in respect of distribution relationships and intermediary remuneration models that contribute to poor outcomes and mis-selling.

I hope that this puts our ‘execution of sales’ requirements in perspective, but please don’t hesitate to contact me if you would like to discuss these or other regulatory proposals in more detail.

We certainly welcome this clarification from the Regulator and will gladly take up the offer to discuss this important matter further.

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