The latest proposed amendments regarding intermediary proficiency stem from a review of the competency framework, and aims to build on the existing requirements by establishing an effective and proportionate regulatory framework to ensure that financial services providers:
- have the right levels of product related knowledge
- meet appropriate standards of professionalism and
- undergo continuous professional development (CPD).
The Registrar proposes to replace the suspended level 2 regulatory examinations with the following:
- class of business training (generic knowledge relevant to a particular product and market or particular business sector); and
- product specific training (specialist or specific knowledge of a particular product) and
- Replacing the current prescriptive CPD requirements with requirements that are more principle based.
Class of Business Training
This training will focus on broader issues related to products. For example, if you are licensed for collective investment schemes, you will need to know the basics of the business.
It also means that, if you are licensed for five different product categories, you will be required to undergo class of business training on all five.
We are not sure if recognition of prior learning will play a role in this regard, as happened when FAIS became operational in 2004.
Any class of business training must be provided by an accredited provider to ensure that training and training providers are of the appropriate quality.
The FSP will be responsible for ensuring conformance with all aspects related to such training, including schedules and the keeping of accurate records.
Product Specific Training
This will most likely take the form of product accreditation by specific product providers, in addition to class of business training. You will be required to know the actual workings of a specific provider’s products that you advise on. So, if you have contracts with three different product providers, you will need accreditation from all three.
One of the challenges here will be quality control and assuring objectivity of the assessment of learners.
The proposed amendments further introduce proportionate requirements depending on the nature, scale and complexity of the financial services rendered and the financial products in respect of which those services are rendered.
To this end, financial products have been classified as “Tier 1” and “Tier 2” products, with the intention to differentiate between the requirements applicable to persons rendering financial services in respect of such products. Tier 2 financial products are generally simpler and better understood than Tier 1 products and, therefore, are subject to less onerous competency standards, but still subject to product specific training requirements.
At the last FAIS conference, it was mentioned that feedback generally supported formal recognition of a “simplified” advice process. Two options are currently under consideration:
- No regulatory change, but regulatory guidance on the extent of a suitability analysis, depending on the complexity of customer needs or
- Formally defining and setting standards for a simplified advice process in specific circumstances
The challenge identified by the Regulator is “…not to undermine the quality of a suitability analysis by creating inappropriate loopholes”.
One example is the introduction of a so-called “Execution of Sales” concept. This envisages the use of standardised scripts where less complex products are involved. We have serious reservations about this concept as it is currently envisaged, and shared our thoughts with the Regulator on this.
We have already seen the exemption of representatives in certain product categories as far as the level 1 REs are concerned, leaving their compliance responsibilities in the hands of the key individuals. The latter will also be responsible for drawing up the standardised scripts with no provision for regulatory signing off of such scripts.
If the authorities are serious about professionalism in the industry, it cannot continue to regulate by exemption. This actually exposes the most vulnerable people to the biggest potential abuse.