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RDR Status update November 2016 Part 1

The new “Level 2” REs and CPD


Almost exactly six years ago, give or take a day or five, Moonstone presented the very first Level 1 Regulatory Examinations.

At that time, it was envisaged that there would be three “levels” of ascertaining a person’s ability to conduct him or herself in a professional manner.

  • The Level 1 RE would test a candidate’s knowledge of the applicable legislation, and specifically on the FAIS Act and FICA.
  • Level 2 REs would be more product specific, to ensure that candidates understood how a product is constructed, and to be able to use this knowledge to ensure that the client was able to make an informed decision.
  • Continuous Professional Development (CPD) would then ensue, to ensure that you as a professional financial adviser kept abreast of developments on both the product and legal fronts.

Reality check

It soon became evident that a one-size-fits-all approach to the Level 1 REs would not work. Those operating at the lower end of the market, whose qualifying criteria were substantially lower, struggled to pass the REs, and were soon exempted from this requirement, while awaiting a “bespoke” exam aimed at their particular market needs.

The Level 2 and CPD requirements were originally introduced into law in 2008 with the publication of Board Notice 106 of 2008.

Subsequent to the effective date of the latter two requirements, the Registrar granted general exemptions to the industry from complying with such requirements to a future date to allow the Regulator to conduct a review of the competency framework.

CPD only applied to members of professional bodies who required such ongoing training.

It remained an objective of the review that persons providing financial services to consumers should have adequate and appropriate knowledge of the financial products in respect of which they render financial services and that they must maintain their overall competence.

New Fit and Proper Requirements

Based on the outcome of the review, the Registrar proposed, in November 2016, to replace the level 2 regulatory examinations with the following:

  1. class of business training (generic knowledge relevant to a particular product and market or particular business sector); and
  2. product specific training (specialist or specific knowledge of a particular product).

It also proposes to replace the current CPD requirements with requirements that are more principle based.

Proportionate and fit for purpose competency requirements

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. This includes:

  1. the classification of Tier 1 and Tier 2 financial products and the differentiation of requirements applicable to persons rendering financial services in respect of those products; and
  2. introducing a definition of ‘execution of sales’ and the exclusions applicable to persons performing that activity from certain competency requirements.

Tier 2 financial products are generally simpler and better understood than Tier 1 products and, therefore, are subject to lighter competency standards, but still subject to product specific training requirements.

Interested parties were invited to submit responses to the FSB by 15 December 2016 to these and other proposals put forward by the Regulator.

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