The future of Level 2 REs

On 25 October 2013, the FSB announced exemptions to the level 2 regulatory exams, continuous professional development (CPD) as well as the “bespoke examinations” requirements.

The FSB has commenced with the review process of the Level 2 examinations. A Focus Group will be established shortly to consider different delivery models and the extent of the re-development of the applicable qualifying criteria. On completion of the above, the FSB will publish, for comment, a discussion document that details the proposed new delivery model. It is anticipated that the exemption granted in respect of the Level 2 examinations will be in force for at least the next three years to allow for the development and implementation of the new model.

In reviewing the design of the Level 2 examinations, the FSB will consider the CPD requirements and any impact thereon that may result from a change to the Level 2 examination model. The FSB anticipates that it would be able to publish the proposed new CPD requirements by 31 December 2015. Until then, the current exemption granted to all providers of financial services in respect of CPD requirements will remain in force.

The FSB has decided to temporarily suspend the development of the bespoke examination until further clarity can be obtained regarding the impact of the proposed micro-insurance legislation and other regulatory developments on that examination. The exemption granted to representatives rendering financial services in respect of certain defined financial products will remain in force.

Since then, the publication of the draft Retail Detail Review discussion document provides an indication of what may happen in this regard.

Level 2 REs

These exams were originally proposed to ensure that financial advisers have the required product knowledge to assist a client to make an informed decision.

Proposal CC in the RDR document includes the following: Specifically, product suppliers will be responsible for ensuring that the adviser meets specific levels of generic and product specific product training, failing which the product supplier may not enter into any form of arrangement with the adviser in relation to its products (including paying commission, paying any form of outsource or binder fee, or facilitating payment of advice fees). Such product specific training may either be provided by the product supplier itself, or through an appropriate service provider, subject to strict standards. Product suppliers should not impose unreasonable barriers or conditions (for example minimum production levels) related to the provision of training. This will result in fit and proper requirements being rationalised, particularly the removal of RE2 exam requirements and their replacement with a new model requiring both generic training in relation to product types and classes, and specific training on a product supplier’s specific product structures.

Continuous Professional Development

Nothing further was published in this regard since FAIS Information Circular 8/2013. Originally, CPD was seen as a natural follow-on from the level 2 REs, and it appears that this will also form part of the product provider’s responsibility in the future. It may also become part of the functions allotted to industry representative bodies.

Bespoke Exams

In addition to the responsibilities placed on product providers indicated above, provision is made for stricter product specifications to avoid client confusion and miss-selling.

Going forward

Product knowledge is a key requirement in the provision of financial advice. In the past, training in this regard was mostly limited to the basics required to sell a policy, and any benefit accruing to the client was often purely incidental.

The fair treatment of clients is the foundation of future regulation and ethical product training will be an essential cornerstone in the process of ensuring compliance.

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