Publisher: Citywire
Written by Eleanor Becker
Who needs to take them, why, and how to avoid being scammed.
Regulatory examinations (REs) are essential to any financial adviser’s journey. Citywire South Africa looks at who needs to sit these exams and how to avoid being conned by bogus RE providers.
The exams assess an individual’s knowledge and understanding of the regulatory framework within which they work under the Financial Advisory and Intermediary Services (FAIS) Act, according to the Financial Sector Conduct Authority’s (FSCA’s) correspondence with Citywire South Africa.
‘The exams, together with other competence requirements, aim to enhance professionalism in the financial services sector and, in so doing, ensure clients receive better support and advice,’ said Masthead compliance manager Shanal Boodiram.
Masthead offers advisers resources to prepare for the REs but does not facilitate the exams.
‘The exams cover essential legislation, including the FAIS Act, the Financial Intelligence Centre Act (FICA), the general code of conduct and various board notices,’ she said.
The FSCA said it oversees the exams, monitoring their content, quality and location, among other things, while Moonstone Information Refinery is the sole examination body.
The requirement to undertake REs depends on a financial service provider’s (FSP’s) FSCA licence category, the individual’s role and the financial products involved in providing financial services, according to the regulator.
A risk-based approach has been adopted in setting competency standards, with stricter requirements for individuals fulfilling specific roles or performing functions related to financial products that pose a higher risk to customers.
The FSCA shared a basic breakdown of who must sit the different RE exams:
- Key individuals (KIs), FSPs who are individuals and compliance officers responsible for overseeing a category I, II, IIA, III and IV FSP must write the RE1 exam. This excludes those who only render funeral policy and friendly society benefit services.
- In addition to the RE1 exam, KIs who are approved for a category II and IIA licence must also complete the RE3 exam focusing specifically on the code of conduct for discretionary FSPs.
- KIs approved for a category III licence must also write the RE4 exam focusing on the code of conduct for administrative FSPs.
- Representatives in all categories of FSPs [who provide a financial service to a client] must write the regulatory examination for representatives (RE5) exam, which focuses on the FAIS Act, its subordinate legislation and FICA.
By tailoring the exams to each role, the FSCA ensures industry professionals are equipped to deliver on their responsibilities, said Boodiram. ‘It’s about ensuring they’re well-prepared to meet the expectations set by legislation.
‘For instance, the RE 1 exam focuses on whether KIs understand their accountability under the law, particularly regarding their duties of management and oversight,’ she said.
‘The RE 5 exam, on the other hand, assesses the tasks and responsibilities of representatives, such as providing advice and intermediary services.’
Consequences for RE dodgers
There are serious consequences for advisers and their firms who don’t have the relevant RE certification.
‘Individuals providing financial services without having successfully completed the relevant regulatory examination – unless they’re working under supervision – are in breach of the law,’ according to the FSCA.
‘The FSCA may take regulatory action against such individuals, which may include the suspension or revocation of licences and debarment.
‘FSPs are also required to debar any of their representatives who do not meet the fit and proper requirements, including RE requirements,’ said the regulator.
What about debarred advisers who, after their debarment period, wish to return to financial planning?
‘For a debarred individual to be reinstated, they must, inter alia, meet the applicable competency requirements. If the individual had already successfully completed the RE1 or RE5 examination prior to their debarment, they will not be required to retake the examination as part of the reinstatement process,’ said the FSCA.
Once someone has successfully completed the RE exams, those results remain valid, explained Boodiram.
Oversight background
Moonstone Information Refinery is set to remain the only FSCA-recognised examination body for the exams.
According to the FSCA, its predecessor, the Financial Services Board, initially recognised four ‘representative bodies’ to develop and deliver the regulatory examinations. Over time, three withdrew, leaving just Moonstone Information Refinery.
For now, given the evolving legislative landscape and development starting on the future conduct of the business framework, the FSCA has suspended any further delegations for the development and delivery of regulatory exams.
This framework refers to the conduct of financial institutions (COFI) bill, which is expected to be tabled in parliament this quarter.
‘The FSCA is currently reviewing all aspects concerning the competence framework, including the regulatory examinations, as part of the development of the future conduct of business framework that is currently underway. Until this process is finalised, the FSCA will not affect any further delegations,’ stated the regulator.
‘The FSCA expects to have a draft competency framework available during the course of the next year for engagement with relevant stakeholders and the public.’
Boodiram said Masthead expects changes to the RE exams once the COFI Act comes into effect, noting that the FSCA hasn’t yet shared any details on what these changes might entail.
‘Similarly, changes stemming from the general laws amendment bill, 2024, which affect the FIC Act, may also result in updates to the current exam questions. Since COFI will replace, consolidate and amend existing legislation – and if the RE exams remain a regulatory requirement – the exam content will need to reflect these updates. It’s an ongoing process of alignment with the regulatory landscape,’ she said.
Avoid fraud
In December, the FSCA warned of a Mulalo Rakhadani selling fraudulent RE5 certificates on Facebook. The regulator said he also fraudulently used the FSCA’s name and logo as part of his scam.
Candidates registering for the RE exams and employers wanting to verify the authenticity of RE certificates were encouraged to deal directly with Moonstone Information Refinery.
According to its website, no training provider may claim to be acting as an associate of Moonstone or that Moonstone endorses their training.
‘Moonstone has no agreements, associations or relationships with any regulatory examinations training providers. Such relationships can lead to a conflict of interest and are therefore prohibited,’ it states.