A lot has been written about the new Fit and Proper requirements contained in Board Notice 194 of 2017, but we still find a number of questions and uncertainty around Product Specific Training (PST). So, in this article we unpack PST in more detail.
If we look at the definition of PST in BN 194, then “product specific training” means training in respect of a particular financial product where training is assessed, and it includes amendments to that particular financial product. Breaking down the definition, this means that:
- It is training about a specific product.
- The training needs to be assessed, so it involves being able to show a form of understanding about the product, and that one understands the product in order to render a financial service on it.
- If there are any changes to a financial product, training needs to be provided to the representative to ensure understanding of the changes.
What does this mean?
As a Financial Services Provider (FSP) you render financial services to clients, and after identifying a financial need, you recommend a suitable financial product to address that financial need – e.g. “I need to save for retirement, and the suitable financial product is a retirement annuity”.
In terms of the Long-term and Short-term Insurance Policyholder Protection Rules , insurers “…may only enter into an agreement with an intermediary where… the insurer has taken reasonable steps to satisfy itself that the independent intermediary and, where applicable, any persons rendering services as intermediary on the independent intermediary’s behalf, meet the FAIS product knowledge competency requirements in respect of the policies offered by the insurer;”. While it is good practice for all Financial Product Providers, when developing financial products, to ensure all representatives who give advice on their products, understand those products before they allow someone to advise on their products and pay them remuneration for rendering a financial service on the product, it is in some cases prescribed by law.
However, according to section 29(3) of the Board Notice, it is the FSP’s responsibility (not the product provider’s) to ensure that the Representatives are proficient and understand the financial product, before they render financial services in respect of that specific financial product. Therefore, the FSP is responsible to ensure that all the Representatives receive PST.
The rules around PST differ depending on the type of representatives and when they were appointed:
- Representatives NOT under supervision on 1 April 2018 are deemed to have done the PST in respect of those particular financial products which they were appointed for at that date. However, when one of these products are amended the representatives need to receive training and be assessed on the changes.
- Representatives that were under supervision on 1 April 2018 or who were appointed as representatives under supervision before 1 May 2018 (the start date for PST) had until 31 July 2018 (i.e. 3 months from the commencement of the PST provision) to complete the PST.
- New Representatives appointed on or after 1 May 2018 need to complete the PST before they can render a financial service on the Product Provider specific product.
PST does not apply to Category II, IIA or III FSPs or its Representatives nor does it apply to Key Individuals of any Category of FSP.
The requirements for PST content are explained in Section 29(5), and we emphasise again that it will be the responsibility of FSPs to determine if the PST will give the Representative the required knowledge to give appropriate financial services on that specific product. The test or check for FSPs is that Representatives need to understand the financial product and the FSPs need to be able to prove that this is the case.
PST records must be kept in a competence register. The FSP needs to keep detailed records of the PST and update the register within 15 days after the training occurred within the FSP. The training record and proof of training must be kept for a period of 5 years after the representative ceased to render financial services.
The requirements on FSPs to comply with the legislation is onerous. If their Representatives are not competent it not only creates regulatory risk but can also give rise to financial risk. Therefore, to ensure that you adhere to the fit and proper requirements, we encourage you to ask your product suppliers for specific product training. If they are not willing to provide this, think twice about doing business with them.
PST is not an action that can be taken lightly, proper records need to be kept and the required training plan and consequences need to be discussed with the representatives.
Masthead conducts regular fit and proper seminars that highlight the requirements in Board Notice 194. Click here to view dates on the Masthead Learning Centre.
We also assist with competence registers that can be implemented in FSPs. Contact your Masthead Compliance Officer or Practice Management Consultant for more details.