(Act 37, 2002 of the Republic of South Africa)
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Disclaimer:
Please note that this document is merely a summary of the FAIS Act. Readers are referred to the published version of the Act together with its subordinate legislation that can be obtained on the Financial Services Board Website.

The purpose of the Financial Advisory and Intermediary Services Act (FAIS Act) is to regulate the activities of all financial service providers who give advice or provide intermediary services to clients as regards certain financial products. The Act requires that such providers be licensed and that professional conduct be controlled through a code of conduct and specific enforcement measures.

The FAIS Act applies to any body that offers financial advice and/or provides an intermediary service to a client on any transaction that has to do with a financial product.

What is advice?

Advice is defined as any recommendation, guidance or proposal of a financial nature furnished to any client in respect of the purchase of any financial product, the conclusion of any other transaction aimed at incurring any right or benefit or liability in respect of any financial product and the variation, replacement or termination of any financial product.

Recommending that a client purchase insurance through the freight agent and putting forward and discussing a quotation for insurance with a client is considered as providing advice.

Advice does not include factual advice given on the procedure for entering into a financial product transaction, or in the description of the financial product, or in answering routine administrative questions, or the giving of objective information about a particular product or the display or distribution of promotional material.

Providing information that is commonly available on insurance, the standard rate of insurance and the specific provisions of the policy is therefore not considered as providing advice.

What is an intermediary service?

Intermediary service means any activity other than the furnishing of advice as a result of which, the client may or does enter into a transaction with an insurer. Also included in the definition of intermediary service is:

the collecting or accounting for premiums payable by the client to an insurer, or
receiving, submitting or processing the claims of a client against an insurer.

How does this affect the freight agent who provides insurance to clients?

The freight agent's staff may, in the process of selling freight services, convince the client to purchase insurance through the agent. This would be seen as providing advice.

The freight agent collects insurance premium from the client and remits this premium to the broker or insurer. This, together with the fact that the freight agent may also process the submission of insurance claims to the insurance broker or insurer, falls into the definition of providing an intermediary service.

So, whichever way you look at the situation, the freight agent is providing a financial service and is therefore subject to the FAIS Act. This view has been confirmed by the Financial Services Board.

What does it mean to be subject to the FAIS Act?

Companies that are subject to the FAIS Act have to either register with the Financial Services Board as Financial Service Providers (FSPs) or have to fall under the control of another Financial Service Provider.

A FSP will have one or more key individuals. These are people who control or manage the activities of providing financial services. Key individuals have to meet the requirements of being fit and proper in terms of the Act. A FSP has to also appoint a compliance officer to ensure that the activities of the FSP are being conducted in compliance with the FAIS Act.

Those staff who are offering advice within the FSP to clients need to be appointed as representatives. The Act imposes specific controls on representatives and requires that representatives, as well as the key individuals and the company itself, operate in terms of a specific code of conduct. Note that staff who are not appointed representatives in terms of the Act cannot provide advice to a client.

The deadline in terms of which providers of financial service have to comply with the FAIS Act is 30 September 2004. Applications for licenses have to be in by the 31 July 2004.

How will Eikos Risk Applications assist the Freight Agent to comply with FAIS?

Eikos has adopted a specific strategy to assist its clients in becoming compliant in terms of FAIS. This strategy does not necessarily involve the freight agent having to register as a FSP. Contact Eikos for assistance.