Chapter 4: FAIS Act
4.2 Definitions of the FAIS Act
A "financial service provider" (also referred to as an FSP) is any person,238 excluding a representative,239 "who as a regular feature of the business of such person" gives
237 Section 1 of the FAIS Act; Joubert and Faris Lawsa 186; Nelson Mandela Bay Metropolitan Municipality v Watersure (Pty) Ltd 2011 1 All SA 611 (ECP) para 23.
238 “Person means any natural person, partnership or trust, and includes-
(a) any organ of state as defined in section 239 of the Constitution of the Republic of South Africa, 1996 (Act No. 108 of 1996):
(b) any company incorporated or registered as such under any law;
(c) anybody of persons corporate or unincorporate;" s. 1 of FAIS Act.
239 “Representative means any person who renders a financial service to a client for or on behalf of a financial services provider, in terms of conditions of employment, or any other mandatory agreement, but excludes a person in a subsidiary or subordinate capacity, which service – (a) does not require judgment on the part of the latter person; or
(b) does not lead a client to any specific transaction in respect of a financial product in response to general enquiries"; s 1 of the FAIS Act.
advice,240 provides intermediary services, or both.241 For example, the court stated in Nelson Mandela Bay Metropolitan Municipality v Watersure (Pty) Ltd242 (the Mandela Bay case) that even though a contract stipulates that an entity (in this case the applicant) is a financial service provider, that financial service provider must be "a holder of a licence issued under section 8 of the Act".243 In other words, if a role player does not have a licence in terms of section 7(1) of the Act, that person/company/entity cannot act as a "financial service provider".244
The same was confirmed in section 1 of the FAIS Act, where the definition of an
"authorised financial service provider" is a person who holds a licence in terms of Chapter II of the FAIS Act to provide financial services to others.245 An excellent example of an authorised FSP was seen in the case of Financial Sector Conduct Authority v JP Markets SA (Pty) Ltd 2020 JOL 48411 GJ. The respondent was a FSP as it was licensed in terms of the Act and was "a key individual who oversees and manages activities of the FSP".246
In the First National Bank, A Division of First Rand Bank Limited v Commission for Conciliation, Mediation and Arbitration case, it was the responsibility of the FSP (the
240 "Advice", broadly speaking, means recommendations, guidance or proposals of a financial nature.
Reinecke, Van Niekerk and Nienaber South African Insurance Law 511.
241 Section 1 of the FAIS.
242 2011 1 All SA 611 (ECP).
243 Nelson Mandela Bay Metropolitan Municipality v Watersure (Pty) Ltd 2011 1 All SA 611 (ECP) para 10.
244 Nelson Mandela Bay Metropolitan Municipality v Watersure (Pty) Ltd 2011 1 All SA 611 (ECP) para 10.
245 Section 1 of the FAIS Act; Executive Officer of the Financial Services Board v Ovation Global Investment Services (Pty) Ltd [2007] 4 All SA 741 (C) para 2.
246 Financial Sector Conduct Authority v JP Markets SA (Pty) Ltd 2020 JOL 48411 GJ para 3.
applicant) to ensure that its representatives were fit and proper in terms of the FIAS Act.247
4.2.2 Client
The "client", in terms of section 1 of the FAIS Act, can be a singular or group of persons248 that receives financial services either by way of direct contact, title or being a beneficiary to the benefits of the service.249 The Act requires that the services must be provided and/or alternatively received, with the purpose of providing financial services.250 For example: a person intends on insuring his goods against the damage or loss once the goods are being exported, or when a mother takes out life insurance on themselves for the benefit of their child, in the event that they (the mother) passes away.
As explained by Van Niekerk, the client relies on the advice of the insurance intermediaries, otherwise they would not be able to make an informed decision.251
4.2.3 Product Supplier
Secondly, a "product supplier" is a person252 who offers a financial product to another person.253 This can either be done by "authority, approval or right granted to such
247 First National Bank, A Division of First Rand Bank Limited v Commission for Conciliation, Mediation and Arbitration [2017] 11 BLLR 1117 (LC) para 9-19.
248 See footnote 278.
249 Section 1 of the FAIS Act.
250 Section 1 of the FAIS Act.
251 Van Niekerk 2007 Juta's Business Law 64-65.
252 See footnote 278.
253 Section 1 of the FAIS Act.
person under any law".254 The FAIS Act includes an extensive definition of what a financial product is, and this will be discussed below. For example: Watersure (Pty) Ltd, a company that agreed to provide insurance policies to the "applicant's metered water consumers" was regarded as a product supplier in terms of the FAIS Act.255
4.2.4 Financial product
There is quite an extensive list of what is included as a "financial product" in the FAIS Act. This ranges from "shares in a company, debentures, money-market instruments…investments schemes" even deposits and benefits from pensions funds.256 Furthermore, a financial product as defined in section 1 of the Insurance Act, also includes:257
(h) any other product similar in nature to any financial product referred to in paragraphs (a) to (g), inclusive, declared by the registrar by notice in the Gazette to be a financial product for the purposes of this Act;
(i) any combined product containing one or more of the financial products referred to in paragraphs (a) to (h), inclusive;
(j) any financial product issued by any foreign product supplier and which in nature and character is essentially similar or corresponding to a financial product referred to in paragraph (a) to (i), inclusive;
Further examples of financial products available are "savings vehicles, asset management and even banking".258
254 Section 1 of the FAIS Act.
255 Nelson Mandela Bay Metropolitan Municipality v Watersure (Pty) Ltd 2011 1 All SA 611 (ECP) para 10.
256 Section 1 of the FAIS Act; Murray 2019 https://www.cliffedekkerhofmeyr.com/en/news/
publications/2019/Corporate/corporate-and-commercial-alert-31-july-the-applicability-of-the- financial-advisory-and-intermediary-services-act-to-cryptocurrency-assets.html.
257 Section 1 of the FAIS Act.
258 Rolland Market Players 248.
4.2.5 Intermediary Services
A role player in the insurance sphere/market is also known as an "intermediary". As the FAIS Act is evaluated it is clear that this Act does not specifically define this role player but rather the services this role player provides.
"Intermediary services" is defined as any service provided relating to financial service, excluding advice given by a role player.259 This includes, as stipulated in section 1 of the FAIS Act, the following:260
Any act other than furnishing of advice, performed by a person for or on behalf of a client or product supplier-
(a) the result of which is that a client may enter into, offers to enter into or enters into any transaction in respect of a financial product with a product supplier; or (b) with a view to-
(i) buying, selling or otherwise dealing in (whether on a discretionary or non- discretionary basis), managing, administering, keeping in safe custody, maintaining or servicing a financial product purchased by a client from a product supplier or in which the client has invested;
(ii) collecting or accounting for premiums or other moneys payable by the client to a product supplier in respect of a financial product; or
(iii) receiving, submitting or processing the claims of a client against a product supplier;
For example, funeral parlours and/or funeral administrators are seen as intermediary services as they assist an insurer with the administration of policies.261 It is also further required that these companies have a license in terms of the FAIS Act since they fall within the requirements of the Act.262 Intermediaries could also be interpreted as
259 Reinecke, Van Niekerk and Nienaber South African Insurance Law 512.
260 Section 1 of the FAIS Act.
261 Ramchander The impact of the Financial Advisory 32-33.
262 See ss 7(1) and 8 of the FAIS Act.
"assistance business Financial Service Providers (FSP)" as seen by the interpretation of Ramchander.263
In the Mandela Bay case the term "intermediary services" was scrutinised. Van der Byl AJ found that:264
The business of the applicant in rendering an intermediary service clearly constitutes a regular feature in so far as it is in terms of the agreement required, inter alia, to regularly collect premiums from domestic households, to so account for premiums so collected, to so submit to the respondent sufficient information to enable it to calculate the premiums owed to the respondent and to regularly settle the VAT invoices regularly submitted to it by the respondent.
Compared to the definition above, the judge applied the business's operations to the definition and could readily determine whether or not this Act was applicable.
There are certain services offered by individuals or companies that are automatically excluded from the above definition. This then means that they are also excluded from the ambit of the Act. Subsection 1(3)(b) of the FAIS Act, include a list of role players, who are excluded as intermediaries:265
1) Banks normally provide intermediary services when A, a person deposits money into the bank (possibly to save, and withdraw later), and when B a company would like to borrow money to grow their business.266 In essence, A will borrow from B, but the bank is the middle man (intermediary) and therefore, this is the
263 Ramchander The impact of the Financial Advisory 32-33.
264 Nelson Mandela Bay Metropolitan Municipality v Watersure (Pty) Ltd 2011 1 All SA 611 (ECP) para 24.
265 Section 1(3)(b) of the FAIS Act.
266 Section 1(3)(b)(i) of the FAIS Act.
services provided for both A and B. However, when a bank merely acts as a channel between clients and other product suppliers.267 It seems that the bank is not providing any of its official services (such as money deposits, loaning of money or any other banking-related services), but just providing a platform for both client and other product suppliers to have a business relationship.
2) When a product supplier is authorised to provide intermediary services, but
"under a particular law to conduct business as a financial institution".268 Furthermore, this service must then also be regulated by that law.269
3) Any role-player, institution or service provider exempted by the registrar "after consultation with the Advisory Committee, by notice in the Gazette".270
From the above, it would suggest that Lloyd's correspondent falls outside the abovementioned exemptions. As there is no definite mention that Lloyd's have been exempted, the interpretation, along with the definition of independent intermediary as seen in the STIA, would suggest that the Lloyd's coverholder falls within the scope of the intermediary.
4.2.6 Representative
There are multiple definitions of a representative in the Oxford dictionary.271 The most relatable definition is: "a person who works for a company and travels around selling
267 Section 1(3)(b)(i) of the FAIS Act.
268 Section 1(3)(b)(ii)(aa) of the FAIS Act.
269 Section 1(3)(b)(ii)(bb) of the FAIS Act.
270 Section 1(3)(b)(iii) of the FAIS Act.
271 Hornby Oxford Advanced Learner's Dictionary of Current English 1272.
its products".272 A representative can work for either the insurer or the insured.273 A Lloyd's of London coverholder can also be classified as a representative as they conclude contracts on behalf of Lloyd's.274 As explained previously, the representative
"are dependent intermediaries who are employed and associated" with an insurer.275 This role player is not the same as an intermediary.276
A "representative" is someone "who renders a financial service to a client for or on behalf of a financial service provider".277 Similar definitions can be found in both the LTIA and STIA.278 A representative may only be appointed279 by an authorised FSP.280 A representative must have the authority to act, but not necessarily a mandate.281 All that is required to show that there was some form of "authority to act on the first party's behalf".282
Emphasis must be placed on the fact that a representative is not a financial service provider, therefore a representative must only be qualified in its field and is not
272 Hornby Oxford Advanced Learner's Dictionary of Current English 1272.
273 Reinecke, Van Niekerk and Nienaber South African Insurance Law 515.
274 Reinecke, Van Niekerk and Nienaber South African Insurance Law 512.
275 Reinecke, Van Niekerk and Nienaber South African Insurance Law 510.
276 See explanation in chapter 2.4.
277 Section 1(1) of the FAIS Act.
278 Reinecke, Van Niekerk and Nienaber South African Insurance Law 508.
279 "Both the STIA and the LTIA and the regulations issued thereunder draw a distinction between what are termed 'independent intermediaries' and 'representatives'. Independent intermediaries are middlemen who are not employed by or associated with a particular insurer or group of insurers.
Representatives are dependant intermediaries who are so employed or associated." Reinecke, Van Niekerk and Nienaber South African Insurance Law 510.
280 First National Bank, A Division of First Rand Bank Limited v Commission for Conciliation, Mediation and Arbitration 2017 JOL 38283 LC para 10.
281 "A contract in terms of which one person (the mandator) instructs another (the mandatory), who agrees to do so, to perform a particular task." Reinecke, Van Niekerk and Nienaber South African Insurance Law 508.
282 Reinecke, Van Niekerk and Nienaber South African Insurance Law 508.
required to be licensed as per the FAIS Act.283 On the other hand, the insurer must be licensed as the FSP and must then further fulfil the requirements as set out in the FAIS Act.284
This representatives mandate can also be an employment-related agreement.285 However, in accordance with section 1(1) of the FAIS Act, a representative is not a person(s) who renders:286
… clerical, technical, administrative, legal, accounting or other service in a subsidiary or subordinate capacity, which service-
(a) does not require judgment on the part of the latter person: or
(b) does not lead a client to any specific transaction in respect of a financial product in response to general enquiries;
An example of a representative is in the Representative of Lloyds v Classic Sailing Adventures case where the first appellant was called "the representative…of a Lloyd's syndicate" and cited as such in this matter.287
4.2.7 Exempt
The definition of exempt under section 1 of the FAIS Act must be read with section 44 (1)(a)-(c).288 In terms of section 44 of the FAIS Act:289
(1) The registrar may on or after the commencement of this Act, but prior to the date determined by the Minister in terms of section 7 (1), exempt any person or
283 Reinecke, Van Niekerk and Nienaber South African Insurance Law 512.
284 Reinecke, Van Niekerk and Nienaber South African Insurance Law 512.
285 Section 1(1) of the FAIS Act.
286 Section 1(1) of the FAIS Act.
287 Representative of Lloyds v Classic Sailing Adventures (Pty) Ltd 2010 4 All SA 366 (SCA) para 3.
288 Section 1(1) of the FAIS Act.
289 Section 44(1)(a)-(c) of the FAIS Act.
category of persons from the provisions of that section if the registrar is satisfied that-
(a) the rendering of any financial service by the applicant is already partially or wholly regulated by any other law; or
(b) the application of the said section to the applicant will cause the applicant or clients of the applicant financial or other hardship or prejudice; and
(c) the granting of the exemption will not- (i) conflict with the public interest;
(ii) prejudice the interests of clients; and
(iv) frustrate the achievement of the objects of this Act.
The registrar in the K&L Brokers CC v Financial Sector Conduct Authority 2019 JOL 46215 had not exempted the Applicant since it did not conform with section 44(1)(c)(i)- (iii).290