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VIEWPOINT: Gambling VS investing?


“To make an investment or take out life or disability cover in South Africa requires compliance with some of the strictest financial services regulations in the world.”

To gamble in a casino merely requires merely that you be over 18. So it’s easy to go to a casino, where cash, a credit card and ID are all that’s required for admittance to Pandora’s Palace.

If only it were so easy to create a culture of saving through financial services. Consumer protection laws come at a price to convenience. Considering the World Bank ranks South Africa 10th (June 2014) globally for its protection of investors, to make an investment or take out life or disability cover requires compliance with some of the strictest financial services regulations in the world. It means our regulations are exhaustive.

The non-banking sector is overseen by the Financial Services Board (FSB), an independent body responsible for the regulation of firms such as insurers, fund managers and broking operations.

For advice, the Financial Advisory and Intermediary Services Act (FAIS) governs conduct and behaviour by the financial adviser acting on behalf of a licensed financial services provider. It requires financial advisers to be “fit and proper” in terms of personal qualities of honesty and integrity, and competency requirements in terms of formal qualifications and relevant experience in each product category they are advising on. A code of conduct covers issues of vehicles to handle client complaints and conflicts of interest. It requires due diligences on product providers and that financial advisers pass a regulatory exam.

There is a host of other regulations: the Long-term Insurance Act must be considered for life and disability policies, including medical underwriting; and when planning for retirement, the Pension Funds Act must be considered along with its tax consequences under the Income Tax Act. If it’s an investment in a unitised fund it will be regulated by the Collective Investment Schemes Control Act.

Then when it comes to implementing that advice the Financial Intelligence Centre Act (FICA) must be complied with to identify clients, report suspicious transactions, and much more aimed at identifying the proceeds of criminal activities, and combating money laundering or terrorist activities.

There’s the Treating Clients Fairly outcomes-based legislation, cutting across the entire financial services industry from product provider to intermediary; the Protection of Personal Information Act (POPI); possibly even Companies Act or Trust legislation. Even the host of international regulations may also have to be complied with by some advisers. More regulations are in the pipeline.

Protection of investors is right and necessary. Our challenge in financial services is how do we make it as easy – possibly even as much fun – to build a savings culture as the less regulated alternatives. You just don’t see the same queues for financial advice as you do at roulette tables. ❐

Author: Mike Lledo CA(SA) is the CEO at Consolidated Financial Planning