Task 4 QC2

task 4 talks about adhering to the specific codes of conduct [Music] task 4 has 14 qualifying criteria let's look at task 4 qualifying criteria 2 describe what could possibly be a conflict of interest there are two sections we need to look at from the code of conduct which deal with conflicts of interest first we'll look at section 3 subsection 1 of the code of conduct which says and or states that an fsp needs to be aware of situations that could cause conflicts of interest and put in place policies to manage this possible conflict here we

have an illustration of the financial service provider fsp for short when an fsp renders a financial service to its clients it needs and must consider what it says to the clients how it contracts and deals with clients and any possible conflicts of interest firstly the fsp must consider representation representation is what is said to the client and the information provided by the fsp that must meet specific requirements secondly is conflicts of interest which we are going to touch on in this video an fsp must always be aware of conflicts of interests and put in place

a conflict of interest management policy to help manage it we will go into detail regarding this topic and thirdly contracting an fsp must render financial service in terms of a contractual relationship and agreement making sure everything is done and conducted properly and on time always remember the fsp must keep records of all these documents and the fsp must not disclose confidential client's information without the client's written consent or permission let's take a look at conflicts of interest in detail as mentioned previously an fsp must always be aware of conflicts of interest and put in place

our conflicts of interest management policy to help manage it any conflicts of interest between the fsp and the client and or the representative and the client must be reduced where it cannot be avoided so remember the most important consideration is to avoid and if for some reason you cannot avoid then measures must be in place to reduce the conflict the fsp and or representative must inform and notify the client of the conflict of interest management policy and how the client can access the policy so an fsp must have a conflict of interest management policy document

prepared and available for the client to read a conflict of interest has arisen as a minimum the following must be disclosed 1. the measures taken to avoid or reduce the conflict 2. ownership interest or financial interest other than immaterial financial interest that the fsp and or representative may be or has become eligible for three the nature of any relationship or arrangement with a third party that gives rise to a conflict of interest and a detailed account that will enable the client to understand the exact nature of the relationship and conflicts of interest next we will

look at section 3a of the code of conduct section 3 capital a relating to the financial interest of the fsp and representative is basically dealing with what and how the fsp and representative can pay and or earn from providing financial advice the section also covers the conflict of interest management policy which is basically how the fsp and representatives must manage conflicts of interest here we look at the financial interest of the financial service provider and representatives these paragraphs highlight what the fsp and representatives can receive or pay in terms of compensation an fsp and or

its representative may only receive or pay financial interest from or to a third party here it is important to highlight that these sub-paragraphs relate to a third party and not between the fsp and its own representatives commissions as outlined in the long term short-term insurance act and medical schemes act fees as outlined in the long term short-term insurance act and medical schemes act agreed upon fees where the fees and commissions are not paid in terms of the act but can only be paid or received if those fees are agreed upon in writing by the client

and the client can stop the payment of the fees at any time fees or remuneration offer rendering of a financial service to a third party which must be reasonable to compensate for the service rendered immaterial financial interest basically allows for the payment of immaterial financial interests financial interest as much as it's not covered above it's equal to what is considered and or deemed reasonable compensation if it was to be paid as fees or remuneration an fsp may not offer any financial interest to its own representative for the following reasons based on quantity of business stand

with no consideration of quality giving preference to a specific product supplier or product providers over other product suppliers or product providers giving preference to a specific product over other products that do not address the need of a client basically a representative cannot be compensated in any way for selling a lot of financial products without considering the quality of advice as well as giving preference to specific financial products of specific product suppliers or product providers this is to ensure proper advice is given without personal interest or motive of the fsp and or representative for the purpose

of this section it is important to note that where an entity is an fsp as well as the product supplier then paragraph a would not apply to the representatives of the entity however paragraph b would be applicable therefore if the product supplier and the fsp are the same company then paragraph a does not apply to the representative of that entity but paragraph b applies section 3a subparagraph 1a this section deals with sign-on bonuses for category 1 fsps subparagraph a states at category 1 financial services provider fsp that is authorized or appointed as a key individual

or representative to give advice may not receive a sign-on bonus from any person subparagraph b states no person may offer or give a sign-on bonus to any person other than a new entrant as an incentive to become a category 1 financial services provider that is authorized or appointed as a key individual or representative to give advice subparagraph a basically states that category 1 fsp authorized to give advice cannot receive a sign-on bonus from any person subparagraph b basically states cannot offer a sign-on bonus to become a category 1 fsp that gives advice basically cannot receive

and or offer sign-on bonus to give financial advice one exception is that a new entrant can receive a sign-on bonus as long as they are not already registered and or authorized as a category 1 fsp that gives advice we refer to category 1 what are categories categories are different types of licenses that an fsp can be authorized for here we have form fsp2 which is the license category form this form is what an applicant would complete when applying for the different licensing categories note that it's an applicant and only becomes an fsp when authorization has

been granted we will take a look at this form in order to explain the different license categories here we can see there are five types of licensed categories category one 2 a 3 and 4. in the newest version of the fsp 2 form there is no description of the categories therefore we can have a look at the previous version of the form for these descriptions the fsca license categories form is a good place to understand the different types of categories that an applicant fsp can be authorized for we refer to the previous version of the

fsp2 form which provided explanatory notes of the different categories first we look at category one category one this is more like the general category the applicant fsp will indicate what financial products and financial services it wants to render and wants authorization on in terms of giving advice and or render intermediary services simply put category 1 is basically the only category in which giving advice and or rendering intermediary services is applied and granted authorization for category 2 2a 3 and 4. these are specialized categories of fsps in terms of providing and rendering financial services specifically intermediary

services category 2 is known as a discretionary fsp category 2a is known as a hedge fund fsp category 3 is known as an administrative fsp category 4 is known as an administration for assistance business fsps here we see category 1 that is split into different financial products also known as sub-categories here are different types of financial products and sub-categories that an applicant fsp can register apply and be authorized for it is important what an applicant fsp can register apply and be authorized for this will depend on whether they have the experience and qualifications for that

category sub categories and products you will see in task 8 how important it is to evaluate if a representative is fit and proper before being appointed because they also must meet those requirements of experience and qualifications per category subcategory and products here the applicant's fsp will indicate the financial product or products that it wants to render financial services on under advice and or intermediary services it is important to know that what the applicant fsp can register apply and be authorized for will depend on what experience and qualifications they have they must have key individuals that

have the relevant qualifications and experience available to provide and render the services they apply register and are authorized for here are the different financial products and or sub categories that an applicant fsp can apply register and be authorized for these financial products are specifically related to the type of specialized category they fall under here you can see there is only one column and that's because i stated previously category 2 2a 3 and 4 are specialized categories of fsp in terms of the services they provide and render and our only intermediary services and cannot be advised

it is important to note that what the applicant fsp can apply register and be authorized for will depend on the experience and qualifications they have it must have a key individual or key individuals that have the relevant qualifications and experience available to provide and render the financial services fsps can be registered and authorized in more than one category therefore an fsp can be authorized for category 1 and 4 if the fit and proper requirements of those categories are made next we will look at the conflicts of interest management policy in more detail an fsp must

adopt maintain and implement a conflict of interest management policy the conflicts of interest management policy must include a conflict of interest management policy which should cover how to identify a conflict of interest and how to avoid and if unable to avoid then reduce a conflict of interest and what to disclose about the conflict of interest and what processes and procedures need to be followed to ensure compliance with policy and the consequence of non-compliance the conflict of interest management policy is to include the type and bases on which a representative will qualify for financial interest that

the fsp will offer and how it complies with the act a list of all associates and names of third parties include ownership interest and the conflicts of interest management policy must be easy to understand earners of the fsp must adopt the conflicts of interest management policy this policy must be approved and implemented the fsp must make sure everyone is aware of the contents of the conflicts of interest management policy this is usually done through training and awareness the fsp must continuously monitor compliance with the policy and review the policy annually the fsp must make the

policy easily available to the public section 3a paragraph 3 states that a financial services provider or its representative must not avoid limit or circumvent or attempt to avoid limit or circumvent compliance with this section through an associate or an arrangement involving an associate basically an fsp or representative must not avoid or limit compliance with regards to a conflict of interest management policy section 3a paragraph 4 covers the report to the registrar or also known as the commissioner on the conflicts of interest management policy subsection 4 paragraph a states a compliance officer must include a report

on the provider's conflict of interest management policy in the compliance report that will be submitted to the registrar or commissioner as required under the act where an fsp need not as per the act appoint a compliance officer the fsp has to provide the conflict of interest management policy in its compliance report that will be submitted to the registrar or commissioner as required under the act basically the fsp must include a report on the conflict of interest management policy in the compliance report that must be submitted to the registrar or commissioner subsection 4 paragraph b states

the report referred to in paragraph a must report on at least the implementation monitoring and compliance with and the accessibility of the conflict of interest management policy basically the fsp must report on the implementation monitoring compliance and accessibility of the conflict of interest management policy to the registrar or commissioner as part of its annual compliance report we have now covered the sections relating to conflicts of interests included in the code of conduct we will go through some questions to apply what we have learned question 1 a provider must publish its conflict of interest management policy

and conduct a review of the policy a bi-annually b quarterly c monthly d annually and the answer is option d the fsp reviews its conflicts of interest management policy annually question 2 choose the incorrect option any conflict of interest between a provider and a client must a be disclosed to the client in writing b be disclosed including any immaterial financial interest applicable c be disclosed including the measures taken to avoid or mitigate the conflict of interest d be disclosed including any relationship or arrangement with a third party that gives rise to a conflict of interest

remember we are looking for the incorrect answer we can see that option b is the incorrect answer so we can see that a conflict of interest must be disclosed in writing measures taken to avoid or mitigate the conflicts of interest and any relationship or arrangement with a third party that gives rise to a conflict of interest but you would not need to disclose any immaterial interest question 3 a conflict of interest is when an fsp or a representative renders a financial service to a client and in rendering that service they could potentially be a benefit

for the fsp or representative which statement is incorrect and does not describe a conflict of interest a when it influences their performance or their obligations to the client b when the representative is employed full time by the fsp c when it prevents a provider or representative from rendering an unbiased and fair financial service to a client d when it prevents the representative or fsp from acting in the interest of the client remember we are looking for the incorrect statement and the answer is option b a representative being full-time employed by the fsp does not describe

a conflict of interest this is obvious in that a representative by definition is employed or contracted by an fsp to provide the client with a financial service and therefore this relationship cannot be seen as a conflict of interest it is also important to learn from a question options a c and d describe a conflict of interest so let's go through a final overview of what has been covered so we first established that we want to avoid or reduce conflicts of interest which we do with the use of our conflicts of interest management policy and where

conflict of interest does arise then we need to disclose this fact we went through what an fsp and oras representative may receive or offer in terms of financial compensation and then also covered in green what an fsp may not offer to a representative by way of compensation we also covered when a product supplier also known as a product provider is also an fsp then what is applicable and not applicable make sure you take some time to read through this and understand the concepts we also noted that category 1 fsps cannot give sign-on bonuses we then

looked at the conflict of interest management policy and what the policy should cover it is important to note that fsps and their representatives cannot avoid a conflict of interest by just using another person or entity to distance themselves from the conflict if they will benefit finally we cover the reporting requirements to the registrar also known as the commissioner we hope you enjoyed the video and learnt a lot please make sure to check out our other ori videos you