If you’re taking advice or are considering the purchase of a financial investment – whether it be crypto assets, foreign exchange, insurance or retirement product – it is vital to ensure that you are dealing with an authorised financial services provider.

An authorised financial services provider (FSP) is bound by certain professional and regulatory stipulations that have been put in place specifically to safeguard the public. Should anything go wrong (for example, if an investment return is exaggerated or an FSP’s representative behaves unethically), the consumer then has recourse.

In order to qualify as an authorised FSP, the person or company is required to:

• Abide by certain codes of ethics, standards and conduct, including transparency and Treating Customers Fairly (TCF);
• Comply with licensing stipulations and requirements;
• Have sufficient professional liability insurance;
• be financially sound;
• Do continuous professional training;
• Be qualified to a certain level; and
• Have commensurate industry experience.

Authorised FSPs include treasury advisers or treasury outsourcing companies, insurers, collective investment schemes (CIS), credit rating agencies, retirement funds, over-the-counter (OTC) derivatives providers, etc. Each of these subsections of the financial services industry has its own FSP licence subcategory and representative body.

For example, well over 80% of foreign exchange FSPs belong to the South African Association of Treasury Advisors (Saata), which was formed in 2019 to act on their behalf. Its objectives include ensuring that all members offer a better solution to their clients and that treasury advisers comply with relevant legislation and regulations, as well as the Global FX code of ethics, standards and conduct. 

“For your own safety and peace of mind, it is worth ensuring that whoever you are buying a financial product from is governed by such standards,” says Richard Beddow of Saata. 

“The best way to find out is to ask.” 

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What questions should you be asking?

Saata recommends asking your service provider a few key questions:

• How are you regulated?
• Do you belong to an industry body, and how can I verify that you do?
• Do you have the necessary professional liability insurances in place?
• Can I see your statutory disclosure form?

A statutory disclosure lays out particulars such as the representative’s status in their company, personal and office contact details, their qualifications and memberships of industry bodies, whether they have professional indemnity insurance, information regarding their fees, as well as information about your rights and procedures to follow for complaints. If they are regulated, your FSP is required to present you with this disclosure.

“If the person or entity you are dealing with cannot provide you with these answers and documentation, find someone who can,” says Beddow. “It’s your right.”

Continuing issues around crypto

The Financial Sector Conduct Authority recently declared crypto assets a financial product. This is an important step towards enhancing the monitoring and compliance of crypto transactions, but it is important that the South African public realise that, for now, there are still risks when trading or investing in crypto, says Beddow.

These risks include an unclear path on the requirements for a person offering such crypto-related products and services to become fully regulated, the relaxation of certain standards for the time being, and most importantly, no requirement to have the necessary insurances in place to protect clients’ funds should something go wrong. And recent events in the market show that things certainly can go wrong. 

“This raises the concern that South Africans might buy a high-risk investment product or take advice from a person or entity that is not licenced, not insured, and possibly not even properly qualified,” says Beddow. 

“The public needs to be aware that, until the legislation has been finalised, crypto service providers are not regulated, which means that unless consumers are dealing with an authorised FSP, they have little to no protection or recourse.” DM/BM