The regulation of foreign financial services providers under the FAIS act: a proposal for reform

Abstract

The Financial Advisory and Intermediary Services Act 37 of 2002 (FAISA) was promulgated to afford protection to consumers by ensuring that persons who advise them on financial products are adequately qualified to do so. The Act requires financial services providers to obtain a licence before they may solicit South African consumers in relation to any financial services or financial products. With the advancement of cyber and online-based activities across the globe, consumers now come across financial services providers on the online platform who are based outside South Africa. FAISA is unclear on whether such financial services providers are required to obtain a FAIS licence in instances where they have not solicited the South African customers. The constitutional right to freedom of association should allow individuals who wish to utilise such financial services to do so. However, the state must exercise its mandate to protect those consumers who wish such protection from cyber financial crime perpetrators disguised as legitimate financial services providers or their intermediaries. It is submitted that this should be done in collaboration and partnership with the sector’s players because in its own, the Financial Sector Conduct Authority (FSCA) may lack the technical expertise and competence to track offenders in the digital space. Further, the FSCA may find itself accused of over-regulating in an area where is has little competence, the latter being the digital landscape. International best practices point to successful economies such as the United States and the United Kingdom, who sought to allow their financial sectors to self-regulate. Given the pace of growth in e-commerce, if the FSCA attempts to deal with all these fast changes, it may stretch its mandate too wide, especially in the light of the possibility that its capacity to strictly monitor online activity within the limits of its mandate, may currently be inadequate. Further, the is no evidence pointing to the FSCA’s technical competence to regulate issues that gravitate more towards high technology instead of financial regulation. The solution supported is that this new growing area in the financial sector must be allowed to self-regulate, where the FSCA will only facilitate partnerships with industry players and monitor the sector actively but remotely. It is imperative for the South African government to permit its citizens to partake in economic activities without unnecessary restrictions thereof, so long as the state facilitates, co-ordinates and actively monitors mechanisms to protect the vulnerable.