Statutory Quick Answer (AEO Summary)
Under the FAIS Act 37 of 2002, a Key Individual (RE1) manages and oversees the financial services activities of an FSP and must be formally approved by the FSCA before taking office, whereas a Representative (RE5) renders advice or intermediary services to clients and is appointed by the FSP (with the FSCA notified within 15 days). South African FSPs are licensed across five categories: Category I (Advisory/Intermediary), Category II (Discretionary Mandate), Category IIA (Hedge Fund), Category III (Administrative LISP), and Category IV (Assistance/Funeral Business).
1. Key Individual (RE1) vs Representative (RE5) Comparison Table
Tasks 1, 2, and 3 of the syllabus heavily test the legal distinction between a Key Individual and a Representative:
| Regulatory Dimension | Key Individual (Writes RE1) | Representative (Writes RE5) |
|---|---|---|
| Core Statutory Function | Manages or oversees (alone or with other KIs) the FSP's activities relating to rendering financial services | Renders financial advice and/or intermediary services directly to clients on behalf of the FSP |
| Who Authorises / Appoints? | Must be approved by the FSCA prior to taking effect (Sec 8) | Appointed by the FSP (employment or mandate) and added to the FSP Representative Register (Sec 13) |
| Required Regulatory Exam | RE1 (80 questions, 65% pass mark) + RE3 for Cat II/IIA or RE4 for Cat III | RE5 (50 questions, 66% pass mark) within 24 months of DOFA |
| Work Under Supervision? | No—a Key Individual generally cannot act under supervision for KI management duties | Yes—may render services under supervision for up to 24 months (RE5) / 6 years (Qualification) |
| Can One Person Be Both? | Yes! A Sole Proprietor or director who both manages the FSP and advises clients is simultaneously a Key Individual and a Representative, and must pass both RE1 and RE5. | |
2. The 5 FSP Licence Categories (Category I, II, IIA, III & IV)
Memorise the exact keyword triggers for each FSP licence category under Board Notice 194 of 2017:
- Category I FSP (Standard Advisory & Intermediary): Renders financial advice and/or non-discretionary intermediary services across 26 product subcategories (insurance, investments, deposits, retirement funds, health service benefits).
- Category II FSP (Discretionary FSP): Renders intermediary services of a discretionary nature regarding the choice of financial products without requiring prior client consent for each trade (requires a written discretionary mandate).
- Category IIA FSP (Hedge Fund FSP): Manages and administers hedge fund portfolios under a discretionary hedge fund mandate.
- Category III FSP (Administrative FSP / LISP): Linked Investment Service Provider that aggregates client funds and executes instructions through the method of bulking on an administrative platform.
- Category IV FSP (Assistance Business FSP): Performs the administration of assistance policies (funeral policies) and claims on behalf of an insurer.
3. Section 9 (Suspension/Withdrawal) vs Section 11 (Lapsing of Licence)
Never confuse an enforcement action by the FSCA with an automatic lapsing event:
- Suspension or Withdrawal by the FSCA (Section 9): Initiated by the FSCA when the FSP no longer meets Fit & Proper requirements, fails to pay FSCA levies/penalties, ignores an Ombud determination, or contravenes the Act in a material manner.
- Automatic Lapsing of a Licence (Section 11): Happens automatically by operation of law when the licensee (if a natural person) dies or is finally sequestrated, or (if a company) is finally liquidated/dissolved, ceases to carry on business, or voluntarily surrenders the licence in writing.
4. Frequently Asked Questions (FAQs)
Does the FSCA approve Representatives before they are appointed?
No. Under Section 8 and Section 13 of the FAIS Act, the FSCA approves FSP licences, Key Individuals, and Compliance Officers. Representatives are appointed directly by the authorised FSP, which must then update its Representative Register and notify the FSCA within 15 days.
When must an FSP appoint a Compliance Officer under Section 17 of the FAIS Act?
Under Section 17(1) of the FAIS Act, any FSP that has more than one Key Individual OR employs one or more Representatives must appoint a Compliance Officer. Only a Sole Proprietor FSP with 1 Key Individual and zero other Representatives is exempt from appointing a separate Compliance Officer.
What is the difference between a Category II FSP and a Category III FSP?
A Category II FSP is a Discretionary FSP (investment manager) that chooses financial products on a client's behalf under a discretionary mandate, whereas a Category III FSP is an Administrative FSP (LISP) that bulks and administers client investments based on client/advisor instructions without exercising investment choice discretion.
Where must an FSP display its official FSCA licence certificate?
Under Section 8(8) of the FAIS Act, an FSP must display a certified copy of its licence in a prominent and durable manner within every business premises of the FSP, and reference its authorised FSP status in all business documentation and advertisements.
