Who can sell financial products in South Africa?



   By Megan Hardy

The marketing and sale of financial products in South Africa is subject to regulation under the Financial Advisory and Intermediary Services Act, 2002 (FAIS). FAIS applies to financial service providers (FSPs) wherever they are domiciled. Therefore, FSPs based outside of South Africa are equally bound by the terms of FAIS. This article explains how FAIS works and considers what options are available to FSPs domiciled outside of South Africa for doing business with South African investors.

A “financial product” is defined in section 1 of FAIS and includes securities and foreign currency denominated investment instruments. FAIS requires that persons that provide advice or intermediary services (any act performed by a person on behalf of a client with a view to buying, selling or otherwise dealing in a financial product), with respect to financial products, register as a FSP.

No person may act or offer to act as a FSP within South Africa unless such a person is licensed to do so in accordance with the requirements of section 8 of FAIS. The prohibition on offering financial services in South Africa without the requisite licence expressly applies to FSPs domiciled outside of South Africa. Section 8(1) of FAIS specifically provides that applications by FSPs domiciled outside of South Africa must be submitted to the registrar of FSPs (the Registrar). FAIS has been interpreted to permit South African investors, acting on their own initiative, to invest in foreign financial products. However, the foreign FSP dealing in financial products will still require a FAIS licence, unless all activities in connection with the financial products occur outside of South Africa, and the marketing and sale of interests in the financial products to South African investors is conducted outside of South Africa. Accordingly, it is possible for foreign FSPs to sell financial products to South African investors without a FAIS licence.

It is advisable for any foreign FSP without a FAIS licence, who is approached by a prospective South African client, to document that contact as a “reverse enquiry” from the client. This can offer a degree of regulatory protection to the FSP. It is important to note, however, that a “reverse enquiry,” in and of itself, will not provide any regulatory protection if any marketing is in fact conducted in South Africa. Representatives of FSPs without a FAIS licence should also seek to avoid communicating by phone or email with prospective clients at addresses within South Africa and should generally not attend meetings with clients within South Africa in person. Any funds from South African clients should be received by a foreign FSP without a FAIS licence in an account outside of South Africa.

A FSP domiciled outside of South Africa, who would like to market financial products in South Africa, has two choices. It can obtain a FAIS licence. The process includes submitting an application to the Registrar along with certain information which will satisfy the “fit and proper requirements.” A successful application may be granted with accompanying conditions and restrictions. Registration may, however, be an onerous procedure which could have timing implications.

Alternatively, a foreign FSP could partner with an existing FAIS licence holder in South Africa. This approach could be quicker than applying for a licence. However, this approach is not entirely risk-free.