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September 2007
This is a warning to investors and financial advisors considering investments specifically in foreign exchange products. The FIA is aware of several instances where unauthorised foreign exchange operators are using, primarily websites, and oral communication to create the impression that they are in fact fully authorised Financial Services Providers, when this is not the case.
Some of these operators use the fact that they did indeed apply before 30 September 2004 for licences and are operating under the “Exemption” to smooth investors' critical questioning of their regulatory status. Investors and advisors, especially already authorised advisors, are herewith cautioned regarding initiating business with such operators before full clarity with regards to the regulatory position of these companies exists.
Already approved providers must carefully consider the possible ramifications of the “best advice” principle underlying the FAIS Act if they currently do business with unapproved providers (under the exemption) and things go wrong. Legitimate questions may be asked about why business was conducted with unauthorised organisations while the opportunity presented itself to do business with fully authorised organisations.
The following pitfalls should be considered:
- Presenting a FSP application number is no proof of being authorised at all.
- Presenting the FSP licence front page is no proof of being authorised for rendering services with regards to a specific product.
- Being authorised for Forex Category 1, (or Cat 1.15) does not mean there is authorisation for rendering discretionary services (Category 2 providers)
- Operation under the exemption means in the case of forex that the organisation essentially operates in an unregulated environment as the exemption places no burden on the company to comply with the FAIS Act, General Code of Conduct or Forex Code of Conduct before a licence has been approved.
The FIA is aware of several instances where organisations are operating under the exemption but they are also under investigation by several authorities, which include the South African Reserve Bank, the Financial Services Board and the Department of Trade and industry.
The FIA are also aware of instances where applications were made for approval but which applications lacked relevant and necessary information. Where deemed necessary the FIA informs the FSB and South African Reserve Bank of cases it beleives regulatory authorities such as the FSB need to take notice of.
Investors and advisors who may wish to find out the exact nature of a forex operator’s regulatory status should contact the FIA to assist in this regard. The minimum information needed is the FSP application number, which the person or entity must provide the enquirer.
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