FAIS Fit and Proper Requirements Explained

Any business that provides financial services in South Africa must do more than obtain a licence. It must also ensure that the people involved in the business meet the fit and proper requirements under the FAIS regulatory framework. For Financial Services Providers, key individuals and representatives, these requirements are central to lawful operation and ongoing compliance.

In practice, the fit and proper requirements are designed to ensure that persons rendering financial services are honest, competent and operationally capable of doing so. They affect new licence applications, appointments of key individuals and representatives, supervision arrangements and ongoing compliance after licensing.

For FSPs, fintech businesses and regulated intermediaries, understanding these requirements is essential from the outset.

What are fit and proper requirements?

Under the FAIS framework, fit and proper requirements set the minimum standards that certain persons in a financial services business must meet in order to render financial services lawfully.

These standards generally focus on whether a person has the necessary:

• honesty and integrity

• competence

• operational ability

• financial soundness, where applicable

The purpose is to protect clients and maintain professional standards in the financial services sector. A business may have a strong commercial offering, but if the individuals behind it do not satisfy the required standards, licensing and regulatory approval may be affected.

Who must meet the fit and proper requirements?

The fit and proper framework is particularly relevant to:

• Financial Services Providers

• key individuals

• representatives

• in some cases, persons under supervision

The analysis depends on the role each person plays in the business. A founder who controls and manages the regulated activity may trigger key individual requirements. A staff member or contractor who provides services to clients may need to qualify as a representative and meet the standards applicable to that role.

This is one of the most common areas where businesses make mistakes. They focus on the licence-holding entity but fail to assess whether the people operating the business are correctly appointed and compliant.

Honesty and integrity requirements

One of the most important components of fit and proper status is honesty and integrity.

Regulators expect persons involved in rendering financial services to be trustworthy and suitable to operate in a regulated environment. Issues that may affect this assessment can include:

• dishonesty

• fraud

• theft

• misrepresentation

• misconduct in prior financial services roles

• regulatory findings against the person

• failures to act with candour toward the regulator

This area is broader than criminal convictions alone. Conduct that calls a person’s integrity into question may create licensing or compliance problems even where there has been no criminal prosecution.

For FSPs, this means due diligence should be carried out before appointing key individuals or representatives.

Competence requirements

The fit and proper requirements also deal with competence. This is intended to ensure that persons providing financial services have the required knowledge, skills and experience.

Competence requirements may include matters such as:

• qualifications

• regulatory examinations, where applicable

• product-specific knowledge

• class of business training

• practical experience

• continuous professional development

The exact requirements may differ depending on the role performed and the type of financial product involved.

For example, a person dealing with investment products, insurance products or other financial services categories may need different levels of knowledge and experience. The compliance analysis must therefore be tied to the actual services being rendered.

Continuous professional development

Fit and proper compliance is not only about entry-level suitability. It also has an ongoing element. In many cases, regulated persons must maintain competence through continuous professional development.

This is important because financial regulation does not stand still. Product design, conduct standards, compliance expectations and sector-specific rules continue to evolve. Ongoing training helps ensure that those rendering financial services remain competent and up to date.

FSPs should have internal systems in place to monitor training, CPD obligations and documentary proof of compliance.

Operational ability

An FSP must also be operationally capable of rendering the financial services for which it is licensed. This is sometimes overlooked because businesses tend to focus only on the personal credentials of individuals.

Operational ability can include whether the business has:

• appropriate governance arrangements

• internal controls

• adequate systems and processes

• proper record-keeping

• effective supervision structures

• the ability to manage client interactions and complaints appropriately

A technically qualified person is not enough if the business itself is not set up to operate compliantly.

Financial soundness

For some regulated persons, financial soundness is also relevant. The rationale is straightforward: a business or individual responsible for financial services should not be operating in a manner that creates unacceptable financial risk for clients or the market.

The exact standard depends on the nature of the licence and the regulatory category involved, but financial soundness issues can arise where there are concerns about solvency, liquidity, financial instability or unsustainable operations.

This becomes especially important for startups and growth businesses that want to scale quickly without building out the necessary compliance and governance infrastructure.

Representatives and supervision

A business may appoint representatives to render financial services on its behalf. Where a representative does not yet meet all applicable competence requirements, the person may in some circumstances operate under supervision, subject to the applicable legal framework.

However, supervision is not a shortcut around compliance. It requires genuine oversight, proper documentation and a real supervisory structure. Poorly managed supervision arrangements are a frequent source of regulatory exposure.

Common mistakes include:

• appointing representatives without proper onboarding

• failing to document supervision plans

• giving unsupervised access to clients too early

• not matching the representative’s activities to the supervisor’s authority

• failing to keep adequate records of oversight

If representatives are not managed properly, the FSP itself may face serious compliance risk.

Why the fit and proper requirements matter for licence applications

The fit and proper requirements are central to FSP licence applications and to subsequent changes in the licensed business.

Where the people behind the business do not meet the required standards, an application may be delayed, queried or refused. Even where a licence is granted, later non-compliance can result in enforcement steps, restrictions, licence conditions or reputational damage.

This is why businesses should assess fit and proper compliance before launch, not after the regulator raises concerns.

Common legal mistakes businesses make

Many FSPs and fintech businesses run into avoidable problems because they misunderstand how the fit and proper framework works. Common mistakes include:

• assuming that business experience alone is enough

• appointing individuals to the wrong regulatory role

• failing to map products and services properly

• overlooking competence and training requirements

• using contractors without considering representative status

• treating supervision as informal rather than regulated

• failing to keep evidence of compliance

• expanding into new product lines without reassessing fit and proper implications

In regulated industries, documentation matters. A person may be capable in practice, but if the business cannot prove compliance, that creates risk.

Fit and proper requirements in fintech businesses

These requirements are particularly important for fintech platforms. Many fintech founders assume they are building a technology company, when in fact their platform may be providing advice, intermediary services or access to regulated financial products.

Examples where fit and proper issues commonly arise include:

• robo-advisory platforms

• digital investment apps

• insurtech businesses

• embedded finance solutions

• wealth-tech platforms

• online distribution models for financial products

In these businesses, legal analysis must go beyond the technology. The real question is who is rendering the regulated service, under what authority and whether the persons involved satisfy the fit and proper framework.

How legal advisors can help

Fit and proper compliance is not merely a box-ticking exercise. It forms part of the legal architecture of an FSP.

Legal advisors can assist by:

• identifying which persons must meet the requirements

• assessing whether the business model triggers FAIS licensing

• structuring appointments of key individuals and representatives

• reviewing supervision arrangements

• aligning internal governance and compliance processes

• preparing for licence applications and regulatory engagement

• helping address compliance gaps before they become enforcement problems

Early advice is particularly valuable where businesses are growing quickly, using hybrid staffing models or introducing new financial products.

Conclusion

The FAIS fit and proper requirements are a core part of South Africa’s financial services regulatory framework. They are intended to ensure that FSPs, key individuals and representatives are honest, competent and properly equipped to render financial services.

For regulated businesses, the issue is not simply whether a licence has been obtained. The real question is whether the people and systems behind the business satisfy the required standards on an ongoing basis.

Barter McKellar advises financial services businesses, fintech platforms and licensed intermediaries on FAIS regulation, fit and proper requirements, FSP licensing and compliance risk in South Africa. Proper legal guidance at the outset can help prevent delays, regulatory issues and costly remediation later.