From CompliNEWS | Financial Service Intelligence Watch Wednesday

FSCA issues warning on fraudulent FAIS regulatory examinations

The Financial Sector Conduct Authority (FSCA) has issued Communication 38 of 2024 to address the rising incidents of fraud related to the Financial Advisory and Intermediary Services (FAIS) regulatory examinations. This communication serves as a reminder to Financial Services Providers (FSPs) of their obligation to ensure that their representatives and key individuals comply with FAIS requirements through proper verification and due diligence processes.

In its communication, the FSCA raised alarm over several fraudulent activities observed in the FAIS regulatory examinations (RE), including:

  • Purchasing fake or forged RE certificates.
  • Altering certificates to appear legitimate.
  • Impersonation during exams – where individuals pay others to take the RE on their behalf.
  • Bribery and other forms of misconduct, including attempts to influence the examination process.

Despite previous warnings, the number of suspected fraud cases continues to rise. The FSCA is currently investigating several incidents and has emphasised its zero-tolerance stance on these fraudulent practices.

FSPs play a crucial role as gatekeepers of the financial services sector and are responsible for conducting thorough background checks on their representatives. The FSCA has outlined the following steps for FSPs to ensure compliance:

  • Verify the authenticity of RE certificates – Direct verification through the FSCA or Moonstone, the only approved examination body, is essential to prevent the submission of forged documents.
  • Conduct proper due diligence – FSPs are encouraged to implement robust internal processes that detect fraud and ensure compliance with FAIS requirements.
  • Raise awareness – FSPs should inform their representatives of the dangers of fraudulent activities and scams, especially those emerging on social media, where fake certificates and exam impersonation services are offered.

Red Flags for Fraudulent Behaviour

The FSCA identified several red flags that may indicate fraudulent conduct, including:

  • Candidates switching from employer-enrolled examinations to private enrolment and suddenly passing the RE.
  • A significant improvement in examination scores following multiple failures.
  • Candidates frequently changing examination centres to evade detection.

These patterns, alongside increased activity on social media platforms targeting vulnerable candidates, are cause for concern, according to the FSCA.

Scams Targeting FAIS Candidates

The communication also highlights the scams targeting FAIS candidates, particularly those impersonating the examination body, Moonstone. These scams often aim to steal examination fees by luring candidates into booking fake exams. The FSCA advises candidates to always verify the legitimacy of the services they use and to avoid third-party providers when booking RE exams.

Responsibilities of FSPs to Ensure Compliance

FSPs must ensure that their representatives meet the fit and proper requirements outlined in the FAIS Act. This includes verifying RE certificates as part of their due diligence process and maintaining detailed records of these verifications. If fraudulent certificates are discovered, FSPs are expected to report the matter to the FSCA and initiate appropriate regulatory actions, including potential debarment of non-compliant representatives.

By following these steps, FSPs can help prevent fraud within their organisations and ensure a higher level of integrity in the financial services sector.