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Financial Advisory and Intermediary Services Act 2002 (Act No. 37 of 2002)


Amendment of the Determination of Fit and Proper Requirements, 2020

Chapter 5 : Operational Ability

38. Additional requirements applicable to FSPs that provide automated advice


In addition to the requirements set out in section 37, an FSP that provides automated advice must—

(a) have adequate and appropriate human resources that have the required competence to—
(i) understand the technology and algorithms used to provide the automated advice;
(ii) understand the methodological approaches, including assumptions, embedded in the algorithms;
(iii) understand the preferences or biases that exist in the approaches referred to in (ii);
(iv) understand the risks and rules underpinning the algorithms;
(v) identify the risks to clients arising from the automated advice; and
(vi) monitor and review the automated advice generated by algorithms to ensure quality and suitability of the advice and compliance with the Act;
(b) establish, implement and maintain adequate policies and procedures—
(i) to monitor, review and test the algorithms and the advice generated by it;
(ii) to monitor, review and test the filters implemented to ensure clients for whom the automated advice is not suitable are filtered out; and
(iii) that set out the level of human review that will be undertaken on the advice generated;
(c) in relation to the monitoring and testing of the algorithms and filters referred to in (b),—
(i) have appropriate system design documentation that sets out the purpose, scope and design of the algorithms and filters;
(ii) have a documented test strategy that explains the scope of testing, including test plans, test cases, test results, defect resolution, and final test results;
(iii) have appropriate processes for managing any changes to an algorithm and filters that include having security arrangements in place to monitor and prevent unauthorised access to the algorithms;
(iv) be able to control, monitor and reconstruct any changes to algorithms or filters;
(v) review and update algorithms whenever there are factors that may affect their relevance (such as market changes and changes in the law);
(vi) have in place controls and processes to suspend the provision of advice if an error within an algorithm or filters is detected; and
(vii) be able to frequently monitor and supervise the performance of algorithms and filters through an adequate and timely review of the advice provided;
(d) have adequate and sufficient technological resources to—
(i) maintain client records and data integrity;
(ii) protect confidential and other information; and
(iii) meet current and anticipated operational needs, including in relation to system capacity.