Answer Sheet for Corporate Governance and Ethics in the Financial Services Industry

Exam

Instructions:

• Answer all questions.

• Ensure that your answers are concise and to the point.

• Use the space provided for each question. If additional space is needed, attach extra
sheets and clearly number them.

Section A: Legislation and Regulations

Question 1: Name four South African Acts of Parliament relevant to the financial services
industry that include ethics-related requirements. Briefly state how each of these has increased
the cost of doing business for you or your organisation.
(8 Marks)

Answer:

1. Financial Advisory and Intermediary Services Act, 2002

• Introduced significant regulatory requirements for FSPs.

• Increased costs due to staff training, compliance staff, licensing fees, record-
keeping services, and insurance.

2. Financial Intelligence Centre Act, 2001

• Imposed anti-money laundering measures.

• Added administrative costs, system investments, compliance oversight, and

staff training.

3. Financial Sector Regulation Act, 2017

• Established regulatory authorities.

• Increased spending on compliance measures, staff training, risk assessment,

and record-keeping systems.

4. Companies Act, 2008

• Enhanced transparency and disclosure obligations.

• Increased administrative and compliance costs for FSPs as they must adhere to
these regulations.

Question 2: What would happen to a business that chooses to be unethical in its business
practices and thus ignores the King IV recommendations to report on its safety, environmental,
and health policies, as well as reporting on its actions related to its social responsibility
initiatives?
(5 Marks)
Answer:

1. Harm to Reputation: Unethical practices and lack of transparency can damage the
company’s reputation, eroding customer and investor trust.

2. Legal Trouble: Non-compliance with reporting rules may lead to fines or other legal
actions.

3. Financial Loss: Ethical lapses can result in lost business, legal costs, and fines.

4. Lost Trust from Stakeholders: Stakeholders may lose trust, leading to loss of business
relationships.

5. Missed Business Opportunities: Other businesses may avoid partnerships with a

company known for unethical behaviour.

Section B: Principles of Ethics and Professionalism

Question 3: The currently accepted code of good governance in South Africa is the King IV
Report. Compare the guidelines in this report to the corporate governance applied in two other
countries and then select the country which, in your opinion, has the best system. Justify your
choice.
(8 Marks)

Answer:

• South Africa (King IV)

• Emphasises transparency and responsible conduct through an 'apply and

explain' approach.

• Promotes a holistic system tailored to each organisation’s needs.

• USA (Sarbanes-Oxley Act of 2002)

• Enforces strict compliance through 11 titles addressing board duties and

criminal consequences.

• SEC enforces compliance rules.

• Netherlands (Peters Commission)

• Utilises a two-tier governance system.

• Focuses on serving citizens and enforcing rules across government levels.

• Preferred System: South Africa (King IV)

• Justification: The 'apply and explain' approach is progressive, promoting

transparency, accountability, and adaptability, allowing for sector-specific
adaptations.

Question 4: The South African Constitution recognises the diversity of the peoples of our nation
and enshrines the rights of the individual to practice his/her own value systems, cultural way of
life, and social etiquette. Nevertheless, the King IV Recommendations are based on
westernised norms and standards. Express an opinion on its compatibility with the uniquely
African value systems (e.g. Ubuntu with its collaborative and participative structures).
(4 Marks)

Answer:

• King IV’s recommendations align well with African value systems like Ubuntu.

• Ubuntu emphasises community, collaboration, and participation, which are compatible

with King IV’s inclusive and participatory nature.

• The 'apply and explain' approach allows adaptation of governance practices to reflect
unique cultural and social contexts, including African values.

Section C: Evaluating Ethical Codes and Value Systems

Question 5: The Financial Planning Institute (FPI) has a Code of Ethics and uses Generally
Accepted Professional Practices (GAPP). List the eight main issues addressed in the Code of
Ethics.
(8 Marks)

Answer:

1. Client First: Prioritise clients’ best interests.

2. Integrity: Maintain integrity in professional services.

3. Objectivity: Provide unbiased advice and services.

4. Fairness: Treat clients fairly.

5. Competence: Ensure a high level of professional competence.

6. Confidentiality: Maintain client confidentiality.

7. Diligence: Act with due care and diligence.

8. Professionalism: Uphold the highest standards of professionalism.

Question 6: Reflect on the way you interact with the people around you. Compare this to what
is required of all FPI members and, if necessary, develop a plan to improve the way you interact
and communicate with them.
(4 Marks)

Answer:

• Current Reflection: I strive to be empathetic, fair, and honest, offering unbiased advice
and pursuing continuous improvement.

• Improvement Plan:

• Empathy and Active Listening: Engage in active listening and show genuine
interest in others’ concerns.
 • Respect and Boundaries: Maintain respect for personal and professional
boundaries.

• Conflict Resolution: Develop and apply effective conflict resolution skills.

• Relationship Goals: Set specific goals for improving relationships, such as

increasing client satisfaction and spending quality time with family.

Section D: Commitment and Compliance

Question 7: Write down your thoughts, ideas, and possible steps or actions that you think you
would need (or like) to take to better yourself in your interactions with the people you know (this
should include friends, family, colleagues, and clients).
(4 Marks)

Answer:

• Active Listening: Prioritise giving full attention to others, empathising with their feelings
and concerns.

• Respect and Boundaries: Understand and respect the personal and professional
boundaries of those I interact with.

• Conflict Resolution: Learn and apply skills for calmly addressing and resolving
conflicts.

• Goal Setting: Establish specific goals for improving relationships, such as spending
more quality time with family or enhancing client satisfaction by a certain percentage.