Explanation of the various FAIS license Categories

CAT 1, CAT 2, CAT 3 

Think of these as permission levels (what the company is legally allowed to do for a client).

Cat 1 (Category I)(Financial Advisors) — “Advice and/or intermediary, but no discretion”

• What it is: A Cat 1 FSP provides financial services other than the special activities in Cat 2 and Cat 3 (and other categories). In practice it typically means they can give advice and/or act as an intermediary (i.e., arrange/execute instructions) depending on what they’re authorised for.

• Simple meaning: They can recommend and help implement, but they don’t get to decide investments for the client.

Cat 2 (Category II)(DFMs) — “Discretionary manager”

• What it is: A discretionary FSP renders intermediary services of a discretionary nature (they can choose the financial product), but without bulking.

• Simple meaning: They can make investment decisions for the client — but only if there’s a mandate.

Key compliance trigger for tech: a discretionary FSP must have a signed mandate (paper or properly controlled electronic mandate) before rendering intermediary services.

Cat 3 (Category III)(LISP Platforms) — “Administrative / platform-style execution (bulking)”

• What it is: An administrative FSP renders intermediary services on client (or other FSP) instructions and through bulking.

• What “bulking” means: pooling many clients’ buys/sells together and then allocating the results back to each client in records.

• Simple meaning: They can process lots of clients operationally at scale (batching orders), but they’re acting on instructions (not choosing investments like Cat 2).

Key compliance trigger for tech: an administrative FSP also must have a signed mandate (paper or controlled electronic).

What these licences typically get used for (quick examples)

• Cat 1: financial adviser workflows (recommendation → client agrees → implement), client instruction capture, suitability documentation, advice reporting.

• Cat 2: discretionary portfolio management (rebalances, model portfolio changes, switching funds) executed under a signed discretionary mandate.

• Cat 3: admin/platform operations (batch trading, allocations, processing transactions, recordkeeping) via bulking.

How these licences affect our internal operations (tech view)

Below is the simplified “so what?” for systems/processes.

1) Permissions and feature access (RBAC)

Our platform should treat licence category as a hard gate on what actions an AdviserCo (or integrated party) can perform:

• Cat 1: allow advice + “implement on instruction” flows.

• Cat 2: allow discretionary actions (e.g., “rebalance now”) only when a discretionary mandate exists.

• Cat 3: allow bulk/order aggregation + allocations (bulking) workflows.

2) Mandate management is not optional for Cat 2 and Cat 3

For both discretionary and administrative behaviour, the system must support:

• capturing signed mandates (paper or secure e-mandate),

• storing them,

• being able to prove they existed before transactions/actions occurred.

3) Data transfer when a financial adviser changes (our internal process)

In the uploaded “Agreement to transfer Financial Adviser”, the parties explicitly agree that, when mandates move from one AdviserCo to another, data in our Advice Tool moves too — including cash flow models, financial personalities, and other data captured into the Advice Tool.
This directly impacts how we design migrations/transfer tooling and audit trails.

4) Transfers require consent + an authorisation letter (effective date rules)

That same agreement defines when the transfer is “effective” for the mandate + Advice Unit data: it’s only effective once the investor:

• has been informed,

• has signed an authorisation letter appointing the new financial adviser (as an addendum to the mandate),

• and a copy has been provided to PortfolioMetrix.