The December period is generally a busy time for the Financial Services Board (FSB) as it uses this time to send out progress updates regarding the current wave of regulatory reform.
The financial services industry has been anxiously awaiting any update on the current status of the implementation of the first phase of the Retail Distribution Review (RDR). The FSB gave an indication that it would have liked to implement Phase I of RDR in 2017. However, 2017 is almost done and the FSB is no nearer to implementation.
Adviser categorization
One of the aspects of RDR that the FSB is seeking more consultation on is adviser categorization.
According to a presentation made by Leanne Jackson, Market Conduct Adviser at the FSB, the FSB is looking for input regarding:
- The feasibility of allowing a product supplier agent (PSA) to act as the PSA of more than one product supplier in different, non-competing lines of business, and related controls;
- The standards for allowing PSAs to refer customers to another product supplier in light of removal of gap filling (the practice of recommending products of other product suppliers where the brokers product supplier doesn’t offer the said product); and
- Whether gap filling should be permitted for fixed interest annuities. The current thinking is this is not necessary, but it can also be managed through referrals.
According to the presentation, other planned consultation points include the conditions for allowing a juristic entity to operate as a PSA (in terms of – but not limited to – branding and permissible group structures), as well as details on measures to otherwise disallow juristic representatives from providing advice.
Perhaps the biggest consultation point that the FSB will be looking for guidance on is the conditions for being able to describe advice as independent as well as consultations regarding product supplier responsibility for different forms of advice.
Knocking on investments door
The FSB is also considering further consultation with regards to the investment industry.
According to the presentation, the FSB is seeking further consultation on:
- Defining investment management as a specific licensed activity;
- The extent to which investment managers (as defined) should be licensed or regulated differently from model portfolio providers and other types of discretionary mandate holders;
- Clarifying the contractual and business relationships between all entities in the investment value chain to mitigate risks of conflicted advice and conflicted discretion; and
- Third party outsourcing/white label models. According to Jackson, the FSB no longer
proposes to completely prohibit white labels being held by entities providing advice, provided conflict risks can be adequately mitigated.
Jackson pointed out in her presentation that a public discussion document on these investment related proposals will follow in early 2018.
An area of concern
One of the areas of concern with regards to the RDR process is the FSB’s stance on outsourcing and the possible changes that the regulator wants to implement regarding the issues that they have with outsourced agreements.
There is still a consultative process regarding this and according to Jackson’s presentation, the FSB is building on the regulations when it comes to binders and outsourcing.
The next step in this process includes:
- Sharing the findings of the FSB’s short term insurance intermediary activity analysis and testing application in the long term insurance sector; and
- Engaging in consultations on standards for premium collection as an outsourced activity.
A new outlook for risk insurance
As part of the RDR processes, there will also be change in the risk insurance industry.
According to the presentation, technical work on future commission models in this specific area will continue and will be informed by:
- Intermediary activity analysis findings;
- An actuarial commission testing model being developed in consultation with the Association of Savings and Investments South Africa (for life risk products) which enables the FSB to test the impacts of changing quantum and incidence of commission payments as well as possible changes to replacement commissions; and
- Proposals for a special remuneration dispensation in the low income market (RDR Proposal TT which related to special remuneration dispensations for the low income market).
Collective voices
Throughout the RDR process, the FSB has been outspoken about the fact that it is consulting with insurers, brokers and advisers on its thoughts regarding the changes that RDR will cause.
From the start there has been apprehension about the whole process. The fact that the FSB is seeking further consultation on certain topics provides the industry with a further opportunity to have their voices heard. Insurers, brokers and advisers should not waste this opportunity.
Editor’s Thoughts:
The fact that there is an extensive consultative process also points to the fact that the FSB is cognisant that RDR may cause unintended consequences in the industry. Perhaps the consultative process are preventative measures to manage this? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.
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