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ASISA meets with the FSB on the future impact of regulation

26 February 2018 Jonathan Faurie

One of the major concerns when it comes to regulatory reform is that the wave of regulatory change that the Financial Services Board (FSB) wants to enact will cause unintended consequences within the financial services industry.

The FSB is cognisant of this and appreciates the validity of these concerns. In an effort to address them, the FSB has been engaging with a number of industry bodies to see what these unintended consequences may be, and how they could possibly be avoided. 

Regulation for all

The main pieces of legislation that the FSB wants to implement is the Retail Distribution Review (RDR) and Treating Customers Fairly (TCF). It is important to note that while TCF has been a feature of the industry for a number of years now, the essence of it will change and possibly evolve into a new form while RDR is being rolled out. 

The aim of regulatory reform is to change the dynamic of the relationship that financial services providers have with clients. While the majority of the change that will be brought about by RDR will affect the short term industry, the life industry will also be impacted in some way. 

In an effort to possibly quantify this impact, the Association of Savings and Investments South Africa (ASISA) met with the FSB towards the end of 2017 for a series of workshops that addressed the issue. 

RDR and life insurance

According to a release on the ASISA website, the association attended a very constructive workshop with the FSB to discuss a proposal to more clearly define the activity of investment management within the context of RDR. 

Other topics that ASISA sought clarity on was the extent to which investment management may need to be demarcated from other forms of discretionary investment mandates including so-called white labelled portfolios and model portfolios. 

The release added that the workshop also dealt with the nature of the legal and business relationships between different types of discretionary investment managers. These include collective investment schemes (CIS) management companies, linked investment service providers (LISPs) and investment advisers. 

The last aspect that was discussed was how best to structure these relationships within the regulatory framework to achieve the objectives set out by RDR. The implications of these proposals and relationships for remuneration and charging structures were also discussed. 

ASISA added that the FSB undertook to publish a discussion paper for comment early in the New Year. 

Equivalence of reward

One of the major concerns regarding regulatory reform is the fact that the FSB aims to change the way in which brokers (in the short term industry), and advisers (in the life and investment industry) are remunerated for the products that they sell and the services that they offer.

ASISA pointed out that the draft determination on Equivalence of Reward, which deals with how long-term insurers may remunerate their tied agents, was published by the FSB on 10 November for comment by 11 December 2017.  

An ASISA working group has been formed from members who submitted comments to finalise the ASISA submission. 

Fruitful engagements

One of the secondary objectives of regulatory reform is that the FSB wants to change the nature of the relationship it has with the companies that it regulates. 

This will certainly take centre stage through the implementation of Twin Peaks, however, the foundation of this change has been laid over the past two years. The FSB wants to move away from regulation with a big stick towards an open door policy where it engages with companies over issues. 

This consultative process can be seen through engagements regarding TCF. 

ASISA reported that the FSB published the following documents as part of its ongoing TCF initiatives: 

- Guidance to Benefit Administrators and to Boards of Retirement Funds for the Implementation of TCF Outcomes; and

- TCF Complaints Management Requirements for Administrators approved in terms of Section 13B and Retirement Funds 

ASISA has formed a working group, which will review the documents and formulate a submission to the FSB. 

What will 2018 hold?

The roller coaster ride of regulatory reform is set to reach its climax in 2018. 

The first major change that 2018 may bring is the possible implementation of the Twin Peaks model of regulation. If implemented, this will change the very nature of regulation within the industry and by default, the way that insurers and advisers go about their business. 

The key to this change is RDR which the FSB has reported will be implemented in a phased approach. While the industry is appreciative of the fact that formulating and implementing a vast undertaking such as the RDR takes time, patience is a commodity that is starting to become a bit rare. 

The industry is just as keen as the FSB to see the implementation of RDR purely because it will then know where it stands. Prolonged periods of if, but’s and maybe’s when it comes to doing business is not benefitting insurers and is most certainly not benefitting advisers who are begging for clarity when it comes to the remuneration issue. 

Editor’s Thoughts:
The FSB has acted in good faith through its engagements with the industry regarding regulatory reform, and the industry has responded in kind through open dialogues with the regulator. This good faith must now be extended through the timeous implementation of Twin Peaks and the rolling out of the phased approach of RDR. The time for talking about it needs to come to an end. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.

 

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