Digitalisation could derail FSCA plans for wider access to financial services

Caroline da Silva, Deputy Executive Officer Regulatory Policy at the FSCA

The rapid adoption of technologies that enable remote working and digital access to financial institutions risks restricting access to financial products and services among customers that are not remote-enabled. This was among the concerns raised by the Financial Sector Conduct Authority (FSCA) during a media briefing to discuss regulatory responses to the COVID-19 pandemic. “Digital environments and remote capabilities enabled access and efficiencies for many customers; but the overall reach of a financial institution is dependent on its customers being remote-enabled,” said Caroline da Silva, Deputy Executive Officer Regulatory Policy at the FSCA. The acceleration of digitalisation in response to lockdown could prevent the old and poor from accessing financial services.

Industry resilience applauded

Da Silva briefed the media on how South Africa’s financial sector regulators had approached the country’s State of Disaster and the almost eight-month long lockdown that ensued. Their immediate response centred on how to enable regulated financial institutions to fulfil their operational mandates remotely, especially under level 5 restrictions. “The financial sector and financial institutions were declared essential services from the very beginning of lockdown; but we had to comply with strict protocols on social distancing and managing the disease,” said Da Silva, adding that the FSCA was encouraged by the operational resilience of the industry in becoming remote capable. 

The COVID-19 pandemic will go down in history as the trigger that transitioned many industries into a new model of working. “Pandemic created the conditions that required institutions, especially financial institutions, to become remote enabled and implement the future work scenarios they had been toying with for years,” said Da Silva. The financial services sector’s transition to remote working went off without a hitch, aside from the occasional issue with call centre integration. 

A major drawback of the move to a digital operating environment is that many customers risk being left behind. This reality exhibited in the long queues outside bank branches despite the significant increase in remote usage via websites and banking applications. Life insurers, meanwhile, struggled with certain of their medical underwriting requirements which required potential insured to complete medical tests. “We need to focus on how institutions enable their customers to access them in the digital world,” said Da Silva. 

Tweaking commission regulations

The regulator offered a rare word of praise for the broader financial services sector, thanking all stakeholders for their various initiatives to support their customers during lockdown. Banks, insurers and medical schemes offered debt relief and payment holidays to customers while making sizeable contributions to the government’s Solidarity Fund. South Africa’s various regulatory authorities were proactive through crisis; with both the FSCA and Prudential Authority (PA) taking swift action to address potential regulatory hiccups. One of the best examples of this intervention was the FSCA’s introduction of regulatory relief to allow intermediaries to continue to earn their full commissions even though customers were benefitting from premium holidays. 

The pandemic was the first ‘real world’ scenario to stress test South Africa’s recently-implemented twin peaks regulatory framework, which has bedded down over the past two years. “Everything the FSCA did during lockdown was done in collaboration and coordination with the PA,” said Da Silva. A close alignment between the authorities was necessary due to the pervasiveness of the pandemic. The extensive economic fallout required both a human touch, in the conduct of financial institutions towards their customers, and swift prudential responses to ensure the stability of the broader financial services sector. South Africa’s twin peaks model ensured a considered approach to both customers and financial institutions through crisis. 

The FSCA and PA worked together to assess the potential financial impact of pandemic-related claims on the country’s non-life insurance industry, issuing joint and separate communications to industry stakeholders, while also communicating openly with the media. Da Silva acknowledged that the contentious business interruption (BI) insurance issue had dominated local media coverage of the industry’s response through lockdown. “Approximately 3% of local policies with BI cover also had an extension for contagious diseases, sometimes referred to as contingent BI (CBI) … and these policies did not respond in the way customers expected,” she said. The fallout between insureds and insurers, which centres on whether or not a government lockdown constitutes a trigger on such policy extensions, has been exhaustively discussed. 

Frank and open discussions around BI

Industry stakeholders will no doubt appreciate the frank and open discussions they have had with the regulators through this crisis. The FSCA went to lengths to explain that the circumstances surrounding BI claims were not unique to South Africa. They pointed out that customers and regulators are challenging insurer and reinsurer interpretations of policy wordings in multiple country markets. The FSCA also confirmed that local insurers are within their rights to seek legal certainty… “We have agreed on the process under which we will gain legal certainty; we will take precedent from the Financial Conduct Authority challenge in the UK, because a lot of their wordings are similar to ours; and we also have two cases that are going through our courts in October,” said Da Silva. 

Financial advisers and short term insurance brokers had their work cut out for them through pandemic. They were called upon to assist clients who were struggling financially; to make the necessary changes to investment portfolios and risk covers in both the life and non-life sectors; and to support clients with myriad tough financial decisions. It is a pity that so few South Africans have access to sound financial advice because unadvised financial decisions taken during economic crisis often result in poor financial outcomes. Brandon Topham, Divisional Executive Investigations & Enforcement at the FSCA, observed that fraud was rife during the second and third quarters of 2020. “If a money making opportunity has the words crypto, forex or platform in it, then it is a scam,” he warned. He said that the FSCA was investing a number of potential scams presently; but that the numbers made it difficult to get to them all. 

Writer’s thoughts:  
Are you happy with the level of support offered by the FSCA and PA through the COVID-19 pandemic? Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts editor@fanews.co.za.