FSB Enforcement Committee ups the ante!

The Financial Services Board (FSB) has come in for plenty of criticism in recent months. Top of the list is a deep dissatisfaction among financial services professionals with the implementation of the regulatory exams. Most welcomed the exams as a much needed step to professionalism in the industry, but few were prepared for the chaos that followed its implementation. Granted, chaos may be a trifle harsh, but as the 31 December 2011 deadline (for completion of RE I) looms industry participants are still up in arms over issues with exam study guides, exam language, ambiguous multiple choice questions, the appropriateness of exam content to various industry participants, high failure rates and exam centre capacity, among others. It appears, once again, we are struggling with an ‘implement regardless of consequence’ attitude from the industry watchdog…

Another of the accusations levelled at the FSB by advisers is that they’re obsessed with generating revenue from financial services professionals when they should be safeguarding the industry. Many opponents of the regulatory exam have, for example, dismissed the process as an FSB money spinner! It seems their rage is misdirected, because the monetary benefit from the exam process flows to the approved examination bodies. The fee for the RE I exam was set at R900, with the FSB scooping only R20 to cover administrative, oversight and IT development costs. The FSB reminds us that the fee was calculated based on budgets submitted in 2008, which have not taken into consideration any inflation over the past three years. The good news is there’s no intention to increase the fee until such time the RE II cut off date is reached, in December 2013.

How the FSB keeps the cash register ticking over...

Where does the FSB get its funding? And is there truth to the ‘fleecing the intermediary’ allegation? To find out we paged through the 2010 FSB Annual Report. According to the organisation’s annual financial statements they ‘banked’ around R316.791 million from the industry over the latest year, including R265.192m from FSB Levies, R21.753m from FAIS Ombud Levies and R30.025m from PFA Levies. Additional revenues accrued thanks to fines and penalties R2.348m, inspection costs and recoveries R319 588, and legal and other cost recoveries R1.160 million.

We get a further ‘feel’ for the regulatory fees borne by industry participants by perusing the Government Gazette No. 33750 that deals specifically with Determination of Fees Payable to the Registrar of Financial Services Providers… It provides a comprehensive list of fees and charges in place from January 2011. An FSP licence (excluding discretionary FSP) will set you back R1, 690.00, or R676.00 if the fee is payable to the FSB through a recognised representative body… This 60% discount applies to most licensing applications and amendments. But fees quickly escalate for Discretionary FSP Licences (R10, 360.00) or Administrative FSP Licences (R30, 560.00).

It would be impossible for us to determine the cost to an average FSP due to FSB licensing and related administrative transactions. We assume industry stakeholders could debate these charges back and forth… But apart from observing that certain administrative charges seem a trifle steep (for example, FSP name change applications (R480), additional certified copy of licence (R150) and reprinting of licence certificate (R400) we’re not in a position to comment.

The enforcement committee sure to improve its contribution!

What we can say is the FSB Enforcement Committee, an administrative body that has the authority to impose administrative penalties, cost orders, and compensatory orders on offenders of FSB legislation, appears to be upping its game. And it looks certain the amount fines and penalties contribute to the FSB bottom line will improve significantly through 2011 and 2012. It’s good news for the industry because the regulator is taking its enforcement role seriously!

We’ve received three ‘enforcement’ press releases in the fist week of July! First, a penalty of R100, 000 was levied on Nestlife Assurance Corporation Limited (Nestlife) for contravening section 7(3) of the FAIS Act. The group entered into agreements wherein it would underwrite funeral policies in respect of clients of certain funeral schemes. The agreements dealt with the detail of the policies including premiums, benefits, admission requirements and claims, but the funeral schemes, as at the time of entering into the aforesaid agreements, were not lawfully issued with a licence for the rendering of intermediary services, and were not representatives of intermediaries as contemplated by the Act.

Second, a penalty of R20 000 was levied on Nothemba Funeral and Financial Services cc (trading as Nothemba Funeral Services) for contravening section 7(1) of the FAIS Act. During 2005, the funeral parlour entered into an agreement with African Unity Insurance Administrators (Pty) Limited, who issued it with a representative certificate. Pursuant to the above, African Unity entered into a new administrative agreement with Nothemba, but did not register Nothemba as a juristic representative! Nothemba continued to render financial services without being noted as a representative or as an FSP.

And third, a penalty of R40, 000 was imposed on Gingirikani Marketing cc (trading as Ditiro Group Funeral Administrators). The Registrar alleged that Ditiro contravened section 7(3) of the FAIS Act in that it was contracted to underwrite, administer and market funeral insurance policies in respect of certain funeral parlours, thereby rendering financial services whilst not authorised to act as an FSP.

Editor’s thoughts: The FSB has to fund its activities from the industry it represents. But if the regulator is allowed to grow unchecked we run the risk of it becoming a drag on the sector it is meant to serve. Do you think the current fee structure implemented by the FSB is fair? And how much is your practice paying away in FSB licensing and administrative fees each year? Please add your comment below, or – if you prefer a confidential rant – send it to [email protected]

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