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A spate of regulatory amendments

18 February 2021 Myra Knoesen

The journey to fully achieving all the Treating Customers Fairly (TCF) principles has been a long and ongoing one, which started on 31 March 2011 when the Financial Services Board (FSB), now the Financial Sector Conduct Authority (FSCA), published the TCF Roadmap.

“This eventually evolved into the Retail Distribution Review (RDR), which was published three years later in November 2014, and which resulted in the first feedback on the proposals in this document by March 2015,” said Bernard Pieterse, Business Compliance Analyst at Momentum Investments.

RDR and FAIS Regulations

“During the last five years quite a lot was achieved, considering the extensive consultation process required in terms of the RDR proposals, in order to convert those proposals into appropriate legislation, and the further consultation process required before the proposed legislation eventually become effective,” continued Pieterse. 

“Although some may feel that these reforms seem to take an awful long of time, we need to remind ourselves that the implementation of the RDR reforms, informed by the TCF principles, is a multi-year implementation project which should see all the RDR reforms finally implemented when the Conduct of Financial Institutions Act (COFI) comes into operation. Along the way there has been a few speedbumps, for example, the implementation of twin peaks in 2018 when the FSCA and the Prudential Authority was officially formed, and the global COVID-19 pandemic that hit the world early in 2020. These events have unfortunately slowed down the progress that was hoped to have been made by now,” added Pieterse. 

“However, all is not lost and during the last three or so years, we have witnessed a spate of amendments to the current financial services legislation, as well as the introduction of new conduct standards. All of these give effect to a very large compliment of the RDR proposals deemed necessary to implement before COFI becomes effective (the initial deadlines for the implementation of COFI may have been a bit optimistic and due to unforeseen circumstances, the implementation is likely to take a bit longer). These changes are paving the way to the envisaged ‘COFI world’ and should be seen as allowing the industry to successfully transition to this ‘new world’ in a less disruptive way,” emphasised Pieterse. 

Changes and amendments

According to Pieterse, some of the major changes and/or amendments to current financial sector legislation during this time include, amongst others, the following: 

  • The Policyholder Protection Rules (PPRs), under the Long Term Insurance Act;
  • The Policyholder Protection Rules (PPRs), under the Short Term Insurance Act;
  • The Determination of Fit and Proper Requirements, under the Financial Advisory and Intermediary Services (FAIS) Act;
  • The amendments to the General Code of Conduct for Authorised Financial Services Providers and Representatives, under the Financial Advisory and Intermediary Services (FAIS) Act;
  • The Conduct Standard on Net Asset Valuation Calculation and Pricing for Collective Investment Scheme portfolios, under the Financial Sector Regulation Act; and
  • The Requirements for Delegation of Administration functions by a Manager of a Collective Investment Scheme, under the Financial Sector Regulation Act. 

“All the changes mentioned above, bring into effect the requirements and obligations in respect of accountability and fair treatment standards toward financial services customers by financial product and services providers. Most of these changes are already effective with some of the more recent changes becoming effective later this year, and the second quarter next year. As a result, I believe that the industry now has better direction and is working hard to meet, and already meet many of these objectives,” added Pieterse. 

Progress in the implementation of RDR

Pieterse thinks there may be a big misconception or expectation that RDR would be a stand-alone piece of legislation that everyone seems to be waiting for. This is not the case. 

“As mentioned above, the regulatory changes and additions to financial services legislation that were introduced during the last three or so years, gave effect to a very large compliment of the RDR proposals deemed necessary to implement before COFI becomes effective. This means that quite a number of the RDR reforms that were proposed are already implemented through amendments to current financial services legislation and conduct standards published,” said Pieterse. 

“The RDR General Status Update, as of December 2019, published by the FSCA, provided detailed feedback in respect of the progress made regarding the various RDR proposals. This document shows that a very large compliment of the RDR proposals have already been implemented or are in the final stages of implementation. There is, however, a few proposals where consultation is at an early stage, or no work has commenced yet in respect of the some of the proposals,” continued Pieterse. 

“Overall, I think that significant progress has been made in respect of the implementation of RDR, from a regulatory point of view, albeit that some unavoidable delays have been experienced,” added Pieterse.Intermediary sustainability

“The global shock that the current COVID-19 pandemic has brought about basically forced everybody to think differently about how to continue to do business virtually overnight. This also means that regulators must think differently about the implementation of their supervision plans. Unfortunately, some delay in transitioning from the ‘old normal’ to the ‘new normal’ are to be expected. However, once the new way of work has been established, it ensures that efficiencies return to normal, and in most instances, improve significantly,” emphasised Pieterse. 

“The current regulatory framework will be further strengthened once the RDR proposals in respect of adviser categorisation are implemented, which should provide further clarity on the responsibilities of the product provider in terms of the advice provided on its products. The current proposals seem to place a greater accountability on the provider for the advice provided by their own advisers (tied agents or product supplier agent), as opposed to the advice provided by registered financial advisers (currently generally referred to as independent financial advisers). Recent changes to the General Code of Conduct for Authorised Financial Services Providers and Representatives, aligned the complaints management process for financial services providers with that of insurers, as provided in the PPRs,” said Pieterse. 

“The effect of these proposals is to place greater accountability on the product provider in respect of the advice provided on its products. However, although I believe that this may improve outcomes to financial services clients, I do not believe that placing more responsibilities on the shoulders of product suppliers will be the silver bullet that will magically improve consumer outcomes. I believe that more visible consumer education, specifically with regard to the rights clients have, in respect of the advice they receive on financial products and services, would perhaps yield better and more cost-effective results,” emphasised Pieterse. 

“Internal compliance functions and processes of product suppliers and service providers may be required to be expanded, in order to efficiently facilitate and monitor the ever-increasing compliance burden placed on product suppliers and service providers,” he said.

2021 and beyond

“I think we can expect additional conduct standards to be issued, which will allow further progress to be made in respect of the RDR proposals, and further developments in respect of COFI will start to get traction,” he concluded. 

Editor’s Thoughts:
Financial advisers have paid the biggest price for legislation compared to the other stakeholders, but hopefully this will change soon, and we will see a level playing field. Instead of dwelling on the negatives, let us focus on the positives. The regulations are in the best interest of insurers, brokers, and consumers. These changes will create a sound foundation for the industry to be recognised as one that can be trusted and will lead to much better outcomes for all the stakeholders over the long-term. Do you agree? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected]

Comments

Added by Myra, 18 Feb 2021
Hi Tim,

I agree with you.

@Paul hopefully this will change soon, and we will see a level playing field with much better outcomes for all stakeholders.
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Added by Paul , 18 Feb 2021
I too agree with Tim.
The whole compliance scenario is completely out of hand.
Standards and requirements are just about impossible to maintain.
I doubt there is a brokerage or intermediary in the country that after an inspection that would not be found wanting in some respect.
I used to love this industry, and be proud of it ,now it is just a minefield and getting worse by the day.
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Added by Tim Jones, 18 Feb 2021
I feel that compliance requirements and enforcement has gone way over the top and places incredible burdens on the intermediaries.intermediary bodies and product suppliers need to interact with the regulators so that common sense is applied.
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