The feared S-Reference gets the punt
There are three key pillars to a properly functioning financial services industry. The first is a body of professional individuals to take up roles as product providers, intermediaries and regulators. The second is a set of rules and regulations to govern the behaviour of industry stakeholders. And the third is a system to monitor industry participants’ compliance with the rules and apply meaningful censure in the event of any contraventions.
The regulation of South Africa’s financial services industry has improved in leaps and bounds in recent years. Apart from long-standing legislation governing each area of the environment (the Short-term Insurance Act, Long-term Insurance Act and Medical Schemes Act) financial services professionals have had to familiarise themselves with the Financial Advisory & Intermediary Services (FAIS) Act and National Credit Act to boot. FAIS – read in conjunction with the Fit & Proper Requirements for Financial Services Providers – sets the legal requirements and best practices for financial services providers (FSPs) and intermediaries engaged in selling financial products and advice. Under this environment it makes sense for the Financial Services Board (FSB) to oversee the conduct of professionals in the industry.
S-Reference confined to the history books
On 10 June 2009 the Association for Savings and Investment South Africa (ASISA) announced that it had imposed its last “debarment ruling” or “S Reference Ruling” on a financial adviser. Peter Dempsey, deputy chief executive officer of ASISA, said the decision was taken after the promulgation of the Financial Services Laws General Amendment Act of 2008 in September last year. In terms of this legislation the FSB has the power to debar non-affiliated financial services intermediaries. “It therefore does not make sense for the long-term insurance industry to continue self-regulating by means of the S Reference system,” said Dempsey.
The S Reference system was a life industry ‘monitoring’ function inherited by ASISA when the Life Offices’ Association (LOA) merged with the Association of Collective Investments (ACI), the Investment Management Association of South Africa (IMASA) and the Linked Investment Service Providers Association (LISPA) in October 2008. It applied to members of the LOA only, and empowered FSPs to implement industry-wide debarments against tied agents or employed intermediaries who attempted to escape sanction by resigning and rejoining another life insurance company or setting up as an independent brokerage. S Reference debarments could be used against independent brokers who were outside the reach of an individual life company too.
“Misconduct such as submitting unauthorised policies (policies written without a client’s consent), misrepresentation, misappropriation of funds and failing to render financial services honestly and fairly, and with due skill, care and diligence” would result in a three to five year S Referencing. With this ‘black mark’ against their name, an S Referenced intermediary couldn’t take up employment, write new business or receive commission from an LOA member company. They were also barred from occupying positions that would give them control over advisers or influence over their training.
Future debarments under FSB
At the FSB’s request, ASISA hasn’t been processing new S Reference cases since October 2008. The association was, however, granted permission to handle all ‘in process’ cases. Dempsey notes the final hearing was held in March 2009 and the ruling handed down at the end of April. The S Reference code remains in force for five years from the final ruling date. According to Dempsey, this “ensures that all S Reference rulings imposed on intermediaries in recent years will only lapse after either three or five years from the date on which they were imposed.” An individual serving an S Reference debarment will have to wait until the penalty period expires before applying to the FSB for a new FSP Licence.
“Financial services providers remain responsible for debarring intermediaries in their employ,” says ASISA. The new legislation requires that they report any intermediary found to be unfit to practice (while in their employ) to the FSB within 15 days. The FSP must then update the register of debarred intermediaries. Where the intermediary is not in the FSP’s employ – the FSP must inform the FSB and produce any evidence collected in support of their debarment request. At this point the “FSB will consider the matter, and if it agrees with the debarment recommendation, will issue a notification of intention to debar and give the recommended intermediary time to respond.” Debarment under this system will be for a minimum of one year.
Editor’s thoughts:
Although the S Reference system is consigned to the history books, it’s business as usual for FSPs wanting to debar unfit employees. Blacklisting non-employee transgressors should be as simple as forwarding correspondence to the FSB. Do you think the debarment process needed to be kept in house (within the industry through the S Reference system) or is it better housed at the regulator? And does the current implementation create questions over ownership and monitoring of the debarment process? Add your comments below, or send them to [email protected]
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