Why the Omnibus Bill is contentious
The process of passing the Financial Services Laws General Amendment Bill, also known as the Omnibus Bill, is ongoing though the formal deadline for submitting comments has now passed. The Standing Committee on Finance is now considering the comments that
The Omnibus Bill sets out to amend 11 financial sector laws to address some legislative gaps that came to light during the global financial crisis. The Bill also aims to align financial sector legislation with the new Companies Act of 2008.
Why is the Bill contentious? And why is it of particular interest to the short-term insurance industry?
Clause 140 of the Omnibus Bill sets out to amend Section 55 of the Short-term Insurance Act, which refers to Policyholder Protection Rules (PPR). The Long-Term Insurance Act has a similar provision dealing with these rules and Clause 102 of the Omnibus Bill sets out to amend these.
The Policyholder Protection rules (PPR) protect policyholders as consumers – what’s important to note here is that the rules that currently apply shouldn’t be confused with what is contained in the FAIS Act. These current rules deal with issues such as the termination of insurance policies, the rejection of claims, signing blank or uncompleted forms, a grace period for premiums payments and so on.
What effect the amendments will have
At the moment, the Short-Term Insurance Act provides for the Advisory Committee or the Registrar to ‘propose’ rules that can then be published in the Government Gazette by the Minister. Once written comments have been received, comments by the Registrar or the Advisory Committee are submitted to the Minister. The Minister then approves or rejects the rule in question and it is then promulgated in the Gazette. Importantly, it is the Minister that makes the rules and the Advisory Committee or Registrar that proposes them.
There are two scenarios proposed in the Omnibus Bill under the spotlight under: ‘immediate’ and ‘delayed’ publications.
Immediate publication
The proposed amendments empower the Registrar to issue an immediate notice of a pending rule. This notice must give reasons why the rule must be published immediately and the Registrar says aggrieved persons should write to the Registrar within 30 days of the publication of this immediate notice. This notice has to be tabled in Parliament and the National Assembly can then instruct the Registrar to amend the rule.
The worrying part is that the Registrar, not the Minister, will make the rule. The idea seems to be that this will allow the Registrar to act fast when it’s necessary to do so and this is consistent with international best practice, where Registrars’ powers have been extended. But there are concerns.
Suzette Strydom, general manager of Technical at the South African Insurance Association (SAIA), says SAIA’s position is that the Minister should make the decision about immediate publication of PPRs, to comply with the separation of powers principle that’s embedded in the Constitution.
“The immediate publication of rules without appropriate checks and balances may result in the financial services industry and policyholders being obliged to comply with rules without having sight of those rules,” says Strydom. “The immediate publication and a possible subsequent amendment of the rule by Parliament have the potential of creating confusion in the industry as to how and what needs to be done.”
The rule could require the industry to amend certain practices and if it were amended by Parliament at a later stage there could be some unintended consequences for policyholders Strydom says.
“In the event that a systemic risk is identified to necessitate the immediately publication of rules then the Treasury as the policy maker should be involved,” says Strydom.
Delayed publication
The proposed amendment will again allow the Registrar to make a rule by publishing a note in the Gazette indicating that the proposed rule is available on the official website of the Financial Services Board inviting comments to be submitted within 30 days from the date of publication. The draft rule must be submitted to Parliament one month before promulgation.
The other issue here is that the rule will be made available for comment by means of publication on the Financial Services Board’s website. If you’ve tried to download documents from the website, you’ll agree with the SAIA’s concern here – the website isn’t user-friendly. The FSB is busy upgrading its website and should be finished by September this year, but in the meantime SAIA says publishing rules on the website should be reconsidered, or at least delayed.
The FSB has invited the SAIA and other stakeholders to test the website and communicate any concerns they may have, showing their willingness to solve this issue.
Editor’s thoughts:
It is important to note that the rules will not change for current policyholders; but future policyholders could well be disadvantaged. What is your opinion on this proposed clause of the Omnibus Bill? Comment below or email fiona@fanews.co.za.
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