FSB conducts on-site visit to test practical application of FAIS

While various industry role players, including Centriq themselves, questioned the practical application of FAIS in the market place, Cornea Matthee, Centriq’s compliance officer was pleased with the holistic view and approach adopted by the Registrar throughout the process.

As anticipated by Matthee, the golden thread of the on-site visit included the evaluation of Centriq’s business structure and model as well as their ability to treat customers fairly across the business’ fairly complex supply and value chain structure.

"The Registrar understood the importance of the principle of proportionality in measuring our ability as an Insurer and FSP to apply a risk-based approach in monitoring compliance with regulatory requirements,” she said.

Matthee added that during the visit, she was particularly impressed with the Financial Services Board’s (FSB) determination to leave no stone unturned in trying to understand:

• how their insurance business operates

• what the company’s business structure entails

• what their inherent risks are

• whether they have identified and assessed those risks and what factors they have taken into account

• what controls they have in place

• if the controls are adequate and effective; and

• what their risk methodology, appetite and rating model is

"All of the above-mentioned is so imbedded in a company’s culture, policies and frameworks that it can easily be taken for granted as these processes occur almost naturally or "mechanically” after a while,” she says.

As such, Matthee emphasises the importance of applying both a top-down and bottom-up approach in respect of your insurance business strategy, risk identification and assessment processes as well as risk appetite and management, controls, monitoring, and reporting procedures and systems.

"It is important for the concepts (as mentioned above) to be understood by all employees from the ground-level up. This is because employees working in these areas primary deal with customers whose commitment to the products that the insurance business has to offer is the primary source of an FSP’s bottom-line results,” she explains.

SAM (Solvency Assessment and Management), TCF (Treating Customers Fairly), PPR (Policyholder Protection Rules), General Code of Conduct and the FAIS Act are all interconnected. "Therefore, the application and practical implication on your business should not be measured individually,” says Matthee.

 

She adds that the financial crises highlighted the interconnected risks. "In the financial services industry, the five main categories of risks we have to manage are regulatory, strategic, financial, operational and process risks. Effectively employing the risk management function entails managing the company’s exposure in all areas of its activities and addressing these risks in a comprehensive and systematic manner,” she says.

As such, the FAIS visit to Centriq focused on risks and what they are doing to measure the adequacy and effectiveness thereof, taking fully into consideration the outcomes of TCF, as well as the recent legislative developments.

 

Therefore, if you are not able at ground-level to explain how the interest and rights of customers are being protected and upheld, the FSB will question the purpose of your business model extensively, and rightfully so. If you choose to operate in a fully regulated industry, you should be in a position to prove compliance to the regulatory requirements that apply to your business from a risk-based and apportionment point of view.

"Let’s face it, financial services providers are not 100% compliant all the time. But that is not the point. The point is to prove compliance with those sections and requirements that apply to your business model and from which you ultimately derive your income,” she says.

During the on-site visit, questions were not addressed to Matthee. "The reason for this, we speculate, is that compliance officers know what to answer as they know what the regulator wants,” she says.

Relevant Centriq employees, however, had to provide information on the following:

• The company’s shareholders, including executive and non-executive directors

• Gross-written premium (GWP) in relation to product categories

• Licencing conditions and restrictions

• Take-on process of retail distribution partners through the product value chain

• Sampling of board, risk financing, risk management and operational reports

• Sampling of meeting agenda’s and minutes with distribution partners, including risks identified and remedial action implemented

• Sampling of policy wordings, statutory notices, claim files, complaint registers and partner files

• Sampling of rejection, voidance and cancellation letters

• Sampling of delegation of authority in relation to the payment of claims, commission, binder fees, service provider fees and profit share / dividends

• Sampling of agreements with premium collectors, intermediaries and binder holders

• Sampling of the risk appetite document, risk register and risk report

 

A strong focus was also being placed on micro-insurance related products, and standard FAIS related documents were reviewed to ensure that it aligns with Centriq’s business model.

 

The regulator made it clear that simply having the document in place is not sufficient. "In doing so, you would only be paying lip service to the FAIS act. There are no one size fits all templates. You are required to customise the document based on your business,” comments Matthee.

 

Other documents scrutinised included the company’s Conflict of Interest Management Policy, FICA (Financial Intelligence Centre Act) internal rules and training material, the Debarment policy and processes; FAIS representative appointment letters with specific reference to the fit and proper requirements that apply to specific candidates as well as:

• The debarment process

• Section 13 mandate letters

• Fit and proper declarations

• Debarment documents

• Supervision agreement, and more importantly the supervision plan and tracking of supervision

"Preparation for an on-site visit is vital, but ultimately it all boils down to whether or not you know your business, and whether or not you understand the practical implication of the most important regulatory requirements that apply to the business model. That is what it’s all about,” Matthee concludes.