Moonstone Monitor: PI Cover and Other Priorities

A recent article in the Cape Argus lauded the new Consumer Protection Bill as heralding in the ‘era of the buyer.’

Businesses found guilty of exploiting consumers face penalties of up to 10 years in jail or 10%% of annual turnover face, once the Consumer Protection Bill becomes law, says the report. Estimating that the Bill would pass before the end of the year, attorneys Alexia Christie and Trudie Broekmann, of Webber Wentzel, have urged all suppliers of goods and services to consider how they would be affected, and to reduce their risks. Christie said the proposed law, which ‘heralds the era of the consumer’, generally applied to any supply of goods or services, as well as to franchise arrangements. ‘Most of us are therefore likely to be affected by the Bill's provisions in some way. It has good intentions, but as suppliers we need to be very careful of how it will impact on business,’ she said, adding that the cost of compliance would be high for business, and would possibly be passed on to the consumer.

Another article actually stipulated that, under the new Consumer Act, a financial advisor can be held liable for incorrect advice leading to the client sustaining losses and be ordered to pay the client from his pocket.

During discussions within our own ranks the subject of PI cover came up as a possible counter to this new threat. We felt that it was becoming less of an option and more of a compulsory expense, albeit a grudge purchase. Cobus Gresse, Moonstone's Head of Compliance and Legal Services points out that Professional Indemnity cover for category I license holders is not yet an obligation, but it is recommended that you should avail yourself of the option where possible. Speak to Deon du Toit of Moonstone at 021 883 8000 if you need help.

Discussion documents on the amended Fit and Proper requirements indicate that PI cover will soon become compulsory for new license applications, as well as for all category II license holders (discretionary FSPs.)

Gresse says that the establishment of a compliance framework should actually be a bigger priority, especially in the light of the plethora of new legislation like the Consumer Protection Bill in addition to constant amendments to existing legislation like FAIS, FICA and the various insurance acts.

He likened the current compliance requirements to a minefield, and strongly advises you to use professional services if you want to get through this unscathed.

Compliance service companies like Moonstone will in future have to specialise in order to effectively address the different kind of risks their clients are exposed to in terms of the various regulatory obligations they are subject to.

We can only wonder how much longer it will take before the legislators realise the damage they are doing by their over-zealous attempts to protect consumers.