Seamus Casserly, President of the Financial Intermediaries Association of Southern Africa (FIA)
As part of the efforts to further ensure the protection of insurance consumers, the Financial Services Board that oversees the industry is introducing amendments to the General Code of Conduct for Authorized Financial Services Providers and their Representatives, (FAIS Act), to address concerns regarding conflicts of interest between financial services providers, representatives and clients.
According to Seamus Casserly, President of the Financial Intermediaries Association of Southern Africa (FIA), while the General Code of Conduct required that financial services providers and representatives disclose to clients any actual or potential conflicts of interest, there was some confusion over how this should be implemented.
“The original legislation required levels of transparency and disclosure; however, there was not a clear strategy to determine what needed to be disclosed and how this should be done, with the result that the disclosure of conflicts of interest was not made consistently throughout the industry.”
Casserly says this created a perception among consumers that non-cash incentives and other benefits were not being properly disclosed by financial services providers and representatives, or if they were, that this disclosure was inadequate and failed to properly address consumer concerns.
The new amendments are therefore designed to provide increased clarity regarding the implementation of the Code.
Casserly says that while both product providers and intermediaries need to familiarise themselves with the new legislation in order ensure compliance, it is equally important for consumers to understand what they should be expecting from their providers under the revised legislation.
He says that in terms of the new amendments, a conflict of interest is defined as one in which a reasonable person would think that the professional’s judgement is likely to be compromised. “It is important for financial services providers and representatives to be aware that a conflict of interest exists whether or not decisions are affected by a personal interest. A conflict of interest implies the potential for bias, even if this bias is not likely.”
Casserly says that the actual or potential existence of a conflict of interest may in itself not be a wrongdoing or undesirable practice. “It is however imperative that those parties involved properly disclose the nature and monetary value, if any, of such a conflict to their client. Full disclosure enables a potential client to decide for themselves whether a conflict of interest may be biasing the advice they receive. Armed with all the available information, the client is then better equipped to assess whether the advice they are being given is unduly influenced.”
Casserly says the new amendments further stipulate that every provider, other than a representative, must also adopt, maintain and implement a conflict of interest management policy, which complies with the new provisions set out in the Code.
“Financial services providers will now have to have a documented policy on conflict of interest, which has to be monitored on an ongoing basis. In addition, they also need to keep and maintain a register in which all actual or even potential conflicts are recorded.”
He says while it is important that providers do comply with this regulation, a management policy to deal with conflicts of interest is also in the interest of the provider, in order to ensure that the Code is being accurately followed.
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