Category Legal Affairs

The complexities of group governance

30 April 2021 Kent Davis from Webber Wentzel

The Insurance Act provides a useful framework for governance of increasingly complex and multi-product financial services groups

The effective and efficient governance of financial groups is imperative to their success, the fair treatment of financial customers and the stability of the financial services sector.

In South Africa, large financial services groups are increasingly operating in different sectors. Although a traditional bank only provided banking services, as a result of increased competition in the market and the need for consolidated offerings, banks (and many other financial institutions) are expanding into other products, such as insurance, investments and financial advice.

This has created increased collaboration between members of the same group of companies, which has required the enactment of group governance laws. These laws are necessary, but they have created new governance complexities for financial groups.

In terms of corporate law, a director of a company has a fiduciary duty to that company. A director of a holding company does not have any fiduciary duty towards other members of the group of companies. However, section 76(2) of the Companies Act 71 of 2008 (Companies Act) states that a director of a company must not use his or her position as a director, or any information obtained while acting as a director, to gain a personal advantage or an advantage for another person, other than the company or its wholly owned subsidiary. The director must not knowingly cause harm to the company or its subsidiary. A director therefore has limited duties towards subsidiary companies.

The position of financial institutions, such as insurers and their holding companies, is different from that of non-financial institutions. For example, although the Insurance Act 18 of 2017 (Insurance Act) does not override, but rather complements, the Companies Act, the Insurance Act facilitates group governance by designating the holding company of an insurance group as a "controlling company".

As a controlling company, the holding company must, at some level, involve itself in the broader group of companies. A controlling company must adopt, implement and document a group governance framework. This framework must ensure the prudent management and oversight of the insurance business and the group's business as a whole. A controlling company has no additional rights in relation to the business of the subsidiary company, nor can it compel the board of the subsidiary company to adopt and implement a governance framework. However, the successful implementation of a group governance framework is an important feature of group governance. It ensures there is alignment among the various members of the insurance group on issues relating to board composition, remuneration, managing conflicts of interests and other issues that may affect the insurance group as a whole.

While the board of a subsidiary is not obliged to adopt and implement the group governance framework, it is obliged to provide certain information to the controlling company on demand. This information must be provided to enable the controlling company to comply with its obligations under the Insurance Act.

The Insurance Act's treatment of group governance provides a useful example to understand group governance in South Africa. It does not seek to override well-established corporate governance practices. Rather, it seeks to ensure effective and efficient group governance through aligned governance arrangements and information sharing, without subtracting from a board's fiduciary duty.

Group supervision in South Africa is becoming more relevant as financial service and product offerings are extended and consolidated within the same group of companies. Financial services groups will need to ensure that their group governance frameworks are adequate to ensure compliance with relevant legislation to preserve financial stability while ensuring financial customers are treated fairly.

Quick Polls


Financial behaviour experts suggest that today’s risk modelling methodologies ignore your client’s emotional ability / behavioural capacity. What are your thoughts on spicing up risk profiling tools to make allowance for your client’s financial behaviours


[a] Bring it on; my client’s make too many irrational financial decisions
[b] Existing risk profiling tools are adequate
[c] Risk profiling tools should be based on the model / rational client
[d] The perfect risk profiling tool is science fiction
fanews magazine
FAnews April 2021 Get the latest issue of FAnews

This month's headlines

Randsomware attacks... SA businesses' biggest risk
Know the difference - compliance vs ethics
Better business by virtue of Beethoven
The future of vaccines
Harmonisation of retirement funds
Call centres and the maze of auto-prompts
The next 18 to 24 months are going to be tough
Subscribe now