FIA and FSB square off over regulation

While regulation is necessary in society, over regulation is normally frowned upon as it ruffles a few feathers and generally gets people up in arms. This was the case with the FIA who had a few concerns with the regulatory powers of the FSB.

 

The Financial Intermediaries Association of Southern Africa (FIA) is committed to the professionalism of the financial services landscape.

Justus van Pletzen, CEO of the FIA reports that the FIA’s members accept regulatory interventions such as the Financial Advisory and Intermediary Services (FAIS) Act of 2002 and the enforcement structures put in place to police it. We also participate in the debates that inform legislation and assist our members in clearing regulatory hurdles as they arise.

Since our 2008 launch the FIA has supported the Financial Services Board (FSB) and National Treasury on most of the initiatives taken to fine-tune industry regulation to the benefit of financial services consumers.

That said, we note with concern the current media discourse on the powers and legitimacy of the FSB, in particular the desire of the regulator to increase its powers and absolve itself from any and all ‘mistakes’.

In his response to an article by David Gleason (FSB exculpates itself in advance, Business Day, 20 June 2013) Ismail Momoniat, deputy director general at Treasury, writes: "Once we accept that a regulator is necessary, it then follows that regulators such as the FSB should be protected from liability when exercising its powers in good faith.”

Michael Coulson (letter to Business Day, 4 July) disagrees. "Good faith is no defence in a court of law,” he says. "The more powers are given to officials who are otherwise accountable to nobody, the greater the need for a regulator to be held liable for errors or misjudgements.”

Yet the Financial Services Laws General Amendment Bill 2012 – also known as the Omnibus Bill – proposes major amendments to 11 financial sector laws, ranging from the Pension Funds Act to the FAIS Act. In its current form this Bill does exactly what Momoniat proposes: It seeks to inflate the regulator’s powers and indemnify the FSB.

Can the FIA accept a financial services landscape where certain parties enjoy absolute legal indemnity? We do not believe that the regulator, the consumer, or even the President should be unaccountable.

Our members already experience this ‘free from liability’ attitude in their dealings with the FAIS Ombud, the dispute resolution scheme established by the FAIS Act. Complaints against risk and financial advisors are frequently resolved in favour of the consumer with scant concern for fairness or the law.

Many Ombud determinations have been questioned on the grounds that the scheme does not follow established legal principles, is inconsistent in the application of provisions of the FAIS Act and denies leave to appeal as a standard operating procedure.

Jonathan Dixon, executive officer Insurance at the FSB responds by saying that it goes without saying that the granting of powers to the regulator must come with accountability. Unfortunately the debate in the media in recent months on the revisions to the FSB’s powers has given rise to a number of red herrings and misperceptions.

"Firstly, the amendments in the Financial Services Laws General Amendment Bill 2012 dealing with protection from liability for the FSB when exercising its regulatory powers in good faith are in no way exceptional. In fact, they are quite the opposite. This type of provision is explicitly set as the international standard by global standard setting bodies such as IOSCO and the IAIS, and is the norm for other regulators in South Africa, including the Bank Supervision Department of the SARB, the Commission for Conciliation Mediation and Arbitration in terms of the Labour Relations Act, and the Auditor-General, among others,” he says.

Secondly, the powers granted to the FSB are absolutely accompanied by accountability. Any regulatory action by the FSB is subject to the Promotion of Administrative Justice Act (PAJA), and to the right of appeal to an independent Appeal Board if any regulated entity is dissatisfied with a decision of the FSB. Over and above that, the FSB is subject to on-going oversight by, and accountability to, the National Treasury, the Minister of Finance and ultimately to Parliament.

There is a lot more context to both sides of the debate on our website. For the FIA’s concerns please log onto www.fanews.co.za and type in FIA in the search bar. Please follow the same procedure and type FSB into the search bar for the FSB’s response.

These newsletters generated a significant response from our readers.

 

In response to the FIA’s newsletter, Ayanda wrote: "Apart from the massive uncertainty now infused into the industry by unaccountable, inexperienced and ill incentivised persons who want to be even more unaccountable in future, they want even greater ‘draconian’ powers to ‘intrude’ in every future private financial transaction. The FAnews could have gone on to write about the intrusive, hugely confusing, industry disrupting, job-destroying, massively expensive cost of commission regulation that has now morphed into a micro-management scheme of things that attempts (illegally) to fix the prices of policy contract writing, documentation issue, claims servicing.

John added: "In a free market economy can we just not let market forces dictate what is best instead of a Big Brother ‘organisation’ (which looks very disorganised). If we are continuously told that we are much more professional, educated, trained and provide an invaluable service to the public, why, why, why keep threatening us with lower remuneration? We jump through all your hoops which you dream up year after year, we accommodate every little nit picking, pedantic piece of junk you throw at us and yet you insist on degrading our income earning potential, which is supposed to support a business, adviser, staff and family?

In response to the FSB’s article, PdeM wrote: "It is actually heart breaking following the out crying of frustration and concern. One day the FSB will realise that these cries were real and serious. Unfortunately it will be after the last breath of a great industry. The message is simple - short term insurance viewpoint: It is just too expensive to get new business, now why would you do something foolish, just to loose such valuable clients and a good name? On the other hand, lots of business is written through ‘word of mouth’ What a wonderful witness of trust and recognition by a customer who has been treated fairly!”

AZ wrote: "I hope the commentaries from each colleague will be placed before Mr Dixon! This is the real state of affairs in the practices of each FSP across SA. I wonder if Mr Dixon recently had a background history as a successful FSP with a satisfied customer base over the years? An unfortunate irony is that salaried officials who are removed from reality wants to take the lead. In summary POOR and UNAUTHORIZED contact, administration and service from insurance companies is in NO interest of TCF.”