Mirror mirror on the wall - will regulation befit all?

South African insurance industry role players should start preparing themselves for yet another challenging year as the list of regulations to take effect in 2015 and beyond grows longer by the day.

Lesedi Letwaba, Regulation and Compliance Executive: Business Development at Centriq Insurance says, “the fact that the changes will create a more sustainable financial services industry in the end should serve as motivation to press on.”

What to expect

If regulations are not implemented during the last quarter of this year, most of the draft legislative and regulatory papers issued for comment will most likely be passed into law in the first quarter of 2015.

While there is still a lot to be done for regulation such as the Financial Sector Regulation Bill (FSRB) to take effect, we can expect Solvency Assessment and Management (SAM) to progress as planned.

TCF to take centre stage

The implementation of Treating Customers Fairly (TCF) as outlined in the FSRB will continue to receive a lot of attention in 2015.

We will see the Financial Services Board (FSB) issuing various discussion papers on how it expects TCF to be imbedded into the day-to-day operations of regulated entities as evidenced by the recently issued Complaints Management Discussion Document on the following, amongst others:

• the alignment of the complaints management processes and procedures with existing regulatory frameworks; and
• the adoption of streamlined definitions such as complaint, complainant and related terms into the framework and relevant legislation.

The FSB will also require regulated institutions to develop and implement a Complaints Management Process (CMP) with specific reference to TCF aligned categorisation and the reporting of complaints data.

Another discussion paper we eagerly await is the Retail Distribution Review (RDR) Discussion Paper said to be introduced in the last quarter of 2014. The financial services industry has been familiarising itself with the UK RDR model for a period of time now and we are keen to see just how the above will be adapted to the South African environment.

Papers by the Registrar of Insurance

The Papers issued for comment by the Registrar of Insurance we expect to be finalised are:

• the Proposed Governance and Risk Management Framework for Insurers, Draft Board Notice 114 of 2014, which will require insurers to establish and maintain governance, risk management and internal control measures; and
• the Review of the Third Party Cell Captives and Similar Arrangements, with one of the topical issues being the treatment of affinity business under cell captive arrangements.

The FSB in conjunction with National Treasury

National Treasury, in conjunction with the FSB, is expected to finalise the following:

• the Second Draft Demarcation Regulations between Health Insurance and Medical Schemes, which specifies the types of health insurance policies that are permitted under insurance laws; and
• the proposed amendments to Insurance Binder Regulations addressing undesirable practices and regulatory gaps that were identified during post-implementation in January 2014.

Papers by the Registrar of Financial Services Providers

In addition to the above, we can expect the following papers issued by the FSB to be finalised:

• Proposed Amendments to the General Code of Conduct for authorised Financial Services Providers and representatives: Sign-on bonus. The FSB is of the view that substantial sign-on bonuses offered by product suppliers and representatives may be contributing to incentive driven churn of financial products.
• Proposed Guidance Note on the Interpretation and Application of section 13(1) of the Financial Advisory and Intermediary Services (FAIS) Act. This may have far reaching consequences for existing Juristic representatives and their respective principal financial services providers.

Overall, we can expect more regulation to see the light as the proposed industry regulators continue their quest to expand on, and/or further align existing legislation with one another to promote financial stability, improve the safety and soundness of individual financial institutions, and strengthen customer protection.