Regulatory uncertainty significantly affected the industry in 2013
13 December 2013 | Talked About Features | The Stage | Jonathan Faurie
This has been an interesting year for the South African financial services industry. The Financial Services Board made a bold statement at the beginning of the year when it announced that it would be going ahead with the implementation of three new pieces of legislation which would change the face of the insurance industry. While there has been significant resistance to this, determinations which were dealt with by the FAIS Ombud points to the fact that the new pieces of legislation are necessary. This however did not exclude the FSB from its own bit of controversy.
The voice of opposition
The buzz word of the year has definitely been ‘over regulation’. Treating Customers Fairly (TCF), the Retail Distribution Review (RDR) and Solvency and Asset Management (SAM) are set to change the face of the industry as it redefines the role of the intermediary as well as the way in which business is conducted in the industry.
However, there has been major opposition to the implementation of these pieces of legislation from various quarters of the industry. The main concern is that the FSB is implementing certain pieces of legislation in the same way that they were implemented in the UK and Australia where they ultimately failed.
But when the FAnews spoke to Jonathan Dixon, Deputy Executive Officer of Insurance at the FSB, he disagreed with some of the markets’ resentment and assured the industry that the regulation which is being put in place, will bring South Africa on par with its international counterparts.
"There is a lot of regulatory reforms happening in the industry at the moment. But this is being driven by a number of factors. Firstly, there has been a wave of international regulatory reform after the 2009 global financial crisis. And while South Africa came through the crisis relatively unscathed, it isn’t to say that the international lessons are not applicable to us. We are also playing a bit of catch up as we were slightly behind the curb when it comes to regulation. It is important for the industry to meet international benchmarks, while also taking account of local circumstances” says Dixon.
He says that the FSB is in the fortunate position of seeing the international failures and learning from them. He added that a major reason why TCF and RDR failed in the UK and Australia is that they didn’t have the backing of legislation similar to that of the Financial Advisory and Intermediary Services Act, which was entrenched in the South African industry in 2002. It will be interesting to see if this makes the difference.
Brokers in the naughty corner
While there is significant opposition to the FSB’s regulatory implementation strategy, it seems as if there is a definite need for reform in the industry, and the most recent determinations by the FAIS Ombud gives significant support to the FSB’s outlook.
Probably the most important of these was the case of Craig Keshwar who was defrauded out of money which he was saving for retirement after placing significant trust in a bank manager from a branch of First National Bank (FNB) with whom he had built up a significant friendship.
It was a very complex case and the Ombud eventually ruled in favour of FNB despite the fact that the advice which was given to Keshwar was by an FNB branch manager and was given to Keshwar during FNB banking hours at the FNB branch where the bank manager worked.
This is where RDR would have played a major role in the case, one of the purposes of RDR is to clearly define what constitutes financial advice and who is qualified to give it. Keshwar maintains that because of the branch manager’s position, the advice given by him was financial advice while FNB maintains that it wasn’t because the branch manager was not a Certified Financial Planner.
There was also the case of Gert and Susara van Vuuren vs Kampstone Financial Services, which proved that advisers need to be very clear in their dealings. The Ombud has made significant statements this year that it is prepared to come down hard on those who want to cut corners in order to make a sale.
No exoneration
Despite the fact that the FAIS Ombud determinations strengthen the FSB’s case for legislation, it did not prevent them from courting their own bit of controversy.
During the year it came out that a number of clients around the country were defrauded by Model Insurance, an insurance company operating in KwaZulu-Natal without a valid FSB licence. Throughout the year, the FSB made it their mission to shut down the services of Model Insurance. They finally achieved their objectives in September when they received an interim court interdict which prevented Model Insurance from operating.
However, there are a few questions that one has to ask here. If the FSB first received complaints in 2007, why did they wait until 2011 to get serious about shutting them down? Also as the regulator, surely you should not struggle to get Model Insurance to hand over any documentation that is asked for. Just think how many people the FSB could have saved if it leaned hard enough on a company it knew was defrauding people.
Editor’s Thoughts
It is clear that the uncertainty felt in the market had a major impact on the industry. While the FSB was focusing on implementing TCF and is making good progress in establishing the RDR framework, it can be argued that it lost sight on the implementation of compliance to the FAIS Act. But while there has been resistance to TCF and RDR, they are a necessary evil in the market as it will protect the consumer as well as leave the adviser/broker with no doubts as to their roles and responsibilities. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.
