Chapter 7- South African Regulatory Environment (NCA, FAIS, FICA, TCF) Flashcards
Describe the Financial advisers and intermediary services (FAIS) Act including the aims as well as compliance requirements (3,3,3)
• Regulates the business of all financial services providers (FSPs) who give advice or provide intermediary services to clients, regarding a wide range of financial products
o consumers can seek redress when they have been misled or misrepresented to by an FSP or its representatives
o Regulates a function (i.e. advice and intermediary service) and not a particular group of institutions
o “Financial products” include banking, healthcare, unit trust products etc.
• Aims to achieve consumer protection through:
o Professional conduct
o Better informed clients (i.e. disclosure)
o Professional, responsible sector
• Requirements of FSP:
o Licensed under the FAIS Act and must comply with prescribed fit and proper criteria
o Responsible for their representatives, who must also comply with fit and proper criteria
o The professional conduct of FSPs
Describe the definition of advice and intermediary services with respect to the FAIS Act? (4,2)
• Advice is defined as any recommendation, guidance or proposal of financial nature to a client or group of clients
• including the purchase or investment in any financial product,
• conclusion of transaction incurring a right, benefit or liability
• Or variation, replacement or termination of financial products
Intermediary service means any activity other than advice on behalf of the product supplier or client
The results of which is that a client may enter into, offers to enter into any transaction in respect of a financial product with a product supplier
Describe the Impact of the FAIS Act on life insurance companies? (3)
• Significant impact for both tied and independent distribution models
• Insurers distributing through tied agents:
o Must register as FSP, with the tied agents being “representatives” who provide advice and intermediary service on behalf
o Substantial FAIS compliance investment must be made:
Structure business processes to be FAIS-compliant
Monitor representatives’ on-going compliance
Train representatives to meet the “fit and proper” standards
• Insurers distributing through independent intermediaries (i.e. insurance brokers):
o Policyholder Protection Rules under the LTI Act require independent intermediaries to be registered FSPs before insurers can enter into distribution contracts with them
o Not directly responsible for FAIS-compliance of independent intermediaries, but still impacted by FAIS
Describe the need for the introduction of the national credit Act? (4)
Intention: single, functional system of regulation that will apply to all credit activities, thereby ensuring that all credit providers and credit consumers are treated equally
Problems addressed by the NCA:
o [Usury] and [Credit Agreement Acts] were outdated
o Exploitation of credit consumers by the credit industry:
70% of South Africans relied on money lenders and were not adequately protected by legislation
o There was general reckless lending by certain credit providers
o Access to credit was a problem to a large proportion of the population
State the objectives (5) and purposes (6) of the national credit Act?
The objectives of the NCA:
o Competition and transparency will be promoted
o Equal rights for all consumers
o Manage over-indebtedness of consumers and reduce reckless lending practices
o Regulate credit bureaus, credit providers and debt consultants
o Formalise complaint mechanism to ensure consumers are protected
The purpose of the NCA:
o Improve accessibility to the credit market for previously disadvantaged communities
o Enhance consumer rights and education
o Better regulation of credit
o Consistent treatment of all consumers and credit providers
o Responsible borrowing and elimination of reckless lending
o Redressing the balance of power between the consumer and credit providers
Describe the impact of the NCA on long-term life insurance business?
Specifically the maximum premiums, minimum benefits as well as constraints on exclusions
The amendments under NCA regarding credit life insurance were published with effect August 2017. The regulation applies to all policies issued on or after this date.
• Max prescribed cost & min benefits of credit life insurance
o Max cost – based on outstanding debt (or avg utilisation of credit limit if credit facility)
Vary from R2.00 to R4.50 per R1,000 pm
Depend on the type of credit agreement
o Min cover – must at least provide for the settlement of:
Death/ disability: outstanding balance under the credit agreement
Temporary disability: up to a max of 12 months, all premiums payable until either
• Ph no longer disabled
• Credit agreement terminates
Unemployment/ unable to earn income (other than above):
• Same max benefit as above
• Exclude cases, where insured, is unemployed at the commencement
o this benefit then also excluded in the cost of insurance
• self-employed/ employed in the informal sector: may include the cost of this benefit i.e. only unable to earn income
Pensioners: no cost relating to an occupational disability may be included in the cost of insurance
The actual cost of insurance:
• Determined regarding actual risks & liabilities
• Be able to demonstrate this to National Credit Regulator
• Exclusions & limitations of cover
o Exclusions/ waiting periods must be explained at point of sale
o Can only exclude/ limit cover in certain circumstances - examples:
o Death/ disability: alcohol or drugs/ self-inflicted injury or suicide/ hazardous activities/ pre-existing conditions affecting customer in 12 months preceding the commencement
o Unemployment/ income protection: retrenchment in first 3 months (if policy > 6 months)/ lawful dismissal/ voluntary retrenchment/ retirement
o Policies > 6 months max 3 month waiting period
o Policies < 1 months: no waiting period
• Additional benefits to min benefits
o If the policy provides benefit for temporary disability & ph unable to earn income max cost of cover can be increased by R1.00 p R1,000 for both benefits
(can’t compel the consumer to take this cover)
• Substitution of credit life insurance
o The consumer can substitute policy at any time, as long as new policy meets min benefits described above
Describe how FICA impacts life insurers including the definition of money laundering? (2,6)
Definition of money laundering ‘
Processes were criminal try to conceal the true origin and ownership of the proceeds from criminal activities. Allowing them to maintain control of the proceeds and attain a legitimate income source.
The purpose of the FIC Act
The most important reason is to curb money laundering and activities such as terrorism which is financed through activities such a money laundering.
The following obligations are imposed for the purpose of the assistance in the identification of the proceeds of unlawful activities:
o Establish and verify the identity of clients
o Keep records of business relationships and transactions
o Report suspicious and unusual transactions and property associated with them
o Provide training on the FICA to employees
o Formulate and implement internal rules
o Compliance obligations
Describe the FAIS Ombud (3) including why complaints can be logged (3) and the procedure to be followed? (3,3,6)
The FAIS Ombud was established through the FAIS Act and is appointed by the minister of finance.
The objective of the FAIS Ombud is to consider and dispose of complaints against FSPs in a procedure that is fair, informal, and economic by reference to what is equitable in all circumstances
Act independently, impartially and objectively. Requires co-orporation by involved parties. Resolves complaints through mediation, conciliation and determination.
A complaint can be made by a client in the following:
o Contravened or failed to comply with the provisions of FAIS and as a result the complainant has suffered financial prejudice or damage
o Willing or negligent financial service rendered
o Treating the complainant unfairly
The act or omission must have occurred after September 2004
• Complainants must attempt to resolve the complaint with the responding party, before submitting to the FAIS Ombud
o The responding party must respond within 6 weeks, after which complainant has 6 months to submit to the FAIS Ombud
• Complaints must relate to a financial service (advice or intermediary service) rendered by an FSP or a representative of the provider
o Eg by a product supplier (insurance company/ bank); financial intermediary; investment manager; representative that renders a fin service on behalf of these
• Complaints may not relate to the investment performance, unless
o such performance is guaranteed in express terms or
o such performance appears so deficient to the FAIS Ombud so as to raise a prima facie presumption of fraud, negligence or maladministration on the responding party
• The complaint must not constitute a monetary claim in excess of R800,000 unless the responding party has agreed in writing to this limitation being exceeded
• Complaint will not be investigated if the court gets involved
Describe the voluntary ombud services relating to the financial service ombud scheme Act? (6 subs 4,2,4,4)
• Four voluntary Ombud schemes established according to the Financial Services Ombud Schemes (FSOS) Act
o Ombud for LTI (long-term ombud concil
o Ombud for STI
o Ombud for Banking Services
o Credit Ombud
• Consumers are not obliged to use the scheme concerned, but may instead sue the industry member in court
o If consumer uses scheme – not bound by determination (ruling) of Ombudsman
Can still sue industry member in court
But, if complain at Ombud, no other legal processes at same time
• The Ombudsman enjoys security of tenure, and may not be dismissed for being unpopular with industry members or because of dissatisfaction with recommendations or determinations
• Resolves disputes by conciliation, mediation or recommendation, failing which by determination
• Determinations are binding and enforceable on the industry member
The long-term insurance ombud deals with issues regarding:
o Communication/admin failures (marketing)
o Mis-selling (entering into a policy)
o Lapsed policies
o Alleged unfair rejection of claims
The following is excluded from there scope:
o Purely administrative issues
o Issues regarding intermediaries after 2004 (FAIS Ombud)
o short-term insurance, unit trust investments
o Issues being dealt with in court
The aims and code of conduct and practices of association of savings and investment of South Africa (ASISA)? (4)
• Aims of ASISA:
o Level playing fields
o Enable holistic regulation
o Increase consumer focus
o Engage with government on policy issues
Need to read ASISA code of conduct
Describe the International associations of insurance supervisors (IAIS) principles? (3)
o Essential principles for a supervisory system to be effective
o High-level requirements for implementing the Insurance core principles (ICP) statement
o Guidance material for the detailed implementation and as well as the standard for a comprehensive assessment
Describe the six treating customers fairly outcomes required? (ICE PAN)
- Customers are confident that they are dealing with firms where the TCF is central to the firm’s culture
a. How is fair treatment embedded – eg part of employees KPI (key performance indicator)
b. How communicated to PHs – eg marketing material
c. Root causes of complaints addressed in policy design - Products and services sold in the retail market are designed to meet the needs of identified customer groups and are targeted accordingly
a. How is potential clients identified?
b. Checks done before products is ID as match for needs
c. Market research/ feedback from customers - Customers are given clear information and are kept appropriately informed before, during and after the time of contracting
a. Marketing material illustrating different outcomes in different scenarios
b. Market lit is clear – feedback from customers
c. Keep clients informed about performance of product
i. Can monitor their investments
ii. Info on external environment that effect products - Advice is suitable and takes account of customers’ circumstances
a. Risks explained
b. Demonstrate adequate sales training
c. Commission avoids conflicts of interest - Products perform as firms have led them to expect, and the associated service is both of an acceptable standard and what they have been led to expect
a. Monitor inv performance vs marketing material
b. Reassess illustrations given in marketing material
c. Definitions - Customers do not face unreasonable post-sale barriers to change products, switch providers, submit a claim or make a complaint
a. Eg unfair surrender values
i. Compare with EAS
ii. MVA vs BSR
iii. Vested vs non-vested
b. PH know how to enquire – performance, switch provider, terminate, complaint
Describe how treating customers fairly can be incorporated into the product life cycle of the insurer?
• Product design & distribution strategy:
o Developed for specific target markets, based on a clear understanding of the likely needs and financial capability of each customer group
• Marketing:
o Clear and fair communications that are not misleading, and appropriate to the target group
• Advice:
o Suitable to customer needs,
o balancing the commercial objective of increasing sales and TCF objectives,
o and avoiding conflicts of interest
• Point-of-sale:
o Clear and fair information so that customers can make informed decisions
o risks, commitments, limitations and charges must be transparent
o Disclosure on bundled products must enable customers to understand the different components of the bundle
• After point-of-sale:
o Ongoing information to customers so that they can monitor product against needs and expectations
o Acceptable service for post-sale transactions or enquiries
o Respond to changes in the wider environment that may impact products
• Complaints and claims handling:
o Honour legitimate customer expectations without unreasonable post-sale barriers
o Fair, consistent and timeous handling of CLAIMS
o Fair, consistent and timeous handling of COMPLAINTS
o Perform root cause analysis of complaints and take action to eliminate the root cause
