The trouble with Twin Peaks from the point of view of the financial adviser is that both peaks are shrouded in mist and the mist will only clear slowly.
The bedrock is the Financial Sector Regulation Act, 2017, the object of which is to achieve a stable financial system that works in the interests of financial customers and supports balanced and sustainable economic growth in South Africa. Despite a few corporate failures that could have been prevented using existing laws, there does not seem to be any justification for the 305 complex sections of the act. The law brings under its weight banks, life and non-life insurers, collective investment schemes, entities governed by the Financial Markets Act, pension funds, financial services providers, eventually an uber Ombud and a light touch over medical schemes and the National Credit Regulator.
Gone are the days when you will look at the Government Gazette for regulations by the appropriate minister. Prudential standards and market conduct standards will be issued after a period of public consultation by the authority concerned and all financial laws will be found in a register on the Prudential Authority’s website.
The FAIS Act has been amended to include a more elaborate but fairer process for debarment including a right of appeal to the Tribunal.
Twenty years after separating the insurance laws into long-term and short-term insurance, both life and non-life insurance will now be regulated under the new Insurance Act. The Insurance Act is framework legislation. The operational laws will be in regulator-generated Prudential Standards.
In the meantime, market conduct, treating customers fairly and the elaborate rules relating to advertising, claims and complaints are preserved in the Long-term and Short-term Insurance Acts until eventually the mist clears to reveal the Conduct of Financial Institutions Act. Some important sections of the current laws are repealed. For instance, the laws relating to non-disclosure and void policies are in a mess and will have to be cured by some clever footwork by the Prudential Authority.
Provision is made for micro-insurance. A micro-insurer may be a private company and can get a licence to insure both life and non-life risks up to R60 000 for funeral policies (which is also the limit for all insurers) and up to R120 000 for the other types of micro-insurance, namely motor, property, agri and liability business. Elaborate provisions govern the contents of a micro-insurance policy which will discourage many from following this route. Commission remains unregulated for funeral products.
The current method of collecting premiums under short-term policies requiring an IGF guarantee is likely to fall away. The intention seems to be to drive premium collection into the major premium collection agencies. There will be limits over the way in which premiums can be invested by intermediaries.
There is a huge amount of new legislation. Compliance will be a major issue and a major cost. It is hard to see how financial and other inclusion will be improved. Job creation will consist more of compliance people more than anyone else. And despite 10 years of endeavour, hardly anything is said about black economic empowerment and nothing is said about sharia financial products.
Patrick Bracher, a director of law firm Norton Rose Fulbright, specialises in financial services.