A High Court ruling that found a lead-generation arrangement amounted to unauthorised intermediary services has prompted differing views on where lead referral ends and regulated activity begins.
In Raspberry Academy (Proprietary) Limited v Oaksure Financial Services (Proprietary) Limited, the High Court in Johannesburg held that an agreement under which Raspberry Academy referred potential customers to Oaksure Financial Services and marketed short-term insurance products amounted to the rendering of intermediary services under the Financial Advisory and Intermediary Services Act.
The Court held that Raspberry Academy was neither an authorised financial services provider nor a representative entitled to render the intermediary services contemplated by the agreement. It found the agreement unlawful and unenforceable and dismissed Raspberry Academy’s application for default judgment.
The immediate consequence was that Raspberry Academy could not enforce the agreement through its claim for the alleged outstanding referral fees.
Read: Referral fees and FAIS: when a lead becomes intermediation
The judgment has since attracted comment from ENS, Cliffe Dekker Hofmeyr (CDH), Deneys, and compliance practitioner Alan Holton, writing in his personal capacity.
Their responses focus on three related but separate questions: what activities Raspberry Academy agreed to perform, what significance should be attached to the way it was paid, and whether Oaksure was correctly treated as the product supplier.
ENS and Deneys expressly distinguish the transmission of a prospective customer’s contact details from a more active role in marketing a financial product. CDH focuses on the nature and substance of the activities performed, while Holton’s analysis turns on whether Raspberry Academy occupied the intermediary position contemplated in Tristar.
What the Court decided
Raspberry Academy undertook to refer prospective customers to Oaksure and to market Oaksure’s short-term insurance products. In return, it received referral fees calculated by reference to policies concluded and premiums received from leads it had referred.
The agreement stated that Raspberry Academy would not perform intermediary functions and described it as a “marketing agent and lead referrer only”. The Court did not treat that description as determinative. It considered the substantive provisions and the activities contemplated by the agreement.
These included generating leads, obtaining consent to pass customer information to Oaksure, and informing prospective customers that Oaksure would contact them to discuss appropriate cover. The agreement also linked a “referral” to conduct that directly resulted in a prospective customer contacting Oaksure for a quotation or sale with a view to concluding a policy.
The Court placed particular weight on the payment conditions. Raspberry Academy was not paid a flat fee for transmitting contact details. Payment became due only when a referred lead concluded a policy and Oaksure received the corresponding premium, and the fees remained linked to policy and premium flows.
The Court said the “clearest indication” that Raspberry Academy’s services met the definition of intermediary services was that it was remunerated only where a lead entered a transaction in respect of a short-term insurance policy.
It did not, however, rely on the payment condition in isolation. It considered the remuneration together with Raspberry Academy’s marketing and referral obligations and the contractual provisions linking those activities to the conclusion of policies.
The judgment did not establish a general rule that flat-fee referrals fall outside FAIS while percentage-based remuneration constitutes intermediation.
The Tristar principles
In interpreting the definition of “intermediary service”, the Court referred to the Supreme Court of Appeal’s decision in Tristar Investments (Pty) Ltd v The Chemical Industries National Provident Fund. The subsequent responses also rely on Tristar, although they differ on how its principles apply to Raspberry Academy’s activities and its position in the distribution arrangement.
In Tristar, the SCA said that, in ordinary language, an intermediary is a person who acts between others as a “go-between”. It held that the FAIS definition retained this characteristic and contemplated a person interposed between a client on one side and a product supplier on the other.
Under FAIS, a product supplier is the person who issues a financial product, which may include an insurance contract.
The SCA also held that paragraph (a) of the definition of “intermediary service” contemplated acts that directly resulted in the consequences specified in the definition. It warned that interpreting the provision to include acts with only an indirect result would lead to absurdities.
The commentators disagree about whether Raspberry Academy’s activities had the direct causal relationship with the policy transactions contemplated in Tristar. Holton also relies on Tristar to question whether Raspberry Academy occupied the required position between the client and the actual product supplier.
ENS: ‘Remuneration is not the whole answer’
In their commentary, Angela Itzikowitz, Era Gunning, and Dylan Martheze of ENS describe the judgment as raising a difficult question about how direct the connection must be between an activity and the eventual financial-product transaction.
They say the definition of intermediary service is deliberately broad but is not unlimited.
Many commercial activities may indirectly support a financial-product transaction. The authors identify advertising, brand awareness, call-centre activity, digital lead capture, comparison tools, customer-consent processes, and customer handovers as activities that may form part of a wider sales journey.
If every activity that increased the possibility of a transaction were treated as intermediation, they say, ordinary marketing could be drawn into the FAIS perimeter merely because it was commercially intended to increase sales.
ENS therefore describes Tristar as an important “guardrail” against interpreting intermediary services so broadly that activities with only an indirect connection to a transaction are captured.
The commentary distinguishes between a referrer who merely passes on contact details, perhaps for a flat fee, and a person whose role is structured to move a customer towards a particular financial product and whose remuneration depends on the customer taking up and maintaining that product.
ENS places Raspberry Academy much closer to the second category. It says the arrangement was not confined to supplying a name and telephone number. It contemplated marketing Oaksure’s products, generating leads for Oaksure, obtaining consent to pass information to it, and receiving payment only when those activities resulted in policies and premium flows.
The firm nevertheless cautions that remuneration is “not the whole answer”.
A success-based fee may provide relevant evidence, it says, but the statutory enquiry remains focused on the activities performed and whether they have the required causal relationship with the transaction. Placing too much emphasis on remuneration could collapse the distinction between commercial pricing and regulated intermediation.
ENS describes the judgment as both useful and unsettling. It says the decision demonstrates that parties cannot contract out of FAIS by describing an arrangement as “marketing” or “lead referral” if the operative terms point in another direction.
At the same time, the firm says many distribution models occupy a grey area between advertising and intermediation. The more active the referrer’s role, and the more closely its remuneration is tied to policy conclusions or premium flows, the greater the regulatory risk.
ENS does not interpret the judgment as meaning that all referral arrangements are unlawful. It says businesses should consider the activities performed, the customer interaction, the nature of product-related communication, the role of the product supplier, the basis of remuneration, and whether the referrer acted only as an introducer or as a functional part of the sales process.
It also notes that the case arose in a default judgment context and may be distinguished in future proceedings. However, the firm says it would be risky for businesses to disregard the decision because of the regulatory and contractual consequences that may follow if an arrangement is found to involve unauthorised intermediary services.
CDH: has the Court gone too far?
Eben Smit and Phetha Mchunu of CDH also question the role the remuneration model played in the Court’s analysis.
They identify the Court’s focus on the flow of money as the aspect of the judgment likely to cause the greatest concern for businesses using referral-based distribution arrangements.
They say the Court regarded the success-based payment model, together with Raspberry Academy’s marketing and referral activities, as strong evidence that the arrangement fell within the definition of intermediary services.
If the same approach is followed in future cases, they say, businesses may question whether commission-based or premium-linked referral arrangements are more vulnerable than previously thought. Premium-linked fees, revenue-sharing arrangements, affinity partnerships, and conversion-based remuneration are common in insurance and the broader financial services sector.
Applying the Tristar principles outlined above, CDH questions the weight the Court placed on the remuneration structure.
The difficulty with the Raspberry Academy judgment, in CDH’s view, is that it appears to place substantial weight on the payment structure itself. The firm says the statutory definition focuses on the nature and substance of the activities performed rather than the basis on which the service provider is compensated.
CDH does not say that remuneration is irrelevant. It says remuneration may provide evidence about an arrangement but should not necessarily determine whether an intermediary service is being rendered.
The firm says whether the judgment is ultimately correct may be the subject of future debate and that it may later be distinguished, criticised, or overturned.
In the meantime, it says businesses should not assume that a higher court will resolve the uncertainty before regulators, litigants, or contractual counterparties seek to rely on the judgment.
CDH says the practical risk is not confined to regulatory scrutiny. A dispute may also concern whether the agreement on which a referral business depends remains enforceable. It recommends that participants in introducer agreements, affinity arrangements, referral partnerships, and lead-generation models review the activities performed, the customer journey, the referrer’s role, and the way remuneration is structured.
Deneys: marketing is not lead referral
Michael McCarthy of Deneys disputes several of the Court’s factual and legal findings.
McCarthy disputes the Court’s inference that Oaksure appeared to act as the short-term insurer in relation to passenger liability insurance.
He says that, as a private company, Oaksure could not have been the insurer and was presumably acting as a broker or underwriting manager.
McCarthy also disagrees with the Court’s treatment of the remuneration model. In his view, the fact that a fee is calculated as a percentage of commission does not mean it cannot be a lead fee.
He relies on the former Financial Services Board’s 2014 Retail Distribution Review (RDR). The RDR described a lead provider as a person who gives an intermediary or product supplier the names and contact details of potential customers, or provides a customer with the details of the intermediary or product supplier.
The RDR said a lead provider was typically remunerated “in some form” by the product supplier or intermediary. It also stated that the FAIS regulatory framework at the time did not regulate the provision of referrals and leads or their remuneration, except where conflicts of interest arose.
It noted that remuneration could fall within the insurance commission regulations where the lead or referral related to entering an insurance policy.
The RDR was a policy and reform paper rather than legislation or binding judicial authority. McCarthy relies on the FSB’s 2014 description of the regulatory framework to support his distinction between providing a lead and rendering intermediary services.
McCarthy also contends that the Court wrongly referred to section 8(2) of the Short-term Insurance Act. He says that provision did not apply to a policy underwritten by a South African licensed insurer.
Despite these criticisms, he accepts what he describes as the judgment’s core finding. He says marketing a policy, sometimes called “warming a lead”, is not lead referral but a regulated intermediary service.
His distinction therefore turns on the activities performed. Supplying an intermediary or product supplier with the name and contact details of a potential customer may constitute lead referral. Marketing and selling a financial product go beyond that limited role and, in McCarthy’s assessment, may be performed only by an appropriately authorised person.
McCarthy therefore disputes several aspects of the Court’s reasoning while maintaining that Raspberry Academy’s obligation to market the products took its role beyond the provision of leads.
Holton: Raspberry Academy was not the intermediary
Holton argues that the Court erred in two fundamental respects.
First, he disputes the Court’s treatment of Oaksure as the product supplier. Second, he disagrees with its reliance on the success-based remuneration model, together with the marketing and referral activities, as evidence that Raspberry Academy provided an intermediary service.
Holton bases the first part of his argument on paragraphs 11 and 20 of the judgment.
In paragraph 11, the Court said Oaksure appeared to act as a short-term insurer that received premiums in relation to passenger liability insurance and as a broker receiving statutory commission for other lines of insurance.
In paragraph 20, it said Oaksure was a product supplier insofar as it issued passenger liability policies.
Holton contrasts these statements with the footnote to paragraph 11 recording that Raspberry Academy’s counsel confirmed that Oaksure was registered as an FSP.
He argues that Oaksure was not the insurer issuing the financial product and, consequently, was not the product supplier contemplated in the FAIS definition.
Applying the Tristar principles, Holton says the insurer that issued the insurance contract, rather than Oaksure, was the product supplier. He submits that Oaksure acted as the authorised FSP and intermediary of the insurer, while Raspberry Academy supplied leads to Oaksure.
Any advice or intermediary services provided to prospective customers would therefore have been rendered by Oaksure, he says. In his view, it was Oaksure’s activity between the client and insurer that directly resulted in the conclusion of any policy.
Holton consequently argues that Raspberry Academy did not stand between the client and the product supplier. On his analysis, it had no association with the insurer and did not perform an act whose direct result was that a customer entered, or offered to enter, into a transaction with that insurer.
This is where Holton’s conclusion differs from McCarthy’s. Although both dispute the Court’s treatment of Oaksure as the insurer and its view of the percentage-based fee, McCarthy regards marketing or “warming” a lead as regulated intermediation. Holton argues that Raspberry Academy did not occupy the position between the client and product supplier identified in Tristar.
Holton also rejects the Court’s treatment of the referral fee. He says a fee paid for successful lead generation does not cease to be a lead fee because it is calculated as a percentage of commission.
Like McCarthy, he relies on the RDR’s description of the regulatory framework in 2014. He refers particularly to its statement that the FAIS framework did not regulate the provision of referrals and leads or their remuneration and that a lead provider was typically remunerated in some form by the product supplier or intermediary.
Holton also refers to Policyholder Protection Rule 12.2.1(a), which provides that an insurer may enter an intermediary agreement with an independent intermediary only if that person is licensed as an FSP and authorised to render financial services in respect of the insurer’s policies.
In addition, he refers to section 48 of the Short-term Insurance Act and the related remuneration provisions in Part 5A of the Regulations.
Holton says an insurer and an unauthorised recipient could be in breach of the applicable remuneration and intermediary-agreement requirements and could face regulatory sanctions.
In his analysis, these provisions support a distinction between regulated remuneration for intermediary services and a referral fee paid by an FSP to a lead generator.
Holton concludes that lead generation by an entity on behalf of an FSP does not constitute intermediary services and that a referral fee paid by an FSP to a lead generator is not regulated, irrespective of how the fee is structured.
He regards the Court’s identification of Oaksure as the product supplier as a premise that affected its application of the Tristar test and its conclusion about who rendered the intermediary service.
Differing interpretations remain
The responses agree on limited points. The contractual label did not, by itself, determine the regulatory character of the arrangement, and the judgment should not be read as meaning that every lead-generation model constitutes intermediary services. They also reject, to differing degrees, the proposition that the method of remuneration can settle the question on its own.
They disagree about what the other features of the Raspberry Academy arrangement established.
ENS places Raspberry Academy closer to active participation in the sales process than to the mechanical transmission of contact details, while cautioning that the full factual and contractual context remains decisive. CDH similarly says the nature and substance of the activities should carry more weight than the payment structure.
McCarthy disputes the Court’s treatment of Oaksure and the percentage-based fee but maintains that marketing or “warming” a lead is regulated intermediation. Holton reaches a different conclusion. He argues that Raspberry Academy did not stand between the client and the insurer that issued the policy and therefore did not occupy the intermediary position contemplated in Tristar.
The dividing issues are therefore the significance of Raspberry Academy’s marketing activities, the causal relationship between those activities and the policy transactions, and the identity of the product supplier. The four responses do not provide a common answer.
