Two recent articles elicited a number of interesting questions from readers.
Alan Holton’s thought provoking article, “Representatives also at risk” investigated what could happen if an employer FSP is no longer registered at the time a complaint is upheld. From a recent FAIS Ombud determination, it appears that the representative is left holding the can of worms, so to speak.
In the same newsletter, we published the news of SaXum Insurance being placed under liquidation. A reader wanted to know whether representatives who placed business with SaXum could also be held liable for non-payment of claims.
This question was indeed also raised in a document published by the FSB, who advised clients to seek legal advice or contact the FAIS Ombud.
The following comment provides a new perspective on the matter, and it would be interesting to see what the Appeal Board has to say on the matter.
S 13(1) of the FAIS Act states:
|(1)||A person may not-|
|(b)||act as a representative of an authorised financial services provider, unless such person–|
|(i)||prior to rendering a financial service, provides confirmation, certified by the provider, to clients–|
|(aa)||that a service contract or other mandate, to represent the provider, exists; and|
|(bb)||that the provider accepts responsibility for those activities of the representative performed within the scope of, or in the course of implementing, any such contract or mandate;|
|(c)||render financial services or contract in respect of financial services other than in the name of the financial services provider of which such person is a representative.|
The FSP thus assumes full liability for the actions of the rep.
I shared this with our legal department who responded as follows:
The normal common law position is that the employer (FSP) can be held vicariously liable for the employee’s unlawful actions performed during the course and scope of his or her employment.
This is a form of strict liability and once the employer has been sued for damages, the employer has its own right of recourse to recover its losses against the employee.
This may be a timely warning to review service contracts and mandates of representatives.
Another question raised on the SaXum issue stems from the following extract from the FSB’s question and answer document:
Q: What is the FSB doing to protect policyholders who are affected by the liquidation?
A: The FSB will make every endeavour to work closely with the liquidator to find the most efficient and effective way to deal with outstanding claims, in the interests of policyholders.
The FSB’s founding affidavit in the application for the liquidation of SaXum contains full details of its investigations prior to the application for the liquidation of the insurer.
From this, it is evident that the problems did not arise overnight. According to the affidavit, problems started in 2009, and “…became more acute in 2015.”
In this time, the FSB monitored attempts by SaXum on a monthly basis as it tried to get its financial affairs in order, but things got progressively worse, particularly as a result of worsening motor claims experiences. Several deadlines were extended in an effort to assist, but, in the end, the shareholders were unable to secure the necessary funding.
On 9 September 2016, the Chief Financial Officer of the insurer informed the FSB that the company was insolvent, and the necessary steps were put in place which led to its final liquidation on 20 October 2016.
Was there an obligation on the FSB to inform the public of the imminent demise of the insurer? We all know how speculation meant the end of Saambou. Any notification of the problems at SaXum would have had exactly the same effect, and thwarted attempts by the Regulator to keep the ship afloat.
A question arises as to what impact it would have if an intermediary, in response to a complaint to the Ombud, contended that the lack of disclosure by the FSB prohibited him from warning his clients, and shifting the business?
Let’s hope the need to test this never arrives.