It is fairly common practice in certain sections of the industry to make use of third parties to obtain new business. A recent order made by the Enforcement Committee serves to remind those who do so to make sure they act in the prescribed manner.
From November 2012 to June 2014 the Respondent had a business arrangement with a third party in terms of which the Respondent and the third party organised life and incapacity insurance policies for certain truck drivers who acquired vehicles through a credit facility.
The Respondent’s actions in this regard constituted a breach of section 8(1)(a) of the General Code of Conduct in that he failed to take reasonable steps to seek appropriate and available information from the clients regarding their financial situation, financial product experience and objectives so as to ensure clients were provided with appropriate advice regarding the insurance policies.
The Respondent’s arrangement with the third party constituted a breach of section 7(3) of the FAIS Act in that the Respondent conducted financial services business with an unauthorized financial services provider.
Under mitigating circumstances, the following point makes interesting reading:
The contravention was due to a bona fide misunderstanding of the applicable law. The Respondent believed that since the clients had a defined single need which was to obtain insurance cover for purposes of the credit arrangements there was no need to give advice and to conduct a full suitability analysis. (My emphasis)
The parties agreed to a penalty of R150 000, inclusive of costs incurred by the Registrar in bringing the matter before the Enforcement Committee.
A further interesting comment reads:
“The penalty imposed on the Respondent includes a disgorgement of the profits he derived from the aforementioned policies…” My dictionary defines this as follows:
“A court may order wrongdoers to pay back illegal profits, with interest, to prevent unjust enrichment.”
While this was mentioned at the FSB annual FAIS Conference in 2012, this is the first application of this that we are aware of.