Secondary

Transfer

Bulk transfers by FSPs and Insurers

This is the title of an article in the FSB’s FAIS Newsletter 20, which also addresses the shortcomings mentioned at the conclusion of the article above.

In instances where the transfer of clients resulted in a change of insurer, it meant that there was a replacement of a financial product. The provision of section 8(1)(d) of the General Code of Conduct for Authorised Financial Services Providers and Representatives (“General Code”) applies which states that, “a provider other than a direct marketer, must, prior to providing a client with advice where the financial product (“the replacement product”) is to replace an existing financial product wholly or partially (“the terminated product”) held by the client, fully disclose to the client the actual and potential financial implications, costs and consequences of such a replacement,…”

According to the above provision, it is obvious that a movement of a policy by the intermediary without the policyholder’s consent is prohibited even if the policy remains materially unchanged after the transfer. The FSP is required to obtain consent and disclose the implications to the client prior to moving the policy. Section 20(a)(ii) of the General Code in support of the above states that, in relation to where the client makes the request on the advice of the provider to terminate the policy, the provider must take reasonable steps to ensure that the client fully understands all the implications of the termination of the policy.

Furthermore, in terms of section 3(3) of the General Code; “a provider may not disclose any confidential information acquired or obtained from a client or, subject to section 4(1), a product supplier in regard to such client or supplier, unless the written consent of the client or product supplier, as the case may be, has been obtained beforehand or disclosure of the information is required in the public interest or under any law.”

It is inevitable that confidential client’s information will be disclosed to the insurer or the FSP during the process of transfer. However, this is prohibited, in terms of the aforementioned section, without the client’s written consent.

In terms of section 4(1) of the General Code “a provider other than a direct marketer must at the earliest reasonable opportunity, and only where appropriate, furnish the client with full particulars of the information about the relevant product supplier and, where such information is provided orally, must confirm such information within 30 days in writing.

During the bulk transfer process, which results in a change of the insurer and in an instance where the consent of the client was not obtained, the client will in all probability not be aware of the new insurer. The above section therefore makes it mandatory for the clients to be informed regarding the insurer.

FAIS Newsletter 20, published on 19 May 2016, contains a lot more detailed information and should be regarded as compulsory reading material.

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