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Call for Caution on Regulatory Interventions

On 27th of March we published an extract from the ASISA Dispatches to give readers a perspective on the multitude of legislative changes currently underway in the financial services environment.

On Tuesday, the Financial Intermediaries Association of Southern Africa (FIA) issued a media release to express its concern over the unintended consequences of this raft of new and amended legislative interventions.

“Fair remuneration (under the principle of ‘cost plus a reasonable rate of return’) is important to South Africa’s intermediaries (financial advisors and insurance brokers) and the sustainability of advice-based practices is crucial to ensure fair outcomes for consumers of financial products. The FIA is concerned that the sheer volume and complexity of regulatory change currently underway will negatively impact the long term sustainability of these practices.”

The Regulator is not unaware of this potential threat. Sustainability of adviser practices is one of the key focus areas of the Retail Distribution Review (RDR).

One such example is that the initial proposal OO, which sought to ban commission on replacement life risk policies, was amended to allow commission, subject to certain changes. (Unfortunately, it is also an indication of the Regulator’s perception that commission, per se, is the root of all evil, ignoring the fact that institutional incentivisation was the main driver of churn.)

Billy Seyffert, COO of Moonstone Compliance, also recently raised a number of important considerations in a communique to compliance officers.

Insurance Regulations

“I believe it is important that we all take cognisance of the fact that the industry submitted a huge amount of feedback and comment on the proposed Insurance regulations and the Policyholder Protection Rules. In an Insurance Forum meeting on Monday, we were reliably informed that the feedback matrix on the regulations already consists of 300 pages, and is not yet finalised. This means that the intended publication date of 1 May 2017 for the final regulations is unlikely.”

Seyffert cautioned against premature action to change business structures as the current regulations are not final and are subject to change.

Demarcation regulations

“There are still many uncertainties regarding the demarcation regulations and the FSB’s Insurance Department has set up a special team to deal with these queries. The Regulator also indicated that it will be issuing a guidance note and it is suggested that we wait for this publication before taking action.”

As pointed out in this newsletter last week, the National Treasury allowed some respite for parties affected by the Regulations which come into effect on 1 April 2017.

The Council for Medical Schemes (CMS) has, in consultation with the Financial Services Board, National Treasury and the Department of Health, concluded an Exemption Framework, which serves as a guideline to providers of indemnity products that conduct business of a medical scheme who wish to apply for exemption in terms of section 8(h) of the Medical Schemes Act. The exemption framework is a transitional arrangement whilst the Department of Health leads the development of a Low Cost Benefit Option (LCBO) type of product for medical schemes.

The Exemption Framework provides for granting a two year exemption, subject to certain conditions. Providers of indemnity products that conduct business of a medical scheme are required to submit their application by 31 March 2017 in accordance with the exemption framework.

Click here to view the Exemption Framework.

In previous communications, Seyffert pointed out that provision is normally made for transitioning and phasing in of important changes. To rush in now, would, quite simply, be foolish.

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