The definition of an intermediary service was the subject of a number of discussions and reviews, including an article published by the FSB to provide clarity on what actually constitutes such a service.
From a FSP perspective, it has always been a taxing matter to ensure that functions performed by an administrative assistant do not, in fact, constitute advice or an intermediary service.
This matter was taken a step further with the advent of so called “Aggregators”. This is typically someone who generates leads for a product provider, often via a call centre.
It would seem that, in layman’s terms, an act which leads to the sale of a product should, according to the legal definition, be regarded as an intermediary service.
Not so, says Patrick Brasher in an article which appeared on the Norton Rose Fulbright website on 5 February 2014.
Someone supplying leads that may indirectly result in a policy being taken up is not an intermediary, limited by the commission regulations, nor requires accreditation under the FAIS Act.
An intermediary for the purposes of the FAIS Act and the Short-term Insurance Act is someone who acts as a go-between, interposed between a client and product supplier, whose acts directly result in a financial transaction, for instance a policy, being entered into. That means that someone supplying leads that may indirectly result in a policy being taken up is not an intermediary limited by the commission regulations, nor requires accreditation under the FAIS Act.
The finding by the supreme court of appeal in Tristar Investments v The Chemical Industries National Provident Fund reflects what the Registrar of Short-term Insurance has said about the meaning of the phrase “rendering services as intermediary” since the Short-term Insurance Act came into force.
In ordinary language an intermediary is a person who intermediates between two parties to bring about an agreement between them. That is why, for instance, issuing policy documents may be an outsourced function rather than an intermediary service or financial service under the FAIS Act.
That doesn’t mean that remuneration for providing leads is open-ended. If financial institutions outsource the function of finding potential customers, that is an outsourced service and the remuneration for providing the service must be reasonable. The service must also be carried out independently of any intermediary or financial service and must not be used as a way of supplementing regulated intermediary earnings.
Billy Seyffert, Head of Legal and Compliance at Moonstone, adds:
The principle of remuneration being reasonable in relation to the service being provided is amplified in both the binder regulations and Directive 159 which states that remuneration received must be reasonably commensurate with the task or activity being performed, together with a reasonable rate of return. Remuneration should never lead to a duplication of fees or costs and should not lead to unfair treatment of policyholders.
It is evident from the above that the Regulator is serious about the industry conforming to the spirit of legislation, and closing the gaps for those who try to use legal loopholes. The switch to outcomes-based regulations, like Treating Customers Fairly, will make this a lot easier. You may have fulfilled the legal obligations, but if there is evidence that the client was prejudiced, you could still be held accountable.