The introduction of the FAIS Act and its supplementary regulations proved to be quite a challenge for both the FSB and the industry. At one stage, industry experts expressed the view that the legislation provided a lot of “what”, but very little “how”.
Often, FAIS Ombud determinations had to be relied upon to gauge the practical application of the Act.
When a finding was made against a financial services provider, it was mostly found that the respondent did not act with “…due skill, care and diligence.” This in itself is a very broad term, and open to subjective interpretation, as evidenced in recent Appeal Board decisions.
The draft Retail Distribution Review (RDR) often makes reference to “standards” which will be implemented. Some contained in the management summary provide greater clarity on what it will entail:
Standards will be set for distribution models that do not include advice (described as “non-advice sales execution”) or where advice is limited (“low advice”). These will include placing limits on the types of products or product features that may be distributed using non-advice sales execution or low advice models. These models should be restricted to simple products that comply with explicit product standards. Specific fit and proper standards will also be set for entities or individuals providing factual information in these models.
Standards will be set for ongoing product servicing. Where certain ongoing services present particular conduct risks, limitations will be placed on which intermediaries can perform these functions – in particular, insurance premium collection will be limited to qualifying intermediaries only.
Standards will be set for product aggregation and comparison services, informed by international standards in this regard, including putting customers in a position to make meaningful comparisons between products on a number of criteria, not just price. Standards will also be set for referrals and lead generation.
Outsourced services carried out on behalf of product suppliers will be more clearly identified and regulated, in a manner consistent with the outsourcing directive (Directive 159) currently applicable to insurers.
The introduction of practical standards should go a long way to help clarify exactly what is required to comply. The challenge will lie in the extent to which aspects like product design and innovation are affected by such standards.