Thank your Lucky Stars you’ve got Protection*

Older readers may well remember the Joel Mervis column in the Sunday Times which usually started with: “There I was, sitting drinking Slivovitz, waiting for a war to break out.”

I was reminded of this yesterday morning, when something stronger than tea was required after an in-house discussion of the FSB’s document on proposed amendments to the Fit and Proper Requirements. When I got back to my desk, there was a copy of a new, 55 page Insurance Laws Amendment Bill in my in-box with a sardonic comment from my colleague:

“This is in addition to the General Financial Services Laws Amendments Bill.

David Kramer’s song from District Six – the Musical, started playing in my head: The Law, The Law, The Law, The Law – what for?

The preamble to the Insurance Laws Amendment Bill reads:

Object (sic) of Act:
1A. The object (sic) of this Act is to promote the maintenance of a fair, safe and stable long-term insurance market for the benefit and protection of policyholders.’’

A recent article in FAnews saw the Financial Intermediaries Association express its dismay with a number of issues concerning regulatory matters in the financial services industry. It was particularly concerned about what it regarded as unfair treatment of its members, and their survival in view of pending legislative changes.

In response to these comments, the FSB pointed out that it always endeavoured to consult with the industry on regulatory reform. Jonathan Dixon, executive officer Insurance at the FSB, responded by stating “…the FSB views a dynamic, sustainable and professional financial intermediary sector as a critical contributor to its ultimate goal of protecting consumers of financial services and promoting confidence in the financial system.”

Accordingly, the FSB strongly agrees that part of a comprehensive framework for financial consumer protection is that reform initiatives must also be “fair” to financial intermediaries, in the sense that the legitimate interests and on-going viability of the financial intermediation profession must be considered. In particular, change must not be implemented in a way that undermines the profession’s continued ability to provide appropriate levels of professional advice and services to customers.

At the 2013 IISA conference, Professor Robert Vivian also voiced concern about the restrictions the flurry of regulations places on the industry:

“If we carry on down the path we are currently going, we are heading towards the nationalisation of regulation of the insurance industry whereby legislation will be put in place and the private sector won’t have much leverage to change it.”

“Thousands of years of mercantile law tell us that the industry operates best when governed by a stable regulatory framework. The current framework is continuously shifting and the industry cannot continue in this manner.”

Jonathan Dixon, who also spoke at the IISA conference, differed with this view:

“Through our discussions with industry, we feel that these concerns do not exist. The South African Insurance Association is working closely with the FSB and National Treasury to ensure that regulation is as appropriate and as inclusive as possible. And we have come a long way in developing this regulation.” FAnews notes that he also pointed out that it is not only about regulation, but also about governance and risk management which is something that all businesses should be doing as a matter of course.”

However, Dixon does acknowledge that there is currently a lot of regulatory change in the industry and he can understand the uneasiness within the industry regarding that.

When I receive an e-mail from a reader, stating the following, I wonder whether the lawmakers realise the practical extent of demands on the time and pocket of the man and woman at the coal face:

I am faced with another year’s cripplingly expensive PI premium (R60,000 for minimum cover, R250,000 excess) and audit fee (R50,000), so I am considering lapsing my FSP license as our activities are now entirely administrative in nature.

So, how far have the regulatory authorities come since October 2004 in creating a “…fair, safe and stable long-term insurance market for the benefit and protection of policyholders”?

A limited number of individuals have benefited from rulings and settlements via the office of the FAIS Ombud. An even more limited number of product providers were taken to task after action by the enforcement department of the FSB.

In Monday’s article we stated that simplification of legislation will be far more beneficial for both the Regulator and the regulated, as opposed to adding to an already complicated set of rules. The aim should be twofold: to make compliance easier, and to aid early detection of transgressions.

We have seen very little by way of the prevention of harmful schemes, or, at best, early detection thereof. This is what consumers expect in terms of protection, yet the numerous examples of losses, suffered by the elderly and uninformed, bear testimony to the opposite.

Will the latest flood of proposed legislative changes make a difference in the lives of consumers, or is it merely a proverbial shifting of the deck chairs on the Titanic?

*The title of this article comes from a Kris Kristofferson song which also contains these lines:

So thank your lucky stars you’ve got protection/Walk the line and never mind the cost/The law is for protection of the people/Rules are rules and any fool can see/We don’t need no riddle speaking prophets/Scaring decent folks like you and me.

No Siree.

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