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Moonstone Monitor - 21 September 2017 |
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Paul Kruger
Author/Editor |
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The real distinction is between those who adapt their purposes to reality
and those who seek to mould reality in the light of their purposes
– Henry Kissinger |
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Distributed to 48,600 subscribers.
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From the Crow's Nest |
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Too many eggs in one basket? |
“Catch-22 is any paradoxical, circular reasoning that catches its victim
in its illogic and serves those who have made the law.”
One of the options in the Merriam-Webster dictionary reads: “A situation
presenting two equally undesirable alternatives.”
At times, these hectic days of constant legislative change reminds me of Joseph
Heller’s zany novel in which the (anti) hero tries to claim that he is insane.
His superiors then determine that only one who is sane will claim that he is
insane, therefore he must be sane.
Two apparently contradictory news reports recently got me thinking again about
where the financial services industry, and our sector, specifically, currently
finds itself, and where it is heading.
Amicus re Incerta
The long-term insurance industry statistics for the 12 months to 30 June 2017
reflects payment of R458 billion in benefit payments from life insurers to
policyholders and beneficiaries.
This included an increase of 21% in claims against individual disability
policies.
“An unusually high increase in disability claims is usually indicative of
consumers under severe strain. Financial stress leads to both mental and
physical illness, which invariably results in higher disability claims.”
The life industry, as custodian of the nation’s wealth, currently holds assets
worth R2.7 trillion on behalf of policyholders.
There can be no better example of the important role the industry plays in the
lives of ordinary citizens, than the support and payments received by
policyholders after the devastating floods and fires in the Western Cape
recently, despite some disgruntled policyholders complaining after being under
insured.
In the middle ages, when I was employed by Old Mutual, its motto was: Amicus
certus in re incerta. A certain friend in uncertain times, or, more plainly put,
a friend in need is a friend indeed. The Dutch have an even more apt
translation: Een echte vriend wordt in onzekere tijden opgemerkt of, in nood
leert men z'n vrienden kennen.
The other side of the coin
Investors in the ill-fated Relative Value Arbitrage Fund are now faced with a
possible 5c for every one rand invested, despite a return of 422% for those who
were fully invested from April 2004 to July 2012. According to the auditors of
the fund, a total of nearly R2.5 billion was invested, while over R1.8 billion
was paid out to investors.
Big losses were also incurred from failed property syndication schemes,
although, as in the RVAF case, many also made significant gains before the
implosion.
Did this warrant the full scale legislative onslaught we have been experiencing
for the past ten or more years? Or did it perhaps take the focus off the good
work done by the industry as consumerism started distorting the focus?
Twin Peaks to the rescue?
The object of the Financial Sector Regulation Act is to establish a financial
system that works in the interests of financial customers and supports balanced
and sustainable economic growth in the Republic.
Critics of the Act were particularly vocal on the huge bureaucracy being
created, with little indication of a thorough cost or impact study.
Just a glance at the various structures to be implemented to ensure synergy
between all the various agencies involved appears to confirm these concerns, and
possibly reminds one about what is said about the road to hell.
But wait, that’s not all…
The 2008 financial meltdown, despite not really impacting on South Africa to the
same extent that it did elsewhere, led to what many view as over reaction from
government. Most of the current bigger maladies are as a direct result of
political interference and the appointment of incompetent people and worse: the
replacement of competent civil servants with lapdogs eager to bark at the
command of his master’s voice.
Other legislation, and notably FICA and POPI, will add a huge administrative
burden to an already overloaded ass. Future legislative interventions, and
notably the Conduct of Financial Institutions Act, may just be the straw that
breaks the proverbial smaller camel’s back.
Independent advice, in particular, will be under severe threat, given the
demands all this will place on time, funds and productivity.
Did FAIS Fail?
If it did, it was not because the legislation was at fault. Any new law will
have shortcomings which need to be addressed over time.
The single biggest mistake was possibly trying to remedy problems relating to
the investment arena by casting a net to include all other disciplines. Failure
to understand, for instance, that different rules should apply for marketing
funeral policies compared to complex financial investments, led to regulation by
exemption, which increased as time progressed, and is already included in the
new legislation.
Switching the regulatory focus from rules to client outcomes will have a
significant impact on compliance by the industry, and entail a vast investment
in systems development to enable it to monitor and prove fair treatment of
clients. An inherent danger is that those who will rule on whether fair client
outcomes are achieved will necessarily be making a subjective assessment. How
long is a piece of string?
Perhaps Lewis Carroll provided the best summary of the current rat race:
“Now, here, you see, it takes all the running you can do, to keep in the same
place. If you want to get somewhere else, you must run at least twice as fast as
that.“ |
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Your Practice Made Perfect |
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The client’s right to know |
Last week, we reported on the Phoshera judgment by the FSB Appeal Board
where it concurred with the view of the FAIS Ombud that the rejection of
a claim was warranted on the basis that the vehicle did not comply with
the required terms and conditions of the prescribed roadworthiness of
the National Road Traffic Act.
The Board was not impressed with the fact that the client was never
informed of the change of insurer, though.
“In our view, the practice in the industry which seems to derive from an
interpretation of Rule 7.3 of the PPR, permitting for unilateral
decision-making with regard to the terms, including changes made
regarding the parties to this policy contract without as much as
informing Mr. Phoshera, cannot stand. As already mentioned, it is
out of sync with other applicable legislation. It is particularly
untenable in a legal dispensation such as ours where a supreme
constitution in its Bill of Rights and Responsibilities guarantees and
protects fundamental human rights and freedoms which include the right
to freedom of association, the right of access to information and the
right to be treated with human dignity.”
“That indeed suggests more than just the need for knowledge of the
change of insurer and/or underwriter. Bhekukwenza Hlela strengthens the
notion that when a new binder agreement is entered into it is critical
that the insured be appropriately notified so as to grant her/him the
opportunity to exercise the choice to stay, alter and or opt out of the
policy contract.”
“Indeed, that right to choose in the context of the conclusion of a
policy contract amounts to consent in line with Section 106 (4) of the
National Credit Insurance Act of 2005 and Section 48A of the STI Act
read with the General Code of the Financial Services Providers.”
In this particular instance, the underwriting manager informed the
client’s broker of the new binder agreement, but the broker failed to
convey this to the client. Failure to advise a client of changes to
material terms of a contract is a serious matter, and can
lead to regulatory action against the broker. |
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Standardised Short–term Personal Lines Terminology
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The SAIA published a list of standardised terminology on the SAIA
website. The terms were identified by the SAIA Treating Customers Fairly
workgroup on Standardised Terminology.
The aim of the list is to ensure that policy wording is understood fully
by the consumer and that all potentially confusing terms be defined on
the list, for the ultimate benefit of clients.
SAIA members are encouraged to use the document as a consumer tool, in
order to create understanding and to support disclosure in the industry.
I am sure that most of our readers working in this market will find it a
very handy tool to share with clients to assist understanding, and as an
indicator of your commitment to client care.
The term “consequential loss”, for instance, which we discussed in a recent article,
is fully explained via the link in the document.
Well done, SAIA.
Please
click here to download the document. |
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Updating of Policy Wording
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A noteworthy comment from the SAIA September newsletter:
The Short-term Ombud indicated that Insurers’ policy wording and claims
philosophies are not updated and aligned to changes in technology and
criminal behaviour. For example, the clause “forcible and violent entry”
is strictly interpreted but today, criminals use car jamming devices
hence the insured will not be able to demonstrate “forcible and violent
entry.”
Similarly, in commercial policies, it is required that there be
“forcible and violent entry” into the main building but often thieves
break into a storeroom, for example, and the claim is rejected as there
was no “forcible and violent entry” into the main building.
The Ombud acknowledges that evidence is important in car jamming claims
but some insurers have rejected these claims despite surveillance
footage. She stated further that insurers are placing a greater emphasis
on criminal conduct rather than the basis of the risk and the protection
that should be afforded to the insured. Insureds are therefore paying
for cover but not receiving the protection at claims stage due to the
strict interpretation of policy wording.
Some insurers also neglect to include the Ombud’s details on rejection
letters which insurers are legally required to do in terms of the
Policyholder Protection Rules. |
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Technologically Speaking
Moonstone Information Refinery |
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Technology and Compliance |
A recent article by Patrick Cairns in Moneyweb provides an interesting
perspective on the role of technology in the ever increasing
challenge that compliance is becoming.
The advent of Twin Peaks means that companies will no longer be
tested on processes and procedures, but what they actually end up
delivering. Financial services providers will still be told
what to do, but it is left up to them to decide how they will do it.
“At the moment, for example, we require all financial services
providers above a certain size to have a compliance officer,”
explains the Financial Services Board’s (FSB) head of FAIS, Caroline
da Silva.
“Under the new framework, the company will be required to have
compliance that is structured in a way that is appropriate to the
risks and complexities of the business,” she adds. “It must have
systems and controls in place to provide monitoring, but we don’t
specify exactly how that must be done.”
For Michael Meadon from Thomson Reuters, this has two significant
consequences.
“Firstly, a tick-box, rules-based approach may force institutions to
do things that don’t actually advance the regulator’s desired
outcome,” he says. “Having decided that customers have to be treated
fairly, the regulator may decide that all financial services
companies have to do certain things. But doing those things might
not necessarily lead to the outcome the regulator wants, and so they
have imposed a cost with no corresponding benefit.”
“Allowing companies flexibility, removes that risk,” Meadon says.
“And, secondly, it allows for greater adoption of technology.”
Currently, a lot of compliance functions have to be performed
manually, because that is what is prescribed. But a lot of this work
could be performed more efficiently and effectively by computers.
Click here to read the full
Moneyweb article.
Suitebox Media contact
Neil Summers, Sales Manager, Moonstone Business Services
Mobile: +27729088994
Email:
neil@suitebox.com.
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Regulatory Examinations
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Frequently Asked Regulatory Exam
Questions |
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What exam must I write?
Both the RE 5 and RE are Level One exams. RE 5 is for Representatives and
RE1 for Key Individuals. The RE 3 exam is for licence category II
candidates.
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How much does it cost?
The FSB determines the fee. Currently it costs R1163 per exam, also in
the case of a re-write.
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What preparation material is available?
Fully updated resources are available for those requiring access to the
legislation applicable to the regulatory examinations:
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Please make sure that you first read the
FSB’s Preparation Guide to
make sure you follow the right process in preparing. Page seven includes
a recent amendment to guide candidates in studying in the correct
manner. |
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Click on the following highlighted sections to download the relevant
updated Inseta learning material for key individuals,
RE 1, and
representatives,
RE 5. |
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LexisNexis provides a “Legislation Handbook” together with a
“Preparation Guide” containing the qualifying criteria, with a link to
the relevant legislation. |
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The
Juta FAIS Pocket Statutes also contains a CD with a comprehensive
list of updated supplementary legislative material for reference
purposes. Please click here to order this from our online shop. |
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The FSB’s telematics broadcast on the RE 1 and RE 5
provides a good introduction and overview, and can also be ordered
online in: |
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DVD format or on a
USB memory stick
New:
MP4 download |
| 4. |
Where can I write?
Go to:
http://www.faisexam.co.za/show_venues |
| 5. |
What dates are available?
Go to:
http://www.faisexam.co.za/view_schedule |
| 6. |
What training is available?
As an Exam body we are not allowed to recommend companies that offer
face-to-face Regulatory exam classes. You can try Google for someone in
your area.
Bear in mind that this exam tests your knowledge about the laws
applicable to the provision of financial advice and intermediary
services. The questions are based on very specific qualifying criteria
set out in the FSB preparation guide. Any training that does not have
this as a basis will not prepare you properly for the exam. Do your own
research and don’t just accept what others say. |
| 7. |
Where can I buy old question papers?
There are no genuine “old question papers” available. Be very careful
when buying such preparation aids as some of those on offer are not in
line with the high standard prevailing in the actual exams and often
lead to a false sense of knowledge which is sadly exposed when
confronted by the actual exam. Follow the guidelines provided in the FSB
Preparation Guide and you are far more likely to achieve success. |
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Careers Platform
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Are you hiring? Advertise your position on Moonstone’s Career Platform
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The Moonstone website -
www.moonstone.co.za
- enjoys an average of 15 000 visits and approximately 39 000 page views per month. |
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Moonstone boasts an exclusive newsletter mailing list of over 48000
dedicated financial decision makers who receive 2 newsletters per week. |
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Our audience is relevant and industry specific: individual and corporate advisors and brokers in the following financial sectors:
Investment, Risk, Healthcare, Banking, Retirement, and Insurance. |
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Featured Positions |
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Marketing & Events
Coordinator:
Sovereign Group, Cape Town - The applicant must be a fluent and
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obtained from a reputable tertiary institution. Applicants with a
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In Lighter Wyn |
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Oxymorons |
The comedian George Carlin is credited with identifying two of the
finest examples of contradictory terms: “Military intelligence” and
“Business ethics”.
My favourite pet hate is the modern monstrosity called “Reality
shows”.
Interestingly, even Shakespeare wikkled a spies in Romeo and Juliet:
O brawling love! O loving hate!
O anything of nothing first create!
O heavy lightness, serious vanity!
Misshapen chaos of well-seeming forms!
Feather of lead, bright smoke, cold fire, sick health!
Still-waking sleep that is not what it is!
This love feel I, that feel no love in this
Thanks John O B for sharing these fine specimens.
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Tel: +27 21 883 8000 | Fax: +27 21 883 8005
info@moonstoneinfo.com
www.moonstone.co.za
P.O. Box 12662, Die Boord, Stellenbosch, 7613, Republic of South Africa
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or the sending of e-mail communications for other than strictly
business purposes.
The complete disclaimer can be accessed
here.
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©2015 Moonstone. All rights reserved. |
