ASSOCIATION OF SOUTH AFRICA THE LIFE OFFICES’ ASSOCIATION OF SOUTH AFRICA

The Financial Advisory and Intermediary Services Bill Presentation by the Life Offices’ Association to the Portfolio Committee on Finance

THE LOA’ POSITION The LOA fully supports the underlying intentions of the FAIS legislation. The integrity of the financial services industry will be protected by meaningful, fair, and consistent market conduct regulation of financial intermediaries. The LOA’s concerns with the Bill thus relate to aspects which we believe will undermine these good intentions.

KEY AREAS OF CONCERN Exclusions from the ambit: Bank deposits (proposed compromise still problematic) Lending transactions Medical schemes (proposed inclusion fully supported) Interaction between PPR and FAIS

BANK DEPOSITS LOA questions the need for blanket exclusion of short-term deposits on “practical grounds” Tellers typically do not provide “advice” FAIS has flexible exemption options If compromise is accepted, why limit it to bank employees only? Any other FSP is fully bound by FAIS, for identical advice

LENDING TRANSACTIONS Why do consumers only deserve protection from bad advice on one side of their balance sheet? For most, lending transactions (eg. a mortgage bond) are the single biggest financial commitment PERSAL issue demonstrated realities of the debt trap A big task – but focus is on advice, not product itself (as per medical schemes) If FAIS is not the right Act to regulate this advice, what is?

MEDICAL SCHEMES The LOA fully supports the FSB in their decision to include medical scheme intermediaries Significant financial implications for employers and employees – no less so than for a retirement fund Individual advice also an issue

INTERACTION BETWEEN PPR AND FAIS Every draft of FAIS has provided for repeal of PPR “in so far as it relates to the rendering of financial services as contemplated in this Act” FSB are now changing this to propose that PPR remains in force, with provision for exempting insurers who register as FSP’s from parts of PPR

The LOA objects to this proposal for the following reasons: Conceptually, market conduct regulation belongs in FAIS – PPR an interim measure No equivalent of PPR for non-insurers Insurers who do not (and cannot) register as FSP’s will be subject to duplicated, inequitable regulation Even if the FSB proposal is accepted in principle, the wording of the proposed amendment is unacceptably vague

What the FSB proposal means for insurers who sell only through brokers: The insurer cannot register under FAIS as it will not be an FSP The insurer will be fully bound by PPR The broker (who is an FSP) will be fully bound by FAIS So both of them will be legally obliged to provide the same disclosures, to the same client, at the same time

What the FSB proposal means…(cont.) The insurer has no contact with the client prior to receipt of an application – only the broker has If the insurer relies on the broker to make these disclosures, and the broker doesn’t, the insurer is breaking the law (PPR) The broker is breaking the law too (FAIS) – but this doesn’t help the insurer

What the FSB proposal means…(cont.) The insurer will be obliged to accredit the broker (PPR) The broker will have to meet FAIS “fit and proper” competency criteria No accreditation obligations in FAIS – authorised FSP is responsible for competence of representatives

What the FSB proposal means…(cont.) It is only insurers who will be in this position In all other cases (eg. unit trusts, linked products, bank deposits, medical schemes, pension funds, etc.) market conduct will be governed by FAIS, at intermediary level In all these cases, the product supplier’s obligations arise once there is a product

What is the solution to the PPR / FAIS problem? The LOA strongly recommends that, except for those PPR obligations that cannot be fulfilled by an intermediary (eg. granting cooling off rights), PPR should be repealed Those obligations that must be fulfilled by product suppliers, must then be carried through to other institution-specific legislation, wherever appropriate

The wording of the proposed amendment The amendment is in any event problematic because: It does not guarantee exemption, but merely creates the possibility It does not indicate which parts of PPR the exemption will apply to Exemption must be granted by the Minister – other exemptions are granted by the Registrar Insurers will remain in an uncertain position If the FSB’s approach is adopted, exemption must be unequivocally granted in s45.

In Conclusion The LOA firmly believes that, if the shortcomings in the FAIS Bill which we have discussed are addressed, as we have recommended, this will go a long way to ensuring that FAIS achieves its laudable aim - to provide meaningful, fair, and consistent protection to the consumers of financial advice and intermediary services.