Have you heard of Twin Peaks?

No, I am not referring to the eerie and strangely hypnotic TV show of the 90’s that was recently revived. I am referring to the biggest structural reform in the financial services industry in the past few decades.

Certain major financial catastrophes triggered the changes in regulating the financial sector. We all remember the Fidentia fraud committed against 47000 widows and orphans. Also, more recently the African Bank curatorship scandal which almost lead to the realization of a systemic risk. It can, however, be said that the 2008 global financial crisis, was the catalyst across the world for regulators to reconsider their supervisory approach.

All these events lead to the National Treasury initiating the Financial Sector Regulation Act, 2017 (FSR Act). The FSR Act established amongst other things two new regulators, the Financial Sector Conduct Authority (FSCA) and the Prudential Authority (PA). The FSCA is tasked with supervising conduct of business in the financial sector and the PA is tasked with the prudential supervision of the financial sector. The FSCA essentially replaced the Financial Services Board.

The regulators have different objectives. One of the objectives of the PA is to promote and enhance the safety and soundness of financial institutions that provide financial products and securities services. The FSCA’s main goal is to protect financial customers by promoting fair treatment by financial institutions and providing financial customers with financial education programs etc. Both regulators also have the objective of assisting in maintaining financial stability.

In addition the Insurance Act, 2017 became effective on 1 July 2018 and provides a legal framework for the prudential regulation and supervision of insurance business. It also introduces a legal framework for micro-insurance with the objective of promoting financial inclusion. It also replaces certain parts of the Long-term Insurance Act (LTIA) and the Short-term Insurance Act (STIA) (the prudential sections of these Acts). The PA is responsible for supervising the Insurance Act. Take cognizance of the new Standard on Outsourcing which repealed Directive 159A.

The PA has its own Acts, what about the FSCA? The intention is to replace all existing sectoral laws governing conduct of business into one consolidated financial sector act namely the Conduct of Financial Services Act (COFI Act). All existing sectoral legislation (LTIA, STIA, Collective Investment Schemes Act, Pension Funds Act, FAIS Act etc), which are currently, supervised by the FSCA, will be repealed once the COFI Act is effective. The COFI Act will underpin the shift to more outcome and principle-based regulations. It will be largely set out along the lines of the Treating Customers Fairly principles. For now, until the highly anticipated COFI Act makes its first appearance, certain sections of the STIA and LTIA will still be in force if not repealed by the Insurance Act. These remaining sections will provide the conduct of business framework for insurers.

The Regulations and Policy Protection Rules (PPRs) under the LTIA and STIA remain a force to be reckoned with and most of the conduct of business framework will be based on it. There are certain amendments to the Regulations and PPRs that took place over the last few years. To distinguish between “old” and “new” amendments the changes are categorized into two Tranches.

It is important to take note of the proposed changes addressed in Tranche 2 which are envisaged to take effect on 1 October 2018. Some of these changes relate to Micro-insurance Product Standards. Important for any micro-insurance products or funeral policies is that (a) no exclusion for a pre-existing health condition will be allowed (except during the waiting period), (b) a timeframe for decision making on a micro-insurance claim or funeral claim is set, (c) lastly, no claim is allowed to be repudiated based on undisclosed information – unless the insurer specifically requested the policy holder to disclose that information before inception of the policy.

Sounds like a mouthful and information overload? We understand the needs and challenges our clients face. Rest assured that at EOH FS we are adequately equipped for all the new regulatory changes and have more than enough tailor made solutions to address every hurdle you might encounter.

Johrene du Toit
General Manager at XTND