THE IMPACT OF CURRENT AND PROPOSED INSURANCE LEGISLATION ON - PowerPoint Presentation

Slide1

THE IMPACT OF CURRENT AND PROPOSED INSURANCE LEGISLATION ON THE MOTOR INDUSTRY

Presented by Peter VealSlide2

21

st

July 2016

The impact of current and proposed insurance legislation on the Motor Industry

Discussion topics:

1. Current Legislation Interpretations 2. Legislation ready for implementation 3. RDR Update

4. Market Conduct 5. Treating Customers Fairly

Slide3

21

st

July 2016

Full Discussion Programme

Current Legislation Interpretations

Legislation ready for implementation

A

RDR Update

h

Market Conduct

Treating Customers Fairly

Irregularities which have to be reported

Section 13.1(c)

Inducements and Free Insurance

FICA

Gift Vouchers from Manufacturers

Solvency

FSR & Insurance Bill Definitions

Sections 76 and 77 of the FSR

Section 131 of the FSR

Debarment

Fit and Proper

RDR Background

Phase 1

Summary of phase 2

Summary of phase 3

FSB’s Approach

Annual Conduct of Business Report

Data and Information

Outcome 2

Outcome 3

Outcome 4

Outcome 5

Outcome 6

Outcome 1Slide4

1.1 Irregularities which have to be reported - (slide 1 of 1)

Payments for insurance made to dealerships that are juristic representatives;

Reps licensed for intermediary services only but who provide advice;

Reps licensed for incorrect sub-categories;

KI’s not really KI’s;Dealer principal acting as KI but not registered as a KI;

Warranty business rendered by sales-staff/service managers;Staff acting as representatives but not registered as representatives;Cash threshold reports outside time limits;

Cash threshold exceeded and not reported to FIC;Suspicious transactions not reported to FIC;Representatives no longer fit and proper but not debarred;

KI’s that do not address non-compliant issues identified by compliance officer;Not complying with solvency definition on an ongoing basis.Slide5

1.2 Section 13.1(c) – (Slide 1 of 5)

The FSP

The Juristic Representative

Strict fit and proper requirements

Annual levy payment

Onsite visits

Statutory returns submission

Compliance officer

Financial soundness not required

Platform fees

No visits by the FSB

No submission of statutory returns

No compliance officer

Emergence of the Juristic Representative

How the FSB intends to deal with the problem

Introduce financial Soundness requirements for Juristic Representatives;

Introduction of 13(1)(c) prohibitions.Slide6

1.2 Section 13.1(c) – (Slide 2 of 5)

“

A representative may not render financial services or contract in respect of financial services other than in the name of the FSP of which such person is a representative”

Rationale for requirement

Ensure consumers know with whom they are contracting and who is ultimately responsible to perform in terms of the contract;

Remove any uncertainty as to whether the representative is acting for or on behalf of a principal;

Prevent the undesirable business practice of

“renting a licence”; and

Ensure that the auditor of the FSP reports on all monies received by a FSP and its representatives.Slide7

1.2 Section 13.1(c) – (Slide 3 of 5)

Agreements and Contracts

If an Insurer has signed any agreement, either direct with the representative or indirect through a tripartite or multi party agreement whereby benefits and/or responsibilities of the representative are specifically cited, that contract has no validity;

The agency agreement must be in the name of the license-holder, and no benefits or responsibilities identified in the agency agreement may pertain to the representative;

The advice and/or intermediary services provided to a client are rendered in terms of a contract between the client and the FSP, so in the event of the representative being removed from the FSP’s license, the contract remains in place with the FSP.Slide8

1.2 Section 13.1(c) – (Slide 4 of 5)

Policy issue

Policies issued must only show the license- holder as the appointed intermediary;

There should be no reference to the representative in either the policy wording or the disclosure notice.

Communications

The representative’s email ‘signature’ must show the name of the license-holder as the prominent responsible party and all written correspondence must be in the name of the license-holder (letterhead

etc

). Slide9

1.2 Section 13.1(c) – (Slide 5 of 5)

Commissions

All commissions owed must be credited to the FSP and not ring-fenced in any way;

Similarly all refunds of commissions, claw-backs, repayments or other monetary claims must be charged to the FSP.Slide10

1.3 Inducements and Free Insurance (Slide 1 of 3)

Section 44 of the Short Term Insurance Act and Section 45 of the Long Term Insurance Act

No person shall provide, or offer to provide, directly or indirectly, any valuable consideration as an inducement to a person to enter into, continue, vary or cancel a policy, other than a reinsurance policy.Slide11

1.3 Inducements and Free Insurance (Slide 2 of 3)

Punitive actions taken by the FSB

Discovery - Penalty R50,000 October 2012.

Offering Travel and Card Cash back benefits that were deemed to be inducements.

Discovery - Penalty R100,000 November 2015.

Offered free insurance for the month of January 2015 to policyholders that bought insurance cover during October and November 2014 and who used the Gautrain.Slide12

1.3 Inducements and Free Insurance (Slide 3 of 3)

1. A dealership offered free comprehensive motor insurance with the purchase of a car.

2. Letter received from the FSB stating that it is a contravention and requesting:

-

Date advertising campaign started; - Number of policies involved; - Number of policies lapsed;

- Insurers that are involved; - Reasons why the dealership believes that it is not a contravention.

3. ‘Cap in hand’ response by dealer group

4. FSP’s Final Response

“We have noted your offices feedback and trust this risk has been adequately mitigated. We will be closing our file in this matter. However, we will retain records of this matter and are unlikely to take a favourable approach if there is a recurrence of a similar non-compliance in future.”Slide13

1.4 FICA (Slide 1 of 4)

Registration:

Re-registration deadline was 22 April 2016;

All Motor Dealers had to re-register as Reporting Institutions as per Schedule 3;

Motor Dealers that offer Credit Life under a Long Term B1 license

also needed to register as an Accountable Institution;If you have not been successful in this regard, you need to urgently contact FIC for assistance;FIC needs to be informed of any changes within 90 days.Slide14

1.4 FICA (Slide 2 of 4)

Reporting Requirements:

Motor Dealers that have registered as both a Reporting and Accountable Institution must report Cash Threshold, Suspicious or Unusual transaction under the:

-

Accountable Institution banner if it relates to the Credit Life policy;

- Reporting Institution banner if it relates to the sale of the vehicle;All Motor Dealers must: -

Meet reporting deadlines; - Ensure that CTR’s and STR’s are reported in the absence of the MLCO or CRO; - Ensure that all cash amounts in excess of R24,999-99 received AND paid out are reported. Slide15

1.4 FICA (Slide 3 of 4)

Fines issued by FIC from 01 May 2015 to 30 June 2016:

10 Motor Dealers were penalized to an aggregate of R378,525 (

plus R408,249 suspended);

R65,000 was as a result of not being properly registered;

R313,525 was as a result of not reporting Cash Threshold Transactions timeously or at all;The dealers where punitive measures were imposed: - Auto Empire - Auto Exec

- Kelston Motors - Woodmead Auto - Voortrekker Motors - Oryx Zonda

- East End Motors - Bikes Galore - J’s Way Auto - JWJ AutoThese penalties can be viewed on the FIC website.Slide16

1.4 FICA (Slide 4 of 4)

Identification and Verification on behalf of another accountable institution

Obtain a copy of the respective institutions’ KYC rules;

Ensure that all relevant staff member receive training on these KYC rules.

Identification and Verification on Non Financed Transactions

All institutions are obliged to report suspicious and unusual transactions;Identification documents are required in order to report suspicious and unusual transactions.Risk Rating The Dealership must establish whether it is obliged to risk rate clients on behalf of the accountable institution. If so, a copy of the respective accountable institution’s risk framework must be obtained and appropriate training provided.Slide17

1.5 Gift Vouchers from Motor Manufacturers/Distributors (Slide 1 of 3)

Section 3 of the FAIS General Code of Conduct

A provider or its representatives may only receive the following from a third party:

Commission authorised under the Insurance Acts;

(Normal Commission)

Fees authorised under the Insurance Acts if those fees are reasonably commensurate to a service being rendered; (Binder and outsourced fee)Fees for the rendering of a financial service in respect of which commission referred to above is not paid, if those fees –

(Extra services offered to the client) - are specifically agreed to by a client in writing; and

- may be stopped at the discretion of that client;Fees or remuneration for the rendering of a service to a third party, which fees or remuneration are reasonably commensurate to the service being rendered;

(inspection fees)

and

Subject to any other law, an immaterial financial interest.

(R1000 per year)Slide18

1.5 Gift Vouchers from Motor Manufacturers/Distributors (Slide 2 of 3)

Our request to the FSB for guidance to the FSB

“

A number of motor distributors own cell captives in which their branded warranties are placed. To encourage the sale of the warranties, the distributors provide incentives over and above commissions to the insurance sales persons (F&Is) at dealerships in the form of gift vouchers and buying cards. Sums of up to R1000 are involved for each warranty sold.

As the distributors are not FSPs, they believe that the conflict of interest rules in s3 of the FAIS

GCoC do not apply to them.

The majority of dealerships have more than one type of warranty on offer, but the incentives provided by the distributors are too attractive for the salesperson to overlook so competing warranty suppliers are frequently ignored during the sales process.

To exacerbate the situation, Franchise Agreements which the motor distributors have in place with motor dealerships demand that a certain number of warranties carried by the distributor’s captive must be sold in every month. It does not matter whether the dealership can provide a better product or not. If the targets are not met, the franchise agreement is jeopardised.” Slide19

1.5 Gift Vouchers from Motor Manufacturers/Distributors (Slide 3 of 3)

The FSB’s response

“

Regard should be given to the relationships between the FSP and its employee, mandated representatives and the product supplier and the provisions of section 3 A(1)(a) and (b) of the General Code of Conduct.” Slide20

1.6 Solvency (Slide 1 of 4)

Dealerships that Collect Premium

The assets of the FSP (excluding goodwill, other intangible assets and investments in

related parties

) must exceed the FSP's liabilities (excluding loans validly subordinated in favour of all other creditors);

The FSP must maintain current assets which are at least sufficient to meet current liabilities; andThe FSP shall at all times maintain liquid assets

equal to or greater than 4/52 weeks of annual expenditure.Slide21

1.6 Solvency (Slide 2 of 4)

Definitions

‘

related parties

’

Related parties as defined in International Accounting Standard (IAS 24) issued by the South African Institute of Chartered Accountants;That definition includes, inter alia:“A person or a close member of that person's family is related to a reporting entity if that person:

has control or joint control over the reporting entity;has significant influence over the reporting entity; oris a member of the key management personnel of the reporting entity or of a parent of the reporting entity.

The entity is controlled or jointly controlled by a person identified above.”Slide22

1.6 Solvency (Slide 3 of 4)

Definitions

‘

liquid assets

‘

“Cash and other assets equivalent to cash that can be liquidated without realising a loss on liquidation provided that-(a)25% of such assets must be capable of being liquidated in 7 days;(b)a further 25% of such assets must be capable of being liquidated in30 days; and

(c)the remaining 50% of such assets must be capable of being liquidated in 60 days.”Slide23

1.6 Solvency (Slide 4 of 4)

Definitions

‘

annual expenditure

‘

The expenditure set out in the latest financial statements of the FSP, less-(i) staff bonuses;

(ii) employees' and directors', partners' or members' share in profits;(iii) emoluments of directors, members, partners or a sole proprietor;

(iv) other appropriation of profits to directors, members and partners;(v) fifty percent of the commissions or fees paid to representatives for the rendering of services that did not form part of their remuneration;(vi) depreciation;

(vii) bad debts; and

(vii) any loss resulting from the sale of assets.Slide24

2. Pending Legislation 2.1 FSR & Insurance Bill Definitions

2.2 Sections 76 and 77 of the FSR

2.3 Section 131 of the FSR

2.4 Debarment

2.5 Fit and Proper Slide25

2.1 FSR & Insurance Bill Definitions (Slide 1 of 3)

Complaint

An expression of dissatisfaction by a financial customer relating to a financial service or product provided or offered by a financial institution, or to an agreement with a financial institution in respect of its products or services.

Credit Agreement

Includes, but is not limited to, a credit agreement referred to in section 1 of the National Credit Act.Financial Customer

A person to or for whom a financial product or a financial service is offered or provided, irrespective of the capacity in which the person is offered or receives the product or service, and includes the:(a) successor in title of the person; and

(b) beneficiary of the product or service.Slide26

2.1 FSR & Insurance Bill Definitions (Slide 2 of 3)

Financial Product (includes inter alia)

A long-term or a short-term policy, as defined in section 1(1) of the Long-term Insurance Act and section 1(1) of the Short-term Insurance Act, respectively;

A credit agreement.

Financial Product Provider

A person that, as a business or as part of a business, provides a financial product.Slide27

2.1 FSR & Insurance Bill Definitions (Slide 3 of 3)

Financial Service (includes inter alia)

In relation to a financial product:

Promotion, marketing or distribution;

Providing advice, recommendations or guidance;

operating or managing, or providing administration services;Services provided in relation to credit agreements.Slide28

2.2 Sections 76 and 77 of the FSR (Slide 1 of 1)

The financial sector regulators must within six months enter into a memoranda of understanding as to

how, in practice, they will comply with their duties to co-ordinate, cooperate, collaborate and consult with each other as far as (inter alia):

Assisting and supporting each other in achieving their objectives;

Informing and sharing information;

Coordinating their actions;Making standards, or other legislative instruments, including those provided for in terms of the National Credit Act;

Licensing;On-site inspections;Investigations and Enforcement actions.Slide29

2.3 Section 131 of the FSR (Slide 1 of 1)

“A financial sector regulator may issue an interpretation ruling on the interpretation of a financial sector law, to facilitate the consistent and uniform application of a financial sector law

”

The only protection for FSPs is that before the regulator issues any interpretation ruling it must publish a draft of the proposed interpretation on its official website together with a notice calling for public comment in writing.

However, a FSP must adhere to an interpretation ruling until such time as a court attaches a different interpretation ruling. Moreover if the regulator alters a proposed interpretation ruling because of any comment, it is not required to publish the alteration before issuing the interpretation ruling.Slide30

2.4 Debarment (Slide 1 of 4)

Debarments of representatives operate on two levels

Level 1

Section 14(1): This section empowers and enjoins FSP’s to debar representatives who are

No longer competent to render financial services;

Have contravened the FAIS Act; and who are no longer fit and proper to render financial services.

It is the responsibility of the FSP to ensure that wrongdoers are not permitted to render financial services. These measures are meant to protect the public and the integrity of the financial services industry.Slide31

2.4 Debarment (Slide 2 of 4)

Special Note

The Registrar has no power to set aside a debarment effected by the FSP;

The Registrar plays no role in terms of this debarment;

Registrar is only notified of the debarment and upon notification the Registrar updates the central register;

The recourse for the aggrieved representative lies in the review of the decision by High Court. That is often way beyond the financial means of many representatives who firmly believe that there were in fact no valid reasons for the debarment and who often believe that the debarment was malicious.Slide32

2.4 Debarment (Slide 3 of 4)

Level 2

The Registrar is also empowered to debar any person who is not longer fit and proper to render financial service (Section 14A).

This process follows thorough investigations against the representative concerned; and

The representative is afforded an opportunity to respond to the allegations and based on the response and the facts in totality, a decision is taken by the Registrar to either debar or not to debar.

During 2015 the Appeal Board heard 13 cases brought by the representatives against the Registrar’s decision to debar. Slide33

2.4 Debarment (Slide 4 of 4)

An additional Section is proposed - s14(3)

Before debarring a person, a FSP will be required to give adequate notice in writing, the grounds and reasons thereof and any terms attached to the debarment. and must give the person a reasonable opportunity to respond;

The FSP will have to consider any response and may thereafter decide to debar or not to debar and if debarred must immediately notify the person in writing and give the grounds and reasons;

The amendment will provide for a right of appeal against such debarment in terms of the appeals mechanism and the right to a subsequent review of the decision.Slide34

2.5 Fit and Proper (Slide 1 of 6)

New sub-categories and clarification

Clarifies personal and commercial lines;

Adds long-term Insurance subcategory B1-A and B2A which requires no or limited underwriting;

Adds short-term Insurance personal lines A1 (excludes group, marine and engineering policies) which:

require no or limited underwriting and defines policy benefits as a sum assured and has contract terms of 24 months or less;are not subject to average; and

only contain exclusions relating to unlawful conduct, SASRIA, condition of property at inception, wear and tear, maintenance/usage and consequential loss.Slide35

2.5 Fit and Proper (Slide 2 of 6)

Honesty and Integrity

A much longer and more comprehensive list of offences which prevent a representative or KI to qualify;

Assessment by KIs must take into account:

Seriousness and surrounding circumstances;

The relevance as it pertains to the criterion of the position;The passage of time.Slide36

2.5 Fit and Proper (Slide 3 of 6)

RE exams and CPD

Reduced RE qualifying criteria for representatives in sub-categories A1, B1A and B2A;

Second level Board examination requirement scrapped;

CPD replaced by product training (details still to be decided).

Operational ability Demands additional monitoring of activities to ensure the fair treatment of clients. This includes:Adequacy and effectiveness of systems;

Processes and internal control mechanisms;

Integrity of practices;Appropriate segregation of key duties and functions.Slide37

2.5 Fit and Proper (Slide 4 of 6)

Changes solvency requirements

All variable commission costs can now be deducted (was 50% of commission);

Increases the percentage of assets which must be able to be liquidated within 7 days and 30 days;

Requires additional annual returns for intermediaries that collect premium;

The submission of ‘early warning’ reports by FSPs that collect premium:When the FSP’s assets (primary or current) are less than 10% greater than its liabilities (primary or current);

At any time that the FSP is not compliant with the financial soundness requirements;The FSP may become non-compliant at any time for any reason.Slide38

2.5 Fit and Proper (Slide 5 of 6)

KI’s and Representatives

Eliminates ‘rent-a-KI’’ practices;

First introduction of ‘equivalence of reward’;

Remuneration of representatives must be reasonable and commensurate with the function;

Is not structured in a manner that may be unfair to clients;The FSP must introduce monitoring mechanisms which:

Review its representative’s competence;Review the procedures that must be adopted by representatives and that such procedures are being followed;

Continually assess the operational ability of its KIs.Slide39

2.5 Fit and Proper (Slide 6 of 6)

Competence of Representatives

1. Financial Planners Tier 1 – Complex Products

Tier 2 – Simple Products

2. Asset Management

Investment management & Administration

Hedge fund management Pooled investment fund management (Equity Management) Asset administration

3. Sales Execution Only Tier 1 – Complex Products (Intermediary Services) Tier 2 – Simple Products

4. Other Intermediary ServicesSlide40

3. RDR Update

3.1 Background

3.2 Phase 1

3.3 Summary of phase 2 3.4 Summary of phase 3Slide41

3.1 RDR – Background (slide 1 of 1)

In November 2014, the FSB put forward a total of 55 specific proposals in support of their determination to ensure that financial service providers and suppliers treat clients fairly.

They were to be implemented in three phases, with phase 1 containing 14 of those proposals.

Phase 1:

Between the close of consultation on the RDR and the effective date of the Financial Sector Regulation (FSR) Act

Phase 2: Between the effective date of the FSR Act and the effective date of the Conduct of Financial Institutions (

CoFI) ActPhase 3: Longer term structural changes to be implemented once the

CoFI Act is in effect.

Due to unexpected delays in Parliament, the FSR Act is now only expected to be signed in the first quarter of 2017 thus In the meantime, having conducted a series of workshops and consultation processes, the FSB is almost ready to ‘trigger’ phase 1.Slide42

3.2 RDR Phase 1 (slide 1 of 9)

Adviser

Categorization

A

The FSB believes that the main test of independence should be extent of product supplier influence so is focusing on:Production or sales targets;Ownership or other interests;Binders and outsourcing – stricter conflict controls needed;

Other conflicted arrangements – covered by FAIS GCoC.Slide43

3.2 RDR Phase 1 (Slide 2 of 9)

Two License Categories (three previously proposed)

Confusing terminology - especially “multi-tied” –Therefore only two categories:

Registered product supplier agent.

(one insurer only)

Registered financial adviser - adviser cannot be both.

(more than one insurer)

A registered financial adviser/adviser firm may also describe itself or its advice as ‘independent’, provided that no binder or outsource arrangements/no ownership interests either way/no other forms of product supplier influence exist;

Being ‘independent’ would not be a separate license category;

Either a registered financial adviser or a registered product supplier agent may also describe themselves as a ‘financial planner’, provided they meet the applicable standards for financial planning.

The degree of insurer responsibility for the advice provided by intermediary will be aligned to the degree of influence.Slide44

3.2 RDR Phase 1 (Slide 3 of 9)

Advisers may not act as representatives of more than one adviser firm

The proposal that a

dvisers will be disallowed from being a representative on more than one FSP license has been amended to allow this where differing product categories are involved.

The FSB has stated in presentations that this should accommodate most valid arguments raised – for e.g. the ability to obtain experience under supervision for new products and certain group structures.

The same legal entity will not be permitted to hold more than one FSP license to

tighten fit & proper operational requirements and the supervision of KIs which will assist the prevention of “rent a KI” models.Slide45

3.2 RDR Phase 1 (Slide 4 of 9)

Tighter controls being considered for outsourcing by insurers to advisers

:

Advisers who hold binders to ‘enter into, vary or renew’ policies may not also earn outsourcing fees for policy administration – this is implicit in binder function.

Other advisers may not earn outsourcing fees for policy administration unless parties prove administrative efficiency that enables ‘real time’ data capture – through direct capturing on insurer platform.

Fees for such outsourced policy administration will also be capped, after further consultation on cap level –

currently proposed as 2% of premium.

Conduct standards for outsourcing to be strengthened to further minimise conflicts and quality of insurer oversight.Slide46

3.2 RDR Phase 1 (Slide 5 of 9)

Outsourcing fees for issuing insurance policy documents

This proposal is to be withdrawn.

This service is only operationally justified where a binder to ‘enter into, vary or renew’ is in place or an outsourcing agreement for policy admin with ‘real time’ data exchange.

In both these cases, issuing policy documents will be incidental to the binder/outsource activities.Slide47

3.2 RDR Phase 1 (Slide 6 of 9)

FSB general comments regarding binders

FSB intends to proceed with binder caps, but with further technical work to finalise levels of caps.

Conduct standards for binders – especially with advisers – to be strengthened. Focus on improved insurer oversight and operational efficiency.

FSB considering disallowing binders with advisers (as opposed to underwriting managers) for purposes other than the ‘entering into, vary or renew’ and ‘claims settlement’ binder functions.

The FSB is also questioning the appropriateness of providing binder agreements to advisers for short-term commercial lines business as the service efficiency gains are not obvious and it is unclear how the insurer will mitigate underwriting and reinsurance risks.Slide48

3.2 RDR Phase 1 (Slide 7 of 9)

Remuneration for selling and servicing short-term insurance policies

RDR does not propose that insurers will move to up-front remuneration of advisers.

It

will still be on an ‘as-and-when’ premiums received basis;

Selling without servicing is an FSB concern which is being addressed but no specific proposal at present;The FSB’s Immediate concern is s.8.5 of the STIA (

repealed but not yet triggered) as currently no customer consent and purpose of fee unclear – inconsistent with RDR principles;Fee to be replaced by advice fees but an alternative mechanism requiring customer to agree fee and its purpose in advance will be introduced;

Charging of these fees (and their purpose) and related disclosures will be monitored.Slide49

3.2 RDR Phase 1 (Slide 8 of 9)

Remuneration for selling and servicing credit life insurance policies in the long-term market

The original proposal that the maximum commission level for all credit life schemes will be 7.5% regardless of whether or not “administrative work” is carried out is to be retained and implemented in phase 1.

The current 22,5% that is paid to intermediaries includes administration fees. It follows that an adviser will only be able to earn remuneration in relation to credit life insurance policy administration if this forms part of a binder arrangement (subject to the applicable binder fee cap) or through an outsourcing arrangement (subject to the applicable outsourcing fee cap).

The FSB are urging advisers who currently have these 22.5% commission arrangements in place to review their business models in preparation for this change.

NOTE: This proposal is

being vigorously

contested by stakeholders in the insurance industry.Slide50

3.2 RDR Phase 1 (Slide 9 of 9)

Remuneration for selling and servicing short-term insurance policies

The level of commission and service fee payments by short-term insurers will continue to be subject to regulated caps and other regulatory requirements. The FSB wishes to ensure appropriate reward for advisers who provide ongoing services as opposed to those who do not.

Therefore further work is to be undertaken to determine the capped commission ranges for:

Selling only models

- With advice; or

- Intermediary services only;

Ongoing servicing;Service fees;

These will be considered for future phase implementation, not included in phase 1.Slide51

3.3 RDR Summary of Phase 2 (Slide 1 of 3)

Adviser Categorisation

Proposal A: Forms of advice defined, with related conduct standards (insofar as this will be addressed through the enhanced FAIS competency framework).

Proposal C: Standards for “wholesale” product advice.

Proposals T and U: Criteria for financial planners and related status disclosures (to be addressed through the FAIS competency model review process).

Proposal W: Juristic representatives to be disallowed from providing financial advice.Proposals BB, CC Proposals dealing with product supplier responsibility for different types of and DD advisers (subject to further refinement in Phase 3).Slide52

3.3 RDR Summary of Phase 2 (Slide 2 of 3)

Short-term insurance

Proposal F: Insurance premium collection to be limited to qualifying intermediaries.

Proposal JJ: Standards for up-front and ongoing product advice fees.Proposal KK: Additional standards for ongoing advice fees.Proposal LL: Product suppliers (insurers) to facilitate advice fees.Slide53

3.3 RDR Summary of Phase 2 (Slide 3 of 3)

Sales execution and other intermediary services

Proposal B:

Standards for “low advice” distribution models.

Proposal D: Standards for sales execution, particularly in non-advice distribution models.Proposal EE: Product supplier responsibility for non-advice sales execution.

Proposal WW: Remuneration for direct non-advice sales execution.Proposal H: Standards for product aggregation and comparison services.

Proposal I: Standards for referrals and lead generation.Proposal X: Standards for adviser firms.Slide54

3.4 RDR Summary of Phase 3 (Slide 1 of 2)

Adviser categorisation

Proposal A: Forms of advice defined, with related conduct standards (to the extent not covered in Phase 2).

Proposal K: Types of adviser defined.

Proposal N, P and R: Criteria for IFAs to be free of product supplier influence and criteria for tied and multi-tied advisers.Proposals O, Q and S: Status disclosures to be made by different types of advisers.

Proposal X: Standards for adviser firms.Proposals BB, CC and DD: Proposals dealing with product supplier responsibility for different type advisers (any necessary refinement of requirements implemented in Phase 2).Slide55

3.4 RDR Summary of Phase 3 (Slide 2 of 2)

Short-term insurance

Any refinement of the short-term remuneration model that may be required to align with the final adviser categorisation model would be implemented during this phase.

Sales execution and other intermediary services

Those elements of Proposals B and D (the non-advice and “low advice” standards) that are not addressed through the FAIS competency model review and require alignment with the final adviser categorisation model will be progressed in Phase 3. Slide56

4. Market Conduct

4.1 FSB Approach

4.2 Annual Conduct of Business Report 4.3 Data and InformationSlide57

4.1 FSB Approach

Intended Involvement Of The FSB (Conduct Authority)

Forward-looking

Pre-emptive and proactive

Outcomes focused

Risk-based and proportionate

Comprehensive and consistent

Intensive and intrusive

Market and consumer research

FSCA / firms to identify future conduct risks

Not just responding to complaints

On-site visits, thematic reviews, off-site reporting, mystery shopping

Addressing risks at source (culture, governance, structural interventions

)

Firms to demonstrate delivery of TCF outcomes

On-site / off-site testing of TCF commitment

Testing TCF in complaints handling

Tiered regulatory framework based on risks to customer outcomes

Expanding scope of conduct supervision

Cross-cutting activity-based focus areas

Consolidated legislative framework

Build up a centralised “conduct profile” of entities & groups

Visible enforcementSlide58

4.2 Annual Conduct of Business Report (Slide 1 of 10)

Question headings (we have been forewarned)

1

Business structure, governance and control functions

2

Value Proposition (services and customers)

3

Promotions, Advertising and Marketing

4

Client take-on process

5

Remuneration Model

6

Recruitment, training and performance management

7

Complaints

8

Binders and outsourcing agreements

9

Financial Intelligence Centre Act Slide59

4.2 Annual Conduct of Business Report (Slide 2 of 10)

An example question

1

Business structure, governance and control functions

Briefly describe how you record, monitor and use the following information in regard to your business activities.

New Business information;

Disclosure records;

Results of client file reviews (sampling / monitoring);

Customer feedback (over and above complaints);

Financial information (Management Accounts & Bank Statements);

Product replacements. Slide60

4.2 Annual Conduct of Business Report (Slide 3 of 10)

An example question

2

Value Proposition (services and customers)

Provide the overall number of your customers, the number of new business transactions that were concluded across all categories of business in the last 12 months and explain the nature and frequency of contact with your clients. Slide61

4.2 Annual Conduct of Business Report (Slide 4 of 10)

An example question

3

Promotions, Advertising and Marketing

Explain the sign-off or approval process for promotional material (whether produced by you or another party such as an insurer) before you make it available to clients/public and include an explanation as to how you ensure that the promotional material is suitable for your relevant customer group/s. Slide62

4.2 Annual Conduct of Business Report (Slide 5 of 10)

An example question

4

Client take-on process

Describe your client take-on process and explain how you ensure that all relevant staff, including your sales staff, complies with that process.Slide63

4.2 Annual Conduct of Business Report (Slide 6 of 10)

An example question

5

Remuneration Model

Explain the remuneration structures that apply to representatives including:

The nature of the remuneration (e.g. commission, salary, etc.);

Any production based targets;

Incentives/penalties linked to production;

“Fringe benefits” or other non-cash benefits, incentives, rewards or bonuses (including share options, profit shares, etc.)

Details of the type of the total remuneration, incentives and rewards earned by each of your top five earning representatives in the past year.Slide64

4.2 Annual Conduct of Business Report (Slide 7 of 10)

An example question

6

Recruitment, training and performance management

Describe the performance management process you use in relation to each of your representatives in relation to the following. Also briefly describe how you use the information in regard to your business activities.

Product Spread;

Insurer Spread;

Lapses / Cancellations / Replacements;

Documented results of client file reviews;

Number and details of complaints including, but not limited to, Ombud complaints;

Compliance records;

Earnings (commissions, etc.). Slide65

4.2 Annual Conduct of Business Report (Slide 8 of 10)

An example question

7

Complaints

In your analysis of the underlying cause of complaints, what were your findings, what action(s) did you take about the findings and explain the most significant trend identified.Slide66

4.2 Annual Conduct of Business Report (Slide 9 of 10)

An example question

8

Binders and outsourcing agreements

Provide details of all binders and outsourcing agreements you have with insurers, the names of the insurers and the functions you provide to those insurers.Slide67

4.2 Annual Conduct of Business Report (Slide 10 of 10)

An example question

9

Financial Intelligence Centre Act

Provided details as to how you risk rate your clients to determine which clients pose a higher risk of money laundering and terrorist financing as well as the procedures you have in place for monitoring high risk clients and conducting enhanced identification and verification on them.Slide68

4.3 Data and Information (Slide 1 of 2)

Business composition information required

Total number of policies in force in categories of ‘cover types’;

GWP for all policies in force in categories of ‘cover types’;

GWP of new policies issued in categories of ‘cover types’;

Number of new policies issued in categories of ‘cover types’ per income group as follows; - Low income; - Middle income;

- Upper income.Slide69

4.3 Data and Information (Slide 2 of 2)

Complaints Handling

Number of complaints received in each TCF outcome;

Details of complaints relating to claims processes;

Details of complaints relating to claims rejected/repudiated;

Number of complaints finalized;Total number of complaints outstanding.Slide70

5. Treating Customers Fairly

5.1 Outcome 2

5.2 Outcome 3

5.3 Outcome 4 5.4 Outcome 5

5.5 Outcome 6 5.6 Outcome 1Slide71

5.1 TCF Outcome 2 (Slide 1 of 1)

OUTCOME 2 Products and services marketed and sold in the retail market are designed to meet the needs of identified customer groups and are targeted accordingly

Target market must be properly defined;

Actual sales volume must correlate with predicted sales volume;

High proportion of sales to policyholders must be within target market;

Adequate product development lead time;Lessons from complaints are fed back into product design.Slide72

5.2 TCF Outcome 3 (Slide 1 of 1)

OUTCOME 3

Customers are given clear information and are kept appropriately informed before, during and after the time of contracting.

Must be ongoing and regular communication with policyholders;

Must be defined service standards demanded of F&Is and those standards must be monitored;

Must be clear indication on product literature for whom the product is suitable;Technical literature must be provided to Customers and fully explained;

Claims expectations (specifically what is not covered) must be outlined in policy literature given to clients.Slide73

5.3 TCF Outcome 4 (Slide 1 of 1)

OUTCOME 4

Where customers receive advice, the advice is suitable and takes account of their circumstances.

There must be testing of customer understanding;

Complex products must not be sold direct or through non-advice channels;There must be adequate technical/Product training of F&Is;

The technical expertise of F&Is must be tested regularly;High

proportion of sales must not be based on small proportion of products out of a larger product range.Slide74

5.4 TCF Outcome 5 (Slide 1 of 1)

OUTCOME 5

Customers are provided with products that perform as you have led them to expect, and the associated service is both of an acceptable standard and what they have been led to expect.

Must be a very low proportion of claims turned down or reduced;

Complaints management information must be consolidated and reported to senior management;

Must check that information received from the insurer is accurate, understandable or suitable for target customers;

Must be a clear agreement with the insurers (or their administrators) as to the responsibilities for managing customer issues;Must be full support given to you by the insurers.Slide75

5.5 TCF Outcome 6 (Slide 1 of 1)

OUTCOME 6

Customers do not face unreasonable post sale barriers to change product, switch provider, submit a claim or make a complaint.

Must be very few complaints referred to the Ombudsman/Ombud where customer complaint upheld;

Complaints records must be fully comprehensive;Remuneration must never be based on volume of complaints handled;

Must be documented process in place for root cause analysis of complaints;Must be a clear division of responsibility between those who may have caused the complaint and those who investigate it.Slide76

5.6 TCF

Outcome 1 (Slide 1 of 1)

OUTCOME 1

Policyholders can be confident they are dealing with firms where TCF is central to the corporate culture

Outcome 1

Factors that can influence behaviour must support TCF principles (e.g. growth strategies, disciplinary procedures, remuneration and incentives);

TCF issues must be reflected in ongoing training for staff and/or brokers;Implications and requirements for TCF must be translated into what it means for management as well as F&Is; Must be clear KPI’s to assess TCF effectiveness and progress;

Management information must be adequate to assess TCF effectiveness and performance;

Management information available must be subject to ongoing review to assess effectiveness of TCF strategy and used to guide decisions.Slide77

An F&I’s Guide to TCF (Slide 1 of 1)

In May Last year, we electronically published a small handbook entitled

“

An F&I’s Guide to Treating Customers Fairly

”.

Outcome 1

We sincerely recommend that your F&Is read it. It will only take a half hour (40 pages)

Click on:

http://www.associatedcompliance.co.za/TCF_Guide/TCF_Guide_May_2015_Upload/TCF_Guide_v4.pdfSlide78

Thank you for your timeQuestions

?