The Financial Sector Conduct Authority has imposed an administrative penalty of R4.4 million on Hernell Funerals (Pty) Ltd and its directors, both of whom it also debarred.
According to the Authority’s administrative penalty order of 17 January, Hernell Funerals and its directors and key individuals, Shaun Andre Peterson and Carol-Ann Peterson, contravened section 7(1) of the FAIS Act and section 5(1) of the Insurance Act from 1 April 2021 to 31 October 2023.
Section 7(1) of the FAIS Act prohibits any person from rendering financial services as a financial services provider unless they are authorised under a license issued by the FSCA or fall within an exemption provided by the Act. In terms of section 5(1) of the Insurance Act, no individual or entity can operate as an insurer – offering, underwriting, or carrying risk under insurance policies – without authorisation from the Prudential Authority.
In a statement on Friday, the FSCA said its investigation found that Hernell and the Petersons offered funeral cover to members of the public without the necessary authorisation. These financial services required Hernell and the Petersons to be authorised as a financial services provider and licensed as a long-term insurer, which they were not.
The FSCA said the investigation followed complaints it received from clients of the funeral parlour, which is based in Worcester in the Western Cape.
The FSCA did not order Hernell to pay the premiums back to the clients.
“The premiums were disgorged as [the] penalty amount. The penalty was calculated based on [the] premiums collected in contravention of section 7 of the FAIS Act and section 5 of the Insurance Act,” the Authority told Moonstone.
The FSCA’ statement said the factors it considered in determining the appropriateness of the R4.4m fine included the need to deter the offending conduct, the degree to which Hernell and the Petersons co-operated with the Authority, the submissions received, the nature, duration, seriousness and extent of the contraventions, previous contraventions or the lack thereof, any loss or damage suffered, and any financial or commercial benefit derived.
In addition to the fine, the Authority debarred Mrs Peterson for 10 years and Mr Peterson for five years. During their respective debarments, they are prohibited from:
- providing, or being involved in the provision of, financial services;
- acting as a key person of a financial institution; and
- providing specified financial services to a financial institution, whether under outsourcing arrangements or otherwise.
Compliance with directive
The enforcement action follows a directive issued by the FSCA on 2 May last year to Hernell and the Petersons. The directive instructed them to:
- Within seven days of the date of the directive, transfer about 3 000 funeral policy clients to an authorised FSP and insurer in a manner that prioritises client interests.
- Immediately stop acting as an FSP or insurer, including ceasing all advertising or representation as such.
- Immediately stop conducting any new financial services or insurance business, accepting new clients or processing new applications, and offering insurance benefits or receiving premiums from clients.
- Pay all valid claims to clients upon request within two working days.
- Prevent any new policies from being entered into with existing clients.
- Notify all clients within three days about the current state of affairs of Hernell Funerals.
- Submit weekly written reports proving compliance with the FSCA’s instructions.
The FSCA told Moonstone that Hernell complied with all its instructions. The clients were transferred to Safrican Insurance Company.
Hernell did not respond to question from Moonstone whether it and/or the Petersons intend to file a reconsideration application with the Financial Services Tribunal.
