FSCA issues directive to funeral service: thousands of clients affected

A funeral service “that has been serving the greater community of Worcester and surrounding areas for decades” has been given seven days to transfer about 3 000 of its funeral policy clients “to such authorised FSP and insurer in a manner that will be in the best interest of the clients”.

This is but one of the instructions listed by the FSCA to Hernell Funerals and its directors and key persons, Shaun Peterson and Carol-Ann Peterson. Dated 2 May, the directive follows an investigation into the conduct of the funeral services and the Petersons.

According to the FSCA, the Authority investigated alleged contraventions of certain financial sector laws, which included section 7(1) of the FAIS Act and section 5(1) of the Insurance Act, from 1 April 2021 to 31 October 2023.

A summary of the investigative report states that, during this period, the funeral service and the Petersons rendered financial services (advice) to about 3 000 clients regarding life insurance policies (funeral cover) while not being licensed insurers or underwritten by a licensed insurer.

“Therefore, during the period from 1 April 2021 to 31 October 2023, they contravened section 5(1) of the Insurance Act,” the FSCA states.

In addition to transferring the existing funeral policy clients, the directive instructs the involved parties immediately to cease acting as an FSP and an insurer, including advertising or presenting themselves as such.

The FSCA cites failure to comply with earlier interventions as the reason for issuing the directive with immediate effect.

According to the Authority, during the investigation, the parties were requested on nine occasions to comply with section 7(1) of the FAIS Act and section 5(1) of the Insurance Act.

“Formal meetings were held on 30 March 2023, 8 June 2023, 12 June 2023, 27 July 2023, 11 August 2023, 30 August 2023, 18 September 2023, 26 October 2023, and 18 January 2024, requesting Hernell Funerals, Mr and Mrs Peterson to comply and they failed to comply with section 7(1) of the FAIS Act and section 5(1) of the Insurance Act,” the FSCA states.

In addition, the FSCA claims that Hernell Funerals failed to comply with Enforceable Undertaking requirements.

“Hernell Funerals, Mr and Mrs Peterson are conducting their business in contravention of certain financial sector laws, it will be irresponsible for the Authority to allow Hernell Funerals, Mr and Mrs Peterson to continue with its business whilst clients continue suffering losses. The Authority also needs to be satisfied that all client funds are properly accounted for,” the directive reads.

The directive further instructs the parties to:

• immediately cease conducting any new business in relation to financial services as defined in section 1 of the FAIS Act and insurance business as defined in section 1 of the Insurance Act;
• immediately cease to accept new clients and/or process new client applications;
• immediately cease to offer insurance benefits and receiving premiums from clients;
• pay out to all clients all valid claims owing to such clients irrespective of the basis for the liability, upon request from such clients within two working days from the date of the request from the client; and
• to disallow any new policies to be entered into between existing clients and Hernell Funerals.

The funeral service was further instructed to “fully inform all its clients, within three days of receiving this directive, of the current state of affairs of Hernell Funerals”.

In addition, the funeral service is required to provide proof “to the satisfaction of the Authority”, in the form of a weekly written report, from the date of the directive, that the instructions have been met.

Under section 146(5)(b) of the Financial Sector Regulation Act (FSRA), Hernell Funerals and the Petersons have one month from the date of the directive to submit a reconsideration application. According to sections 228 and 230 of the FSRA, anyone unhappy with a decision by the FSCA can ask the Financial Services Tribunal to review it. However, section 231 clarifies that this request does not automatically delay the decision unless the Tribunal specifically intervenes.

Hernell Funerals has told Moonstone that they will appeal the directive.