The FSCA has published three of the five amendments it proposed making to the General Code of Conduct for Authorised FSPs and Representatives in November 2020.
The Authority dropped two proposed amendments relating to advice fees following comments from industry stakeholders.
The final “Amendment of the General Code of Conduct for Authorised FSPs and Representatives, 2022” was published in the Government Gazette on 2 December and took effect from that date.
The three amendments are as follows:
Warning customers about non-financial business
Section 7 of the General Code has been amended to include a new sub-section (5) requiring FSPs that conduct non-financial services business to disclose to clients that such products and services do not fall within the ambit of the FAIS Act. As a result, clients should understand they are not afforded protection under the Act for these “other” products or services.
The FSCA said it receives complaints from customers who were under the impression that they were protected by the FAIS Act when dealing with a licensed FSP. However, they were not protected because the products or services did not fall within the ambit of FAIS.
The new sub-section reads: “A provider who provides products or services to a client other than financial products or financial services must disclose to the client the fact that the additional products or services are not regulated under the Act and therefore the client is not afforded the same protections in respect of those additional products or services that may apply in respect of the provision of financial products or services in terms of the Act.”
Responding to a question by a stakeholder about what these “additional products or services” could be, the FSCA said “many” FSPs conduct other non-financial services, such as the sale of goods (for example, furniture or vehicles) and add-on products.
Asked by a commentator whether the sub-section (5) disclosure will be required when conducting referrals, the FSCA replied: “The requirement applies whenever an FSP provides products or services to a client other than financial products or services. Although it would depend on the facts of the matter, it could probably be argued that merely providing a referral would not constitute ‘providing a product or service’.”
Regarding whether the requirement will not apply to bundled products and only to products where there are additional/optional purchases, the FSCA said: “The requirement applies where it relates to a product or service that does not constitute a financial service or product. Whether or not such ‘other’ product or service forms part of a bundled product (which might include FAIS-regulated products) is therefore irrelevant. The requirement must still be applied in the context of the ‘non-FAIS-regulated’ products.”
Alignment of premium collection requirements
A long-overdue amendment to section 10(3) of the code extends the exclusion applicable to the banking of short-term insurance premiums to long-term insurance premiums. The amendment aligns the requirements in section 10 with the regulations under the Short-term Insurance Act and the Long-term Insurance Act.
Section 10(1)(d) requires FSPs that receive or hold financial products or funds of or on behalf of a client to open and maintain a separate account for client funds at a bank and:
- Must within one business day of receipt pay into the account all funds held on behalf of clients;
- Ensure that the separate account only contains funds of clients and not those of the provider;
- Pay all bank charges in respect of the separate account except that bank charges specifically relating to a deposit or withdrawal of the funds of the client are for the client’s own account; and
- Ensure that any interest accruing to the funds in the separate account is payable to the client or the owner of the funds.
In terms of the amended section 10(3), section 10(1)(d) does not apply to a provider:
- That receives, holds or in any other matter deals with premiums payable under a short-term or long-term reinsurance policy; or
- That is subject to section 45 of the Short-term Insurance Act or section 47A of the Long-term Insurance Act, if the provider complies with the requirements contemplated in those sections.
Permanent exemption for banks and insurers
Section 13 of the General Code has been amended to exclude banks and insurers permanently from having to obtain a suitable guarantee or professional indemnity or fidelity insurance cover.
The exemption on the requirement for banks and insurers to obtain a suitable guarantee or professional indemnity or fidelity insurance cover has been extended a number of times since 2015. The reason for the exemptions is that the requirement does not necessarily lead to any additional protection because banks and insurers are already subject to robust prudential requirements.
The amended section 13 states that a provider, excluding a representative, an insurer as defined in the Insurance Act, or a bank as defined in the Banks Act, must, if, and to the extent required by the registrar, maintain in force suitable guarantees or professional indemnity or fidelity insurance cover.
Advice fees amendments withdrawn
The FSCA removed two proposed amendments that set requirements for the charging of advice fees.
Stakeholders said the proposed amendments were an unnecessary duplication of the requirements in section 3A(1) of the General Code, which, in their view, already facilitates the charging of advice fees.
The FSCA said the intention behind the proposed amendments was specifically to allow for advice fees in the context of insurance policies.
It said the regulations under the Long-term Insurance Act and the Short-term Insurance Acts limit the remuneration that may be received when rendering “services as intermediary” in relation to life and non-life policies. The definition of “services as intermediary” in the regulations is wide and includes advice provided in respect of insurance policies. Therefore, the provision of advice in the context of insurance policies is currently subject to the commission limitations. “Against this background, we disagree that section 3A(1) of the General Code facilitates the charging of advice fees in the context of insurance policies,” the FSCA said.
However, the FSCA said it has decided that it might be more appropriate to deal with the issue in the insurance regulations and not in the General Code.
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