In District Six, the musical, one of the songs asks: The law, the law, the law. What for?
The answer comes from Kris Kristofersson: The law is for protection of the people.
After Saturday’s test against Australia, there were a number of criticisms about the match’s “physicality” as so fearfully epitomised by Eben Etzebeth’s death stare after grabbing the Wallaby prop by the front of his jersey and frog-marching him out of the fray.
Henning Gericke, who was the Boks’ motivational coach in 2007, is of the opinion that we should find an alternative to reverting to aggression when we have our backs to the wall. A focus on applying exceptional skills via “the X-Factor players”, such as Damian Willemse, will produce a new focus, which can be far more effective.
In the days of old, a player such as All Blacks captain Sean Brian Thomas Fitzpatrick was a master of the art of looking astounded when his subtle transgressions of the laws of rugby were exposed and penalised. Of late, of course, this approach has been adopted and perfected by the Wallabies when they found themselves outmuscled by their opponents.
On a slightly more serious note: I am concerned about what is happening in the financial services sector in so far as applying the law is concerned.
In an article on the Financial Intelligence Centre’s guidelines on risk management and compliance programmes (RMCPs), the FIC says it does not prescribe what an advanced or complex structure may be. “Where the RMCP template as set out in PCC 53 is too simplistic and will not achieve the level of compliance required of an accountable institution, the accountable institution must develop a suitable RMCP.”
In other words, the designated non-financial businesses and professions are required to make the judgment call. Does this mean that, if a problem arises, a regulatory authority will judge whether the systems were adequate? Surely this is not a proactive approach?
In a recent case, the High Court in Johannesburg upheld a retirement fund’s decision to allocate an entire death benefit to a member’s life partner, rejecting the Pension Funds Adjudicator’s determination that the fund erred by not including his nominated beneficiaries in the allocation.
The article concludes: “Although the fund could have allocated the benefit differently, the decision that it did reach was not, as the Adjudicator held, irrational or inequitable. The court dismissed the application, with costs.”
I will spare readers the pain of elaborating further on the botched attempts by the Office of the FAIS Ombud to mete out justice in property syndication complaints, save to say that where the investigating body, the prosecutor and the judge reside in the same vehicle, it will be extremely challenging to balance the scales of justice.
If you are going to give an informal dispute resolution body the same powers as a High Court, it is essential that such a body must be equipped with the same knowledge and skills, if not more, than the formal body. If not, you are diluting the effectiveness of the judiciary, and undermining the very principles which underlie justice for all.
Application versus enforcement
The expression “law enforcement” has taken on a very sinister meaning, both locally and internationally. Examples of police violence have shattered the trust of communities.
While we have been spared this to a large extent in our industry, I have heard from individuals whose experience amounted to being treated in an almost adversarial manner as guilty until they could prove their innocence.
Fair application of the law depends on a full understanding thereof, by both parties. Unfortunately, a number of factors impacted on this in the past.
Opaque legislation provides loopholes for wily foxes, which leads to frustration for those attempting to apply the law fairly. When they do manage to “get a conviction”, the matter is often referred for reconsideration, successfully, to the Financial Services Tribunal.
There are two examples of how effective regulatory intervention can result in “protection of the people”.
The first was the Royal Commission inquiry into the financial services industry in Australia. Although it led to a decimation in the number of investment advisers, the end result was a set of practical expectations from ASIC, the regulator, as to what is needed to ensure that clients’ best interests are taken to heart in providing financial advice.
In the UK, where the debate around business interruption (BI) claims resulting from Covid were as fiercely contested as they were here, the Financial Conduct Authority instigated a BI test case, heard by senior legal counsel, which kept everyone informed of the progress, gave a voice to anyone who wanted to contribute to the debate, and in the end resolved the matter to the satisfaction of everyone.
Well, maybe not everyone, but those who felt aggrieved, the insurers, had little option other than to comply with the outcome, as they had agreed to abide by the outcome of the hearing.
Picking the low-hanging fruit
Whether it was to “set an example” or to test the waters, many advisers complained that they were at the receiving end of regulatory action, while the big players, with their legal and actuarial resources, were not held to account to the extent that they could or should have been.
A notable exception to this is the recent dawn raid on the offices of eight life offices by the Competition Commission. The outcome of this exercise should have a major bearing on the future approach to applying the law. In particular, Sanlam’s response to the action again paints a picture of a highly experienced player having to explain its actions to a regulatory body that may not have the in-depth knowledge required to make such a judgment call.
As in the case mentioned above, where the High Court upheld the decision by the fund trustees, rather than that of the PFA, the findings of the inquiry into collusion by the life offices could play a major role in exonerating the industry, and confirming that healthy competition, rather than nefarious plots, drive the way we do business.
Overkill
The recently published omnibus legislation appears to be more of a knee-jerk reaction to the potential grey-listing by the Financial Action Task Force than an attempt to address the real issues. National Treasury acknowledged that current legislation already enabled the prosecuting authorities to take the required action. A case of having the means, but not applying it.
As in the case of the investigation into life offices, it appears that it is quite possible that you could overstep the mark of one set of legislation by complying with the requirements of another. A case of the right hand not knowing what the left is doing?
Correct application of the law, rather than “enforcement” thereof, might just be what is needed. We will always have those who will try to enrich themselves by acting illegally. The focus should be on them, not the 95% who bust their guts every day to operate within the regulatory framework.
