In July and August 2023, the Financial Sector Conduct Authority (FSCA) publicised no less than 20 enforcement orders following investigations into businesses issuing funeral policies without an underwriter.
Besides violating Section 5 of the Insurance Act, which establishes regulations for insurance businesses and restrictions on other enterprises, these businesses also contravened Section 7 of the Financial and Intermediary Services (FAIS) Act, which pertains to the authorisation of Financial Services Providers (FSP).
Enforceable undertakings specifics
In an effort to deter future transgressors, the specifics mentioned in enforceable undertakings are usually disclosed to the public. They also typically involve several detailed steps, including a contractual commitment by the guilty party to rectify their actions.
According to the enforceable undertakings issued by FSCA, the businesses are required to:
- move all insurance business to a licensed underwriter within a stipulated timeframe;
- ensure at all relevant times that they themselves and all their Representatives are registered as juristic Representatives; and
- submit proof that they have adhered to the requirements of the enforceable undertakings within 90 working days from the date on which the enforceable undertaking was issued.
What is the legal framework for funeral insurance agents and Representatives?
Any person or entity that provides financial services is required by the FAIS Act to register as an FSP and receive a licence from the FCSA. FAIS establishes basic criteria for authorised FSPs’ business activities and conduct. The purpose of licensing is to ensure that applicants are Fit and Proper, they operate lawfully, and act in the public’s interest. Only licensed FSPs and their duly appointed Representatives can provide advice or intermediary services, known as financial services, under the FAIS Act.
Insurers are also regulated under the Long-Term Insurance Act (LTIA), which describes how they should conduct themselves in the market. In particular, Rule 2A of the Policyholder Protection Rules (PPR) in the LTIA sets out specific standards of how funeral products should be structured and administered to ensure fair outcomes for policyholders.
If compliance obligations are breached, relying on ignorance of the law as an excuse will not be valid. A person who conducts insurance business in South Africa without an insurance licence commits an offence and is liable on conviction for a fine of up to R10 million. For this reason, it is vital that all role players in the industry familiarise themselves with the regulatory requirements and strictly adhere to them.
Once entered into, compliance with an enforceable undertaking is not optional. If a financial institution fails to meet the agreed terms of an enforceable undertaking, the Authority may:
a) impose an administrative penalty;
b) apply to a court for an order directing that person to comply with the terms of the enforceable undertaking, or any other order the court considers appropriate; and
c) in the case of a licensed financial institution, suspend or withdraw the licence.
Masthead can assist with FAIS Licensing and FSCA Profile Changes to ensure that you are appropriately authorised. Should your FSP be involved in any specialised financial products or services – such as funeral products, binder services, cell captives, or similar – and you require assistance, kindly contact your Masthead Compliance Officer. Click here for more information.