The Financial Sector Conduct Authority (FSCA) recently published FSRA Compliance Extension Notices namely 1 and 2 of 2019 for Short-term and Long-term Insurance respectively (Notices). In terms of these Notices, the FSCA granted an extension for the period of compliance with Regulation 4.2(3) of the Regulations made under section 70 of the Short-term Insurance Act (STIA) and Regulation 8.2(2) of the Regulations made under section 72 of the Long-term Insurance Act (LTIA) to 1 February 2020.
What do these Regulations deal with?
These Regulations, in both the STIA and LTIA, deal with the requirements relating to receiving premiums. An independent intermediary who receives premiums is required to account for such premiums and must promptly open and maintain one or more separate bank accounts into which premiums will be received. In terms of these Regulations such an account may only contain monies collected from policyholders and may not contain any monies or funds of the independent intermediary.
Reason for extending the period for compliance
In the accompanying FSCA Communication 7 of 2019 (Insurance) the FSCA states that it has received several applications for exemptions from independent intermediaries more particularly in the retail market, where rendering services as intermediary is not the primary focus in the entity and the insurance product is subsidiary to a commercial contract. In these instances, the premium for the insurance product is collected together with payment for a non-insurance service or product. Some of the reasons given for the exemption applications include practical challenges, customer convenience and suitable service to policyholders.
As these applications require the FSCA to consider, amongst other things, various complexities in the business models of these applicants, the FSCA requires additional time to consider these applications and make an informed decision on how to approach the variety of issues.
The initial date for ensuring compliance with these Regulations was 28 September 2019 however the Notices have extended the deadline for complying with these Regulations to 1 February 2020.
What is the impact on FSPs?
It is important to note that these Extension Notices only relate to an extension of the deadline for compliance with the relevant Long-term and Short-term Insurance Regulations set out above. These Notices have no relevance to the FAIS framework. This means that if an FSP collects long-term or short-term insurance premiums, they are required to comply with the existing requirements relating to premium collection set out in the FAIS General Code of Conduct. Should an FSP experience similar challenges in collecting premiums to those mentioned above, then they would have to seek exemption from that requirement under FAIS. If an exemption from the abovementioned Long-term or Short-term Regulations is required, the application in terms of these Regulations must be brought by the insurer not the FSP. This does create some complexity as there are dual regulatory frameworks regulating the same activity. In time, amendments will be made to the General Code of Conduct to ensure harmonisation of the requirements for the collection of long-term and short-term insurance premiums.
To read the notices and communication from FSCA, click on the links below:
- FSRA Compliance Extension Notice 1 of 2019 (STIA)
- FSRA Compliance Extension Notice 2 of 2019 (LTIA)
- FSCA Communication 7 of 2019 (Insurance)