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FICA, FAIS, PAIA & the FSB Print E-mail
 

REGULATIONS TO BE COMPLIED WITH BY A BROKERAGE
 
 
Old law books
A brokerage – as a professional financial services provider - must comply with the regulations of the Financial Intelligence Centre Act (“FICA”), the Financial Advisory and Intermediary Services Act (“FAIS”), the Short-Term Insurance Act, (or Long-Term Insurance Act), the Promotion of Access to Information Act (“PAIA”), and the insurance sector’s various education - and training requirements as regulated by the Financial Services Board (“FSB”).
 
 
A brokerage buys insurance for and on behalf of its client/s, and places such risks with an insurer. The simple fact of the matter is that a client “belongs” to a brokerage, which imposes a duty of care as set out hereunder.
 
 
 
Failure to comply with the above requirements constitutes unprofessional conduct that may lead to i) sanctioning of the brokerage, and even ii) 3rd party liability in a civil suit as a result of negligent (mis)representation. In addition, failure to comply can result in a contravention of the Companies - or Close Corporations Act, and may even constitute an offense. 

 

 

 

FICA
 
FICA requires accountable institutions (such as investment managers and attorneys) to establish and verify the identity of their clients prior to transacting with them, in order to combat or eliminate money laundering activities.
 
Note: "Money laundering” refers to various methods (cunningly) applied to disguise proceeds from crime. It is not ring-fenced to cash transactions, but can include investment services and relevant financial services. 
 
FICA prescribes  that an accountable institution i) may not establish a business relationship, or ii) conduct a single transaction with a new client, unless they have established and verified the identity of the client prior to transacting. In order to ensure that accountable institutions comply with their identification and verification requirements, clients should have the basic, (prescribed) documentation available confirming their statuses. Certain accountable institutions are exempted from the identification and verification requirements, if such identification and verification has been done by another accountable institution (such as an insurance brokerage). 
 
 
A brokerage (as a “secondary accountable institution”) can confirm in writing - to the satisfaction of the primary accountable institution - that they have i) established and ii) verified the identity of the specific client. As a result, potentially massive transactions can be concluded on the strength of the brokerage’s confirmation.
 
 
FICA simply tries to ensure that we all know WHO we are dealing with, and imposes a duty of care on a brokerage every time it issues a cover note, or when a FICA confirmation is made to 3rd parties on behalf of a client. Such 3rd party is entitled to rely on the information given to it by the professional service provider / brokerage.
 
 
It is very important to understand the difference between a listed company and a private company / a close corporation and a partnership / an individual and an association, etc, as there are basic requirements stipulated per FICA in respect of each type of entity. In a dramatic departure from the norm, Randmark40's Ks4 system has been prepared, accordingly. 
 
 
Why all this effort? The fact of the matter is that a client’s representative might not be aware of his employer’s (actual) status: often close corporations are referred to as a “company”, and in capturing such incorrect data it may eventually spiral into a summons being improperly drafted, whilst the underlying claim unwittingly prescribes as a result of the wrong information.
 
 
That just won't happen within Ks4.
 
 
 
 
FAIS
 
Whereas FICA tries to establish who we are dealing with, FAIS tries to ensure that we deal with them properly, responsibly and professionally.
 
FAIS aims to regulate the giving of advice and rendering of intermediary services to clients, and imposes responsibility by requiring that i) the financial needs of the client has to be  evaluated, ii) appropriate advice - having established the relevant facts – is to be given, and iii) clients be assisted to make informed decisions, 
whilst establishing a complaints resolution mechanism.
 
The act requires that competent and qualified persons render services and give advice (so called “fit and proper requirements”) in order for clients to receive sound financial advice, services and products tailored to their individual needs. An untrained representative of a brokerage should never be allowed to give advice, hence the requirement that an insurance advisor be FAIS accredited. 
 
Ultimately, proof of a brokerage’s professional conduct remains a factual question. It can be derived from an auditable “paper trail” surrounding the advices given to a client, to be  kept for a period of 5 years from termination of the relationship, whilst there is a formal requirement that the brokerage needs to be supported with FAIS accreditation under FSB registration.
 
Disputes in respect of insurance cover / the lack thereof usually do not centre around the actual issued policy documents, but in the various (declined) quotes prepared and / or the advices given (or more to the point: not given). Ks4 keeps track of these. 
 
The client’s attention must be drawn to particular excesses or specific conditions of cover, and there is (again) a duty of care imposed on a professional brokerage to keep record of all the relevant correspondence and notes to and from the client, in respect of the pre-policy advice (voor-kontraktuele advies) given. Ks4 does this.
 
Is the client married? How?  Is the client deceased? Is his estate insolvent? Is this a holding company that does not actively trade? Is this an unregistered company yet-to-be-formed? In the light of the massive implication/s of not having the appropriate cover, it is exceedingly clear that  i) only after the relevant facts have been established (with due care and diligence), ii) proper advice - in the interest of the client - can be dispensed.  Normally there ought not to be a problem, but “normally” presupposes that we have the correct, relevant information available.
 
Ks4 hosts the data fields in as simplified a manner as is possible. We hope you agree!
 
 Law Library
 
PAIA
 
PAIA imposes the responsibility on both public and private bodies to disclose relevant information necessary for the exercise or protection of any rights, of any person.  In addition, there are specific details and a defined structure within which relevant information is to be kept by the body.   Ks4 complies as far as possible.
The head of a private body (such as a brokerage) must compile the manual, and it must be made available within 6 months of the coming into existence of the body. 
 
The manual should contain:
• the postal and street address, phone number, fax number and, if available electronic mail address of the head of the private body; 
• a description of the Guide compiled by the South African Human Rights Commission, and how to access it;
• the latest notice in terms of section 15(2), if any, regarding the categories of records  that are available (without having to request access in terms of PAIA);
• a description of the records of the body which are available in accordance with any other legislation;
• sufficient detail to facilitate a request for access to a record of that body;
• a description of the subjects on which a body holds records and the categories of records held on each subject, and; 
the manual should be regularly updated.
 
PAIA works in tandem with FICA, by requiring that relevant client / 3rd party documentation we HAVE collected under FICA, can be made available to relevant parties under PAIA. PAIA requires that a brokerage’s “own” information is at hand to be made available. PAIA is almost an extension of the  provisions of the Companies - and Close Corporation Acts, which require the publication of a company/corporation’s relevant, pertinent details.
 
Effectively, the right of access to information is a right in terms of section 32 of the Constitution, and PAIA gives effect to such, by (amongst others):
• providing and detailing the procedures to be followed for a request for information; 
• stating from whom such request can be requested;
• detailing the duties of the bodies, from whom you have made a request;
• describing what information can be requested;
• describing when the requested information must / may be refused;
• describing what mechanisms and procedures are available if your request is refused.
 
If necessary, the PAIA request-forms and manual can be made available as “standard letters” within Ks4, and their delivery to interested parties tracked.
 
 
 
FSB
 
The scope and nature of the Financial Services Board’s (“FSB”) activities extend over the monitoring and regulation of insurance brokerages (and other institutions).  However, it does not fall within the ambit of this article to set out the FSB’s many requirements; suffice it to say that:
 
i) the FSB tries to ensure that there is professional compliance with a basic set of standards, in protection of the public, and;
ii) a misconception exists that “a system” can be FSB compliant (this is not the case).
 
It is – both in fact and in law - a brokerage that has to comply with the FSB’s requirements. A system simply assists the brokerage in working towards such a goal. A system cannot be compliant, merely endorsed by a body (such as the FSB). It remains the brokerage that dispenses advice and transacts insurance business on behalf of its clients, not a system!
 
However, in pursuit of the FSB’s professional standards to be complied with - standards determined and set out by FICA, FAIS & PAIA et al - the system’s captured data forms an integral part of the brokerage, constituting the foundation from which the brokerage can conduct itself professionally, meticulously and efficiently.
 
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