‘Fail­ure to act’ ex­poses FSB to le­gal ac­tion

Weekend Argus (Saturday Edition) - - GOODPOSTER -

The fail­ure by the Fi­nan­cial Ser­vices Board (FSB) to take ac­tion against un­reg­is­tered fu­neral as­sur­ers ex­poses the reg­u­la­tor to a class ac­tion from pol­i­cy­hold­ers who have suf­fered dam­ages, Ad­vo­cate Chris Shone says.

“Does the func­tion of the FSB ex­tend be­yond sim­ply is­su­ing warn­ings? Does the FSB not owe con­sumers a duty of care? By not clos­ing down un­reg­is­tered ‘in­sur­ers’ of which it is aware, can the FSB be held li­able for any dam­ages suf­fered by mem­bers of th­ese un­reg­is­tered schemes?

“If the FSB is aware of an un­reg­is­tered ‘in­surer’, surely it is bound to act? Fail­ure to do so could give rise to a claim con­se­quent on an omis­sion and a breach of the duty of care. Dam­ages would in­clude any sums lost by mem­bers of the un­reg­is­tered in­surer by pay­ing premi­ums to the scheme,” Shone says.

Jonathan Dixon, deputy ex­ec­u­tive for insurance at the FSB, says that, in ad­di­tion to warn­ing the pub­lic about un­reg­is­tered in­sur­ers, the reg­u­la­tor “car­ries out in­spec­tions and takes reg­u­la­tory ac­tion” against il­le­gal fu­neral scheme op­er­a­tors.

The FSB has con­cerns about the abuse of con­sumers who use fu­neral schemes and is “look­ing at how to en­gage with in­sur­ers sell­ing prod­ucts through fu­neral par­lours”, Dixon says.

Na­tional Trea­sury pro­posed a Mi­croin­sur­ance Act to reg­u­late fu­neral as­sur­ance, but, with the in­tro­duc­tion of the “twin peaks” model for reg­u­lat­ing the fi­nan­cial ser­vices in­dus­try, a dif­fer­ent ap­proach will be adopted.

“We’re hop­ing to bring in pro­vi­sions through rules by the mid­dle of next year. Th­ese rules will pro­vide for prod­uct stan­dards to de­fine mi­croin­sur­ance; sim­pler sol­vency re­quire­ments; and more pro­por­tion­ate fit-and-proper re­quire­ments un­der FAIS [the Fi­nan­cial Ad­vi­sory and In­ter­me­di­ary Ser­vices Act] for peo­ple sell­ing mi­croin­sur­ance prod­ucts.”

Th­ese pro­vi­sions will make it eas­ier for il­le­gal op­er­a­tors to com­ply with the law, Dixon says.

Shone says that a re­cent amend­ment to the Fi­nan­cial Ser­vices Board Act is aimed at grant­ing the FSB and its of­fi­cials im­mu­nity from li­a­bil­ity for losses or dam­ages caused in the per­for­mance of their du­ties.

By re­mov­ing from the Act the words “grossly neg­li­gent” – with ref­er­ence to the reg­u­la­tor’s con­duct – the FSB is essen­tially ab­solved from most li­a­bil­ity, Shone says.

But Dixon says the pur­pose of the amend­ment was to “bring the Act in line with the norm for other reg­u­la­tors and is in no way ex­cep­tional”.

Shone says the FSB is not known for be­ing proac­tive, “in­vari­ably only get­ting in­volved when all has al­ready been lost”.

As an or­gan of state, the FSB can be held to ac­count for fail­ing to dis­charge its statu­tory obli­ga­tions ad­e­quately, he says. “What other pur­pose does the FSB have apart from reg­u­lat­ing the fi­nan­cial ser­vices sec­tor?”

Dixon says the pow­ers granted to the FSB are ac­com­pa­nied by ac­count­abil­ity. “The FSB is sub­ject to on­go­ing over­sight by, and ac­count­abil­ity to, Na­tional Trea­sury, the Min­is­ter of Fi­nance and Par­lia­ment,” he says.

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