‘Failure to act’ exposes FSB to legal action
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.