Complying with Changes in Legislation

Requirements for professional indemnity and fidelity insurance cover for providers A person who is a Category I provider on the date of commencement must, with effect from a date 12 months after that date, maintain: Professional indemnity of a minimum of R1 million; or Guarantees of a minimum of R1 million. A person who is a Category I or IV provider and who receives or holds clients financial products or funds of or on behalf of a client on the date of commencement must, with effect from a date 12 months after that date, maintain: Guarantees of a minimum R1 million; or Suitable fidelity insurance cover of a minimum of R1 million. A person who is a Category II or IIA and who receives or hold clients financial products or funds of or on behalf of a client on the date of commencement must, with effect from a date six months after that date, maintain: Guarantees of a minimum amount of R5 million, or Suitable professional indemnity or fidelity insurance cover of a minimum of R5 million, respectively. A person who is a Category III provider and who receives or hold clients financial products or funds of or on behalf of a client on the date of commencement must, with effect from a date six months after that date, maintain: Guarantees or of a minimum amount of R5 million; or Professional indemnity and fidelity insurance cover of a minimum amount of R5 million, respectively. Financial interest and conflict of interest management policy Background The Registrar of Financial Services Providers has amended the General Code of Conduct for authorised financial services providers and representatives, to make provision for new requirements relating to: Conflict of interest; and Prohibition on the giving and receiving of certain types of financial interest. Conflict of interest is defined as any situation in which a provider or representative has an actual or potential interest that may, in rendering financial service to a client: Influence the objective exercise of his, her or its obligations to a client; or Prevent a provider or representative from rendering an unbiased and fair financial service, or from acting in the interests of a client, including, but not limited to: a financial interest; an ownership interest; or any relationship with a third party. Avoid or mitigate a conflict of interests The FSP must take steps to avoid or mitigate a conflict of interest and must disclose the full nature of such conflict in writing to the client, together with the measures taken to avoid or mitigate the conflict. The amendments take effect 3 months after the date of the Notice, i.e. 19 July 2010. Note that until the newly introduced section 3A(2) takes effect, on 19 April 2011, reference need not be made by the FSP, in its written disclosure of the conflict of interest to the client, of the conflict of interest management policy of the provider. Financial interest which a FSP may receive from or pay to a third party A new section is introduced into the Code, section 3A, entitled Financial interest and conflict of interest management policy. Section 3A(1)(a), which takes effect on 19 October 2010, sets out the financial interest which a FSP may receive from or pay to a third party, restricting it principally to commissions and fees authorized under the Long Term Insurance Act, the Short Term Insurance Act and the Medical Schemes Act. Provision is made for fees earned or paid in terms of any other legislation. No financial interest to a representative for giving preference Section 3A(1)(b), which takes effect on 19 April 2011, prohibits a FSP from offering a financial interest to a representative for giving preference to the quantity of business secured to the exclusion of quality, or for giving preference to a specific product supplier, where the client has a choice of more than one product provider, or for giving preference to a specific product of a supplier, where more than one product from the same provider is available to the client. Section 3A(1)(c), which takes effect on 19 October 2010, applies to entities which are both product providers and financial services providers. Conflict of interest management policy Section 3A(2), which takes effect on 19 April 2011, requires all FSP’s to adopt, maintain and implement a conflict of interest management policy. Section 3A(2)(b) details the contents of such a policy, whilst section 3A(2)(c) to (f) provide for measures of adoption, employee and representative education on the policy, monitoring procedures and the appropriate publishing of such a policy. The stated aim is to have it accessible for public inspection at all reasonable times. Anti-avoidance Section 3A(3), which takes effect on 19 October 2010, prohibits any FSP or representative from attempting to collude with any associate in an attempt to avoid, limit or circumvent compliance with Section 3 of the Code. Reporting duty Section 3A(4), which takes effect on 19 July 2010, requires the compliance officer of a FSP (or the FSP, if a compliance officer is not required by law) to report on the provider’s conflict of interest management policy, to the Registrar. The aspects which should be reported on include implementation, monitoring, compliance with and accessibility of the conflict of interest management policy.

The National Credit Act No.34 of 2005

Purpose of the Act

The Act was passed into law by Parliament and signed by the President in March 2006. This aims to protect consumers taking credit or entering into consumer credit transactions.

In addition, the Act makes provision for the control and regulation of all credit transactions, including mortgages, credit cards, overdrafts, micro-loans and pawn broking transactions.

The Act also regulates all institutions that provide consumer credit, including banks, furniture companies, clothing and other retailers, micro-lenders and pawnbrokers.

Provision is made in the Act for the registration of debt counsellors and debt restructuring for over-indebted consumers.  The Act also regulates credit bureaux and consumer credit information, providing for free access to this information, kept by credit bureaux, and for a process by which any errors on the credit records can be corrected.