Conflict of interest…one year later
Conflict of Interest (COI) - any situation in which a reasonable person would think that the professional person’s judgement is likely to be compromised - is a concept financial services providers (FSPs) and representatives had to come to terms with just over a year ago as the Financial Services Board (FSB) required insurance industry role players to adhere to the FAIS General Code of Conduct, which is aimed at defining and regulating ethical business conduct.
The question however remains – have insurance industry role players successfully grasped and embraced COI in their everyday business conduct; and this, within a year after implementation?
Whilst many insurance industry role players were sceptical about the FSB’s decision to follow international best practices by adding COI amendments to the Code; questioning whether or not it is indeed possible to regulate moral business behaviour and integrity, Yurika Pistorius, executive head: legal and compliance at Centriq Insurance is of the view that it is indeed possible.
“Whilst some have seen the legislation as draconian, especially in the beginning, most industry role players indeed realise today that the legislation needs to be that way in order to successfully address, change and entrench moral attitudes and practices. A year after the implementation of COI, I would very much like to believe that the product providers and brokers in particular now understand the necessity of this legislation, especially the importance of properly disclosing the nature of the conflict or potential conflict of interest and monetary value, if any, of such a conflict to clients,” she says.
Pistorius explains that conflict of interest potentially exists whether or not decisions are affected by a personal interest as COI implies the potential for bias, even if this bias is not likely to manifest or exist. “For this reason, full and complete disclosure of details enables and better equips potential clients to decide for themselves whether or not a conflict of interest may be affecting the objectivity of the advice they receive,” comments Pistorius.
“One of the most challenging aspects that came with implementing COI, however, was the fact that the actual or potential existence of a conflict of interest may in itself not be a wrongdoing or undesirable practice, but any act or action that clients can or may regard as being unduly influenced. For this reason, we have seen many industry role players trying to avoid any COI or potential COI as far as possible,” she says.
An example being the fact that in the past a product provider (or similar) could train a group of brokers at Sun City and play a round of golf without having to charge the trainees a fee. “We don’t see this anymore. COI put a stop to this given the potential of COI that exists,” she says.
DO YOU FULLY COMPLY?
Since COI took effect in April last year, every FSP, other than a representative, had to put a documented policy on conflict of interest into place, which needs to be monitored on an ongoing basis. “In addition, you now also need to be keeping and maintaining a register in which all actual or even potential conflicts are recorded,” comments Pistorius.
By now, you must have put a management policy to deal with conflicts of interest in place in order to ensure that the Code is being accurately followed. Section 3A (2) “introduces the obligation to have a conflict of interest management policy” while Section 3A (3) “introduced an obligation on the compliance officer to report to the Registrar on the compliance with these provisions in the annual compliance report.”
“Whilst all the legislation and regulations introduced by the FSB to date have put a tremendous amount of strain on company budgets and human resources to implement, the fact of the matter remains that it has helped South African Insurers to better embrace international insurance business practices, therefore raising the profile of the insurance industry as a whole. It is very time consuming and costly to implement indeed, but know that we will absorb these costs over time, we just need to keep on pressing on. It is all worth it in the end,” she concludes.
Green Grapes Communications
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