A new law may force financial institutions to change how they treat their customers

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A former regulator says the COFI Bill might be one piece of legislation that genuinely forces financial institutions to change the way they treat their customers.
A former regulator says the COFI Bill might be one piece of legislation that genuinely forces financial institutions to change the way they treat their customers.
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  • National Treasury published the second draft of the Conduct Of Financial Institutions Bill (COFI) in 2020.
  • A former regulator, Caroline da Silva, says it might be one piece of legislation that genuinely forces financial institutions to change the way they treat their customers.
  • While there are many other laws, she says consumers are still complaining about the same ill-treatment by the sector.


Seven years ago, regulators introduced the Treating Customers Fairly ("TCF") principles, hoping that insurers would make their documents and products much simpler and that it would cut consumers' complaints to a fraction of what they used to be.

Over the years, the Financial Sector Conduct Authority (FSCA) and its predecessor, the Financial Services Board (FSB), have introduced one legislation after another to prove and show that they are in the consumers' corner.

But the Ombudsman for Long-term Insurance's last integrated report showed that each year the number of complaints against insurers gets bigger. In 2019, the Ombudsman received 11 915 written requests for assistance. Over a third of those were resolved wholly or partially in favour of customers. It's the same story with short-term insurance, where R94.9 million of disputed claims were resolved in favour of consumers in 2019.

But according to former FSCA and FSB executive of regulatory policy, Caroline da Silva, change is coming. Da Silva, who resigned from the regulator in August 2020, spoke at the PSG Group annual conference on Wednesday. She told insurers and brokers that the Conduct Of Financial Institutions Bill (COFI) would change many things.

Change is coming

National Treasury published the second draft of the Bill in September last year. The Bill, which wants to consolidate the regulation of all financial institutions' conduct, aims to strengthen how the financial services industry treats its customers. If passed into law in its current form, it will render TFC principles legally binding and enforceable.

"These changes are coming," said Da Silva about the Bill, which is yet to be signed into law.

Da Silva said regulators had tried different ways to change the conduct of the financial institutions because consumers still face the same ill-treatment they've been enduring for decades. 

"The complaints that the Ombudsman gets today, I bet to you that they are the same complaints it got 30 years ago. Customers have had the same unhappiness over a long time about the same things. They don't understand the exclusions. They don't understand the conditions. They don't understand excesses."
- Caroline da Silva

While the FSCA introduced the TCF principles years ago, many financial services products and policy wordings are still far from simple. For example, in the case of insurers, instead of simplifying standard products already there, companies started creating a new set of what they called "simple products".

These are largely low-premium add-on benefits sold in large volumes on the spot when consumers are distracted by details of their main purchase, like the myriad of insurance products car dealers sell or credit life sold by lenders, she said.

"But those products are as complex as any other," she said.

Da Silva made an example with the chip-and-dent car policies, which she believes are worded in a very complex manner that it becomes almost impossible for most people to claim.

COFI will hold managers personally accountable for consumers' losses

Another thing that the COFI Bill will change is governance in these institutions to protect consumers more from the financial devastation that they suffered when companies like VBS Mutual Bank and the Insure Group collapsed.

Da Silva said the biggest insurance failure that happened while she was at FSCA was the collapse of the Insure Group, and there was still R1.7 billion unrecovered to date.

Insure Group was a company that used to collect premiums on behalf of insurers and broker. But instead of passing on those premiums, the group held onto them for 45 days. Then, during that period, invest the money in risky and cash-hungry assets without the insurers' knowledge.

Only when it went into a liquidity crisis did everything come to bear.

"It's R1.7 billion. You'd think that would have so much coverage. VBS was R1.2 billion. Fidentia was R1 billion," said Da Silva.

She said there was no outcry about the money lost because insurance companies took all the risk for the premiums collected to cover the customers whose money the Insure Group swindled.

She said the COFI Bill would change the laws around outsourcing premium collection and the governance of outsourcing contracts in general.

She said the Bill has an entire chapter on governance and culture, extending the responsibility of good governance beyond the board to significant shareowners, executives and senior managers.

"It introduces a senior management regime which holds people personally accountable for these failures. With the introduction of this kind of personal accountability, I'm sure there'll be a lot more application of mind when you are overseeing the governance of your organisation and its outsourcing," Da Silva told the insurers and their employees.

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