LEGISLATION AND COMPLIANCE FEATURE
PATRICK BRACHER Director, Norton Rose South Africa
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Insurance law during and after 2018
018 literally produced a sea change in insurance law because the market is faced with a sea of new legislation. The Financial Sector Regulation Act (Twin Peaks), the Insurance Act and a mountain of Prudential Standards, along with the remaining parts of the Long-term and Short-term Insurance Acts and their rules and regulations, have drowned the industry in compliance. On the positive side, the emphasis is on maintaining the prudential integrity of the insurance industry and producing fair outcomes for customers. But neither the Regulator nor the industry is coping and the promised action under the new laws has not taken place (such as the relicensing process, which should have produced results already). Focus on innovation in a fastchanging world is a challenge for insurers and brokers overwhelmed by compliance. 2019 will add to the burden. The draft Conduct of Financial Institutions Act has been published, which will more than double the amount of new legislation affecting insurers and brokers. The word on everybody’s lips is ‘tech’. There are a growing number of insuretech solutions being offered, with many clever ideas about the marketing, underwriting and performing of insurance policies to meet the needs of the modern
RICHARD RATTUE Managing Director, Compli-Serve
31 March 2019
world. In South Africa, the online products are slowly growing but the mass market is not yet accustomed to buying financial services online. On the other side, the big risk for businesses is cybersecurity and the number and scope of cyberrisk policies is growing by the month, including cover for business interruption losses resulting from computer-related events. It is a far cry from the year 2000 when every insurer was excluding cyber-risk for the millennium bug that NEITHER THE never emerged from REGULATOR the pupa. Insurance will have to be NOR THE careful with existing INDUSTRY IS open-ended wording for cyber-risk limits COPING because this risk can have almost unlimited losses. Two big current issues are transformation and inclusion. It is difficult to get new serious players into the insurance market because of the weight of compliance. It is also difficult to include large numbers of people as buyers of insurance because the acquisition costs of persuading a sceptical market to insure often overprices the product. However, those consumers who are persuaded
to insure are now much better protected by the new laws against bad deals and bad claims experience. It will be interesting to see what impact microinsurance will have on inclusion. The year has seen, internationally, massive losses from natural disasters, with the reinsurers reporting heavy financial consequences. There has not been talk yet about increasing reinsurance premiums in what is still a competitive market, nor increasing insurance premiums in South Africa for the same reason. Competition will probably temper this outcome. The ability under the Insurance Act for foreign reinsurers to register branches in this country will integrate us better into the international scene. The stronger restrictions on anyone doing insurance business in South Africa unless registered here will help the local market retain premiums. We are only indirectly affected by the consequences of Brexit but, whatever the deal, our relationships with the London market and the European market will need more careful managing than in the past. South Africa will still, however, have a sophisticated insurance market backed by competent intermediaries who will cope well with all the challenges.
Days numbered for entirely unregulated cryptocurrency marketplace
T
he inevitable reality of well, with new over-arching legislation cryptocurrency regulation is for the entire financial services gathering pace. With the draft industry via COFI and related conduct proposals opened to public comment standards. While a process, it’s a great closing last month, the initial steps are opportunity to bring crypto-assets in process to bring some formality to into the mix as well, which covers the this growing and popular asset class. proposed second phase of the potential It is vital crypto-assets become more regulations. regulated than is the case at present, to align with TCF and thus, consumer The train is moving – as well as stakeholder – protections. – all aboard This will allow for crypto-assets Appetite for crypto-assets will result in to be used in the financial system them becoming just another financial properly as we avoid the current product that FSPs can be authorised scenario, which essentially bypasses for, before they can trade or place key regulations cryptocurrencies such as FICA into client as any efforts to ONE THING IS FOR SURE, portfolios. identify a source Taxation issues CRYPTOCURRENCIES of crypto-funds will come to the ARE HERE TO STAY is currently fore as well. virtually While there impossible. A phased approach to are a few exceptions, many countries regulation is proposed, with the first are struggling to find money for their phase focussed on getting everyone fiscus. As plenty of upset already ‘on the books’ – I would agree this is a exists around cross-border taxation good place to start. and companies moving profits into Current regulatory change at the low tax jurisdictions, global tax FSCA lends itself to this process as authorities are looking to clamp down
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on companies not paying their fair portion of tax. I believe with certainty that cryptocurrencies will be taxed eventually, as it would be unaffordable for government not to do so. There is speculation that if you transact in an unauthorised cryptocurrency, you will be contravening SARS rules, but it remains to be seen exactly how this – and other regulations – will play out. Challenges and opportunities The outdated market rules and legacy infrastructure already in place do seem to indicate slow adoption to change by top level, and skills or system shortages contribute as well. There may be some stakeholder resistance, but I believe that overall, many stakeholders will want the regulations to come in, to encourage protection for all. Regulation could even bring stability to the cryptocurrency marketplace and should not be a reason for its value to fall through the floor. Once regulated, it will become just like any other investable asset.
Crypto compliance The role of the compliance officer will not change once crypto-assets’ regulations are in place – it will simply be another asset with rules to address. It will expand the compliance officer’s scope, but not change the game. What will change the game, however, is the bigger shift towards artificial intelligence and the Fourth Industrial Revolution impacting financial services, but that is a story for another day. Not just a phase The authorities are on the right track in taking a phased approach to applying regulation to cryptocurrencies, keeping a keen eye on how other jurisdictions are dealing with the process. While it will take time, the reality is clear: we will see regulations for governing cryptocurrencies down the line, and it will be interesting to see how the ‘powers that be’ determine what these will look like. One thing is for sure, cryptocurrencies are here to stay.
