Is the Financial Services Industry pulling wool over consumers' eyes?

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The Financial Services industry is in a state of flux. The Financial Services Laws General Amendment Bill (FSLGAB) was tabled in parliament on 25 September 2012. The aim of the Bill is to ensure that ‘South Africa has a sounder and better regulated financial services industry’ (see the Memorandum on the Objects of the Bill).

The most significant impact of the Bill from a consumer protection standpoint is that it will permanently exempt the long term and short term insurance industry, the pension fund industry, collective investment schemes and securities from the operation of the CPA. In the May/June edition of Juta Law Publisher’s Consumer Law Review ('Treating Customers Fairly or the Consumer Protection Act') we gave the following background to the possible enactment of the FSLGAB:

Those who follow Treasury literature will recall that the purpose of this exemption was to clear the way for financial sector legislation that would impose a higher standard of consumer protection. The FSB has indicated that this ‘higher standard’ will be in the form of the Treating Customers Fairly programme (TCF), which is similar to the TCF programme implemented by the Financial Services Authority (FSA) in the United Kingdom. In the ‘Self-Assessment Pilot Report’ of December 2011 the FSB indicated that it was still ‘formulating the appropriate supervisory approach and structures and building capacity to supervise the TCF outcomes’ (p 43). The question for the FSB is whether they can simply adopt the FSA approach, lock, stock and barrel, given that the FSA didn’t have the standards set by the CPA to contend with.

In the absence of a final TCF blueprint from the FSB, one would have to argue that the Bill, on its own, fails to introduce this higher standard of consumer protection into FAIS. Therefore if implemented today, it would create a lacuna in South African law and deprive consumers of several protections afforded to them by the CPA.

Earlier this year Esselaar Attorneys made a submission to Treasury to the effect that the CPA should remain applicable until such a time as the Treating Consumers Fairly programme was in place (last we heard that would be January 2014) to ensure that consumers do not fall through the cracks. Treasury's response to the submission was that

the rendering of financial services as defined in the Act is already excluded from the ambit of the CPA (excluded from the definition of “service” in section 1 of the CPA). The rendering of financial services was excluded from the CPA as it was accepted that the Act already provided for consumer protection at the same if not higher level than the CPA. The Act already impose a requirement on financial services providers to render financial services honestly, fairly, with due skill, care and diligence, and in the interest of clients and the integrity of the financial services industry.

This is simply not correct. The rendering of financial services are not excluded from the CPA, only those which constitutes advice or intermediary services under the Financial Advisory and Intermediary Services Act and the insurance industry. That is a very narrow exclusion. In addition, the insurance industry was ‘subject to those sector laws being aligned with the consumer protection measures provided for in this Act [the CPA]' before 1 October 2012. An practically identical exclusion was later given to the collective investments schemes industry, the pension funds industry and the security services industry.

These sector laws have not been amended and therefore these industries are now subject to the CPA.

It is also not true that ‘it was accepted that the Act already provided for consumer protection at the same if not higher level than the CPA’ as Treasury would have it. Why qualify the exclusions to the extent indicated above if this was the case? An examination of these sector acts also does not support the contention that they provide greater protection than the CPA.

If I am wrong, I invite Treasury to correct me. Whatever the case may be, consumers deserve a great deal more transparency than what is happening here. The negotiations (if they are taking place) between the DTI (who controls the National Consumer Commission) and Treasury need to be made public and the rationale for claiming that consumers will have more protection than under the CPA must be explained. Certainly a cursory rejection based on a patently incorrect interpretation of the Act will not suffice.