South Africa: Changes to conduct oversight and coverholder data requirements

Background

The South African regulator, the Financial Services Board (FSB), is implementing radical reforms to the insurance regulatory framework and underlying conduct and prudential regimes. As the prudential components of the framework become settled, the FSB is increasingly focusing on harmonising the legal framework for market conduct. The FSB is currently consulting on ‘Phase I’ of the following regulation:

• Draft Insurance Regulations which can be given effect through the existing regulatory framework and seek to improve market conduct and conduct of business risk abuses identified through supervision;
• Draft replacement Policyholder Protection Rules (PPR) which give effect to a number of conduct of business reforms and include;
• The Retail Distribution Review (RDR) proposing substantive reforms to the regulatory framework for financial advice and distribution of products.

‘Phase II’ of these activities will repeal primary legislation and replace it with the Conduct of Financial Institutions Act (“COFI”) and subordinate Conduct Standards which centralise all market conduct requirements.

Revised PPR encompass the management of data and describe the manner and frequency in which coverholders must report policy and policyholder data to the managing agents.

Objectives

The FSB’s objective is to create accurate and effective data at the appropriate source to help drive the industry. This will ensure that the principles of Treating Customers Fairly (TCF) are achieved, and that Lloyd’s underwriters are also able to:

1. Properly identify, assess, measure and manage the conduct of business risks associated with their insurance businesses to ensure the ongoing monitoring and consistent delivery of fair outcomes to policyholders;
2. Comply with regulatory reporting requirements and with all relevant confidentiality, privacy, security and retention of data or information legislation;
3. Have continuous access to information that is up-to-date, accurate, reliable, secure and complete.

To meet these requirements coverholders writing South African business will need the capacity to provide policy and policyholder information to managing agents on an ongoing basis. Coverholders should achieve these objectives by ensuring they have sufficient organisational resources and the operational capabilities to fully implement a data management framework which is effective and regularly reviewed. 

Next steps

South African insurers, including Lloyd’s, must comply within two years of the PPR becoming effective. It is envisaged that the PPR will come in to effect by 1 January 2018, requiring Lloyd’s to comply with these data management provisions by 31 December 2019. 

In order to determine the readiness of coverholders to comply with the requirements, Lloyd’s South Africa will contact coverholders to request that they complete a short survey. The survey will provide insight into the level of understanding of the requirements, the suitability of any technological solution being used or considered, the information security applicable to the process and the estimated timeframe for each coverholder to ensure compliance.

Further information

Lloyd’s will continue to consult closely with the FSB and keep the market informed of any material developments to the coverholder data management requirements or broader conduct review. If you have any queries relating to these developments, please contact LITA in the first instance.