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Cape Town - The Financial Services Board on Thursday fined Discovery Life and Regal Financial Services R2.5m and R200 000 respectively for contravening section 3A of the General Code of Conduct for Financial Services Providers.
This matter related to “sign-on bonuses” that financial services companies offer to advisers, who then is typically expected to bring new business to the company. Their primary interest might then not be the best interest of the consumer, but rather switching clients' policies to the company that incentivises them.
The FSB was expected to address this issue in its retail distribution review (RDR), however it was forced to act sooner because of its widespread use.
To prohibit this practice, the FSB, therefore, published amendments to the Code of Conduct under the Financial Advisory and Intermediary Services (FAIS) Act, which came into effect on December 4 2014.
The FSB said Discovery Life Limited engaged in employment negotiations with four financial advisers prior to December 4 2014.
"These negotiations included discussions around the option to provide sign-on bonuses to these individuals. The finalised offers to these individuals, including the provision of sign-on bonuses, was issued to them on December 5 2014." This was one day after section 3A came into operation.
"By agreement, the sign-on bonuses recovered from the advisers will be paid to the FSB as part of an administrative penalty of R2.5m imposed on Discovery Life Limited," said the FSB.
"The Enforcement Committee took numerous mitigating factors into account, including the fact that Discovery has undertaken to reverse and recover the sign-on bonuses, as well as the fact that Discovery has, at all times, fully co-operated with the FSB."
Similarly, Regal provided a sign-on bonus to an individual after December 4 2014 when section 3A came into operation.
The FSB said by agreement an administrative penalty of R200 000 was imposed on Regal.
"The Enforcement Committee took numerous mitigating factors into account, including the fact that Regal fully co-operated with the FSB," it added.
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