Fais is a flop and should be scrapped
THE Financial Advisory and Intermediary Services Act (Fais) is one of the great boondoggles of our time and should be scrapped before more damage is inflicted on consumers, according to an article in Business Day.
Recently published "answers" to parliamentary questions obscure the fact that Fais has failed calamitously. Unfazed by the failure of Fais and unsated by their existing sweeping powers, the Financial Services Board (FSB) and its self-appointed overlord, the Treasury, want yet more power, to which end they appear to have surreptitiously redefined the purported purpose of Fais.
But Parliament, not the FSB, decides why Fais exists and the objectives sold to Parliament in 2001 will apply until Parliament changes its mind.
If Parliament endorses new legislation presented to it, the Fais farce will escalate rather than end.
Answers provided on behalf of the minister demean the questioner and shamelessly justify more draconian and intrusive powers, claiming that South Africa is "obliged" to follow undisclosed international "standards and obligations".
There is no hint of how the proposed new powers might constitute compliance, and there is no counter to the probability that existing regulations already fully comply with such real or mythical "obligations".
Parliament is undermined and demeaned by "answers" that encourage it to transfer extreme law-making and discretionary power from legislators to public servants.
The excuse given for not knowing why Fais actually exists is that "many of the responsible persons in the FSB 10 years ago are no longer with in (sic) the FSB … so staff have had to draw from their records … to provide responses" to the parliamentary questions. The inconvenient truth is that many officials who introduced Fais are still conspicuously "with in" the FSB.
Even if they weren’t, their absence would be no excuse for ignorance about why Parliament approved their law. A decade is trivial in the history of legislation and Parliament expects a huge, costly, disruptive and ballooning bureaucracy to know the original reasons for its existence.
The FSB has never checked whether Fais costs as little and has achieved as much as it promised Parliament in 2001. The cost-benefit analysis justifying Fais predicted that benefits would outweigh costs by three to one. The pretext for not checking since is "the pending shift to tighter regulations following the 2008 financial crisis". Babble about "the crisis" reveals profound ignorance regarding its nature. The subprime derivative crisis, if that is what they mean, is irrelevant regarding proposed new laws. The power to regulate intermediaries neither prevented the crisis nor will prevent any future such crisis.
We were promised that there would "never be another Masterbond". Instead, we got such spectacular Fais-FSB failures as the Fidentia and Tannenbaum debacles, to name just two. Yet the FSB wants more power with less accountability.
What, according to the answers, has Fais achieved? Instead of bowing their heads in shame, they boast that 16,977 intermediaries (not counting their staff), many of whom were emerging black brokers, have been expelled from the industry since 2004, 40% more than the 11,083 who still cling tenuously to their jobs.
The cost-benefit analysis predicted R1,15 billion in annual benefits, more than 25% of which would arise from 20% better policy "persistency". The "benefit to consumers will arise from reduced mis-selling and overselling (by) more professional intermediaries", said their cost-benefit analysis. But now Parliament is told it is "not appropriate" to ask whether persistency has improved. Perhaps this is because first-year life assurance policy lapses since 2002 have soared from 12% to 18% and nearly doubled overall? Promised consumer gains have become huge losses to which must be added huge compliance and policing costs and loss of employment by thousands.
Let’s face it. Fais is a costly mistake that needs complete overhaul if not absolute repeal.
• Louw is executive director of the Free Market Foundation.