South Africa’s medical schemes regulator has slammed the Treasury for not consulting it on the draft Conduct of Financial Institutions Bill, saying it will render it a lame duck if passed in its current form, reports Business Day. The Bill is part of the government’s reforms to strengthen governance of the financial services industry, following the promulgation of the Financial Sector Regulation Act in 2017, which established the Prudential Authority and the Financial Sector Conduct Authority (FSCA). The Bill outlines what consumers and industry players can expect of financial institutions, including medical schemes and administrators.
The report says its proposals thus affect the role of the Council for Medical Schemes (CMS), which oversees 80 medical schemes that provide health cover to 8.9m people. The Bill was published by the Treasury in December 2018, and interested parties had until 1 April to comment.
Its explanatory note reads that the FSCA’s full powers will apply to medical schemes, but initially this role will continue to be played by the CMS, with the concurrence of the FSCA. “The FSCA and the CMS are working together to reach agreement regarding when FSCA concurrence with CMS decisions is required during this transition period, as well as more broadly on how approaches to conduct of business and consumer protection issues in the medical schemes environment can be harmonised. Medical schemes will therefore not be required to be licensed under the bill framework during this transitional period, “although this may be reviewed over time”, it said. The transitional period ends on 31 March, 2021.
But in its submission to the Treasury, the CMS is quoted as saying it was not consulted on the bill. Although it was part of a task team dealing with the Financial Sector Regulation Act, the contents of the bill were not discussed at their meetings, it said. In a strongly worded statement, the CMS said it is irritated and disappointed with the bill, because it removes its core functions.
The CMS’s mandate includes protecting members’ interests, overseeing product design, investigating complaints, settling disputes and advising the health minister on matters affecting the industry, said CMS registrar Sipho Kabane. “Removing these core regulatory functions from the CMS and placing them with the FSCA is tantamount to legislating the CMS out of existence as an independent regulator,” Kabane said in the report.
“If additional statutory or even voluntary dispute resolution mechanisms are created it will create further problems for members of medical schemes who are already overwhelmed by the complexities and asymmetry of information in the health insurance sector,” he said.
According to the report, the CMS said medical schemes do not operate like institutions providing insurance products and should not be subjected to the same conduct requirements. “The specific regulatory functions that include product design, disclosures and claims management in medical schemes should fully reside under the CMS in line with the powers accorded to it by the Medical Schemes Act,” it said.
“The CMS demands that the Treasury and FSCA properly consult with the CMS before the final version of the (Bill) is sent to parliament,” Kabane said.
The report says the Treasury had not responded to a request for comment at the time of publication.
Financial services company Alexander Forbes has voiced its support for the Treasury’s plan to bring regulatory oversight of medical schemes under the same umbrella as insurance products, as spelt out in the Bill, reports Business Day.
Alexander Forbes Health MD Butsi Tladi said a single regulator will ensure better protection for consumers and the FSCA is well placed to oversee the medical schemes industry. The current regulatory framework, in which medical scheme brokers are accountable to the CMS and the FSCA, does not provide optimal consumer protection, and its “untidiness” creates scope for conflict, she is quoted in the report as saying.
The Financial Intermediaries Association, which counts Alexander Forbes among its members, strongly advocated for the end of dual regulation in its submission to the Competition Commission’s health market inquiry. Tladi said the FSCA’s ability to regulate the market conduct of financial institutions is more advanced than that of the CMS, and that the medical schemes regulator already refers complaints about broker conduct to the FSCA.
“The FSCA has proven that it is far more capable of managing possible conflicts of interest in the provision of independent advice to consumers,” she said. The CMS is inherently conflicted, as it is charged with protecting the interests of medical schemes and consumers, she said.
The report says CMS spokesperson Grace Khoza declined to comment on the issues raised by Alexander Forbes.
The Bill is part of the government’s reforms to strengthen governance of the financial services industry, following the promulgation of the Financial Sector Regulation Act in 2017, which established the Prudential Authority and the FSCA. It outlines what consumers and industry players can expect of financial institutions and seeks to create a consolidated framework for market conduct, which is currently dealt with by several sets of laws. The report says these include the Financial Advisory and Intermediary Services Act, the Consumer Protection Act and the Medical Schemes Act.