explanatory guide on the changes and how they …...allowed to contract directly with the insurer in...

F A I S S e c t i o n 1 3 ( 1 ) ( c ) – I m p l e m e n t e d c h a n g e s 0 1 0 7 1 5 P a g e | 1

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Disclaimer:

Information published in this newsletter is based on NADA’s interpretation and information available in

the public domain.

This information is intended for NADA Members, only for purposes of education and assisting them with

the various considerations around topics covered in their own environment.

Information has been summarised and contextualised to simplify the understanding and application

thereof in practice.

NADA does not profess this information to be a definitive or comprehensive formal guide and therefore

recommend that you consult with a suitably qualified professional.

People should at all times refer to the relevant Acts and subordinate legislation as published.

Any templates provided are intended as a guidance and must be tailored to suit the relevant business’s

needs, and if necessary updated with regulatory requirements.

Explanatory Guide on the changes and how they impact you as a motor dealer in

respect of the Guidance Note Issued by the FSB in terms of the Interpretation and

Application of Section 13(1)(c) of the FAIS Act

Impact Points to mention a few are (the list is not exhaustive):

1. Premium collection

2. Agreements

Binder and Intermediary

Juristic Representative

Staff

Service Providers

3. Systems and Processes

4. Disclosures 5. Risk Management


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FSP

RepresentativeJuristic

Representative

Representative of Juristic

Representative

Key Individual of Juristic

Representative

Key Individual

Financial Services Provider (FSP)

(the registered license holder for FAIS)

Examples of the license you may fall under if you have not

registered with the FSB directly i.e. only on the rep register:

IDA, Insurancewise, VAPS, ISS, the banks or under a Group

license

FSP’s have to meet certain operational and other

requirements before the FSB will approve their license.

Only the FSP can contract with product suppliers – effective

1 July 2015.

Every FSP is required to have at least one KI that has passed RE1 (KI) and RE5

(Rep) Exams. (refer: BN106 of 2008). All FSP’s should have at least 2 KI’s for

business continuity purposes, an FSP cannot operate without a KI. KI’s can only

be appointed once approved by the FSB and this process can take up to 8 weeks.

The KI also needs to have the required an NQF qualification in terms of the

license category for which the FSP is licensed, and meet all the other Fit & Proper

requirements. KI’s can only be natural persons

Natural Person that

has to have the

required NQF Level

for license

categories as

registered with the

FSB and RE5 Exam

and must meet the

required Fit &

Proper

Legal entity that operates under

another’s FSP license. Employees

that are registered as representatives

need to meet the necessary

requirements under Fit & Proper.

Same requirements as the KI above, all Juristic

Representatives must have a KI appointed.

Same requirement as Representatives

Not every FSP has juristic representatives – the diagram above is for explanation purposes

regarding the changes to FAIS Section 13 (1)(c)


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In terms of the revisions, section 13(1)(c) of the FAIS Act implemented on 1 July 2015, a juristic representative is not

allowed to contract directly with the insurer in respect of regulated products. The juristic representative’s principal

(i.e. the FSP) will therefore have to contract with the insurer, such contracts complying with the Binder Regulations,

FSB Directive 159 on Outsourcing and the FSB’s Guidance Note on the interpretation and application of Section 13

(1)(c).

Below is the FSB’s Guidance Note with explanations in a box below each section on how they apply to you in the motor

industry.

The note seeks to clarify:

• The reasons for the restriction,

• Collection of premium,

• The need for IGF guarantees,

• Contracts with product suppliers and mandates with clients,

• Binder agreements, and

• Business documentation and advertising

All footnotes in the document are as per the FSB’s Guidance Note that was published on 24 June 2015.

GUIDANCE NOTE (Annexure A)

FINANCIAL ADVISORY AND INTERMEDIARY SERVICES ACT, 2002 (ACT 37 OF 2002)

Date of publication: 24 June 2015

GUIDANCE ON THE INTERPRETATION AND APPLICATION OF SECTION 13(1)(c) OF THE FAIS ACT

1. PURPOSE

1.1. The purpose of this Guidance Note is to

(a) clarify the application of section 13(1)(c) of the Financial Advisory and Intermediary Services Act,

2002 (the FAIS Act), in a manner that is consistent with its purpose; and

(b) reflect the manner in which the Registrar of Financial Services Providers (Registrar) will apply that

section for regulatory purposes.

1.2. Section 13(1)(c) which became operative on 30 May 2014 reads as follows:

"13(1) A person may not

(a) …

(b) …

(c) render financial services or contract in respect of financial services other than in the name of the

financial services provider of which such person is a representative .

2. BACKGROUND

2.1. The regulatory architecture of the Act is:

(a) for the Registrar, on application, to authorise persons to participate as principals in the rendering


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of ‘financial services’1. The FAIS Act refers to these persons as 'authorised financial services

providers2 ;

(b) to require of authorised financial services providers (‘FSPs’) who wish to conduct financial services

business with the assistance of an agent, or a network of agents engaged as their employees or

mandatories, to accept vicarious responsibility3 for the activities of their agents performed within

the scope of, or in the course of implementing, the agent's mandate or service contract; and

(c) to be responsible for the initial and continuing fitness and propriety of, and adherence to the law

by, such persons.4 The FAIS Act refers to these agents as 'representatives’ irrespective of whether

they are employees or mandatories of the FSP.

2.2. The FAIS Act defines a ‘representative’ as:

"any person, including a person employed or mandated by such first-mentioned person, who renders a

financial service to a client for or on behalf of a financial services provider, in terms of conditions of

employment or any other mandate, but excludes a person rendering clerical, technical, administrative,

legal, accounting or other service in a subsidiary or subordinate capacity, which service-

(a) does not require judgment on the part of the latter person; or

(b) does not lead a client to any specific transaction in respect of a financial product in response to

general enquiries;"

[emphasis added)

2.3. A representative may be either a natural person or a juristic person.

3. REPRESENTATIVES ACTING AS AGENTS OF FSPs

3.1. A representative as contemplated by the FAIS Act, on a proper construction and interpretation of the Act

and taking cognisance of the purpose of the Act, is an agent of the FSP which it represents when rendering

financial services to clients. As a consequence, the principles applicable to agency as entrenched in the

common law apply to representatives. Although the FAIS Act codifies the common law principles of

agency insofar as they relate to the relationship between an FSP and its representatives, it also prescribes

additional requirements applicable to that relationship.

3.2. An agent (such as a representative) concludes juristic acts5 (e.g. enters into contracts) or some other acts6

on behalf of the principal (such as an FSP). The rights and duties arising from such acts are those of the

principal and not of the agent although the act itself is concluded by the agent. In other words, if the

agent has the requisite authority, it is the principal and not the agent who is the party to the contract.7

3.3. Whether an agent intends to conclude a juristic act for him-or herself or on behalf of a principal is a

question of fact. Since a person who concludes a juristic act ordinarily acts for him-or herself and not for

another person, his or her intention to act as agent has to be apparent to the person to whom the

expression of intention is addressed8.

3.4. The FAIS Act, inter alia, requires a person who acts as a representative of an FSP, prior to rendering a

1 'Financial services' is defined in s 1(1) of the FAIS Act as the furnishing of advice and/or the rendering of intermediary services 2 See s8 read with s7 of the FAIS Act. 3 See s13(l)(b)(i)(bb) of the FAIS Act 4 This is evident from s13 read with s8 of the FAIS Act. 5 A juristic act is an act whereby legal relationships are created, altered or extinguished by means of an expression of will by one

person or expressions of a common will by two or more persons. See LAWSA Vall, par 126 6 LAWSA Vol 12 Part 2, par 183 - The authors stated that “the term "agency" in modern law can be used in either a restricted or a

wide sense. In the restricted sense it denotes a person who has authority to conclude a juristic act in the name of his or her principal. In the wider sense of the word the term "agent" means any person who has been mandated to carry out a certain task for his or her mandatory which includes but Is not limited to someone who has been authorised to conclude a juristic act on behalf of his or her mandator.«

7 De Wet in LAWSA Vall par 126. 8 LAWSA Vall par 133


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financial service, to provide to a client confirmation certified by the FSP that a service contract or other

mandate to represent the FSP exists and that the FSP accepts responsibility for those activities performed

by the representative within the scope or, in the course of implementing or executing, any such contract

or mandate9.

Section 13 Certificate

In terms of Section 13(2) of the FAIS Act, a person may not act as a representative (F&I in the dealership) of a

FSP, unless such person is able to provide confirmation, certified by the FSP, to clients that a service contract

or other mandate (document), to represent the FSP, exists and that the FSP accepts responsibility for those

activities of the representative performed within the scope of, or in the course of implementing, any such

contract or mandate.

1. It has always been a requirement that representatives produce what the industry refers to a Section 13

Certificate. The change is that every representative must produce this evidence PRIOR to rendering a

financial service.

2. This requirement will more than likely prove challenging in terms of practical operational procedures and

in respect of monitoring requirements. Here are a few considerations:

2.1. Different methodologies of rendering financial services

2.1.1. face to face

2.1.2. telephonic

2.1.3. correspondence only

2.1.4. direct marketing

2.2. Possible methods to providing the required upfront disclosures prior to rendering financial services.

It is probable that more than one or all of the methods below be used based on each individual

entities business processes and in terms of the required compliance with the law:

2.2.1. Inclusion in an expanded disclosure notice referring to Fit and Proper status of

representatives generally

2.2.2. Provide Section 13 Certificate with each and every transaction

2.2.3. Expanded e-mail and letter signatures referring to the Fit and Proper status of the sender and

details of the FSP License holder

2.2.4. Inclusion of undertaking to ensure only Fit and Proper representatives in marketing material

and/or SLA’s if applicable

2.2.5. Include verification of Fit & Proper on website listing representatives under the FSP. Where

a juristic representative is involved include the link to a website that provides the required

disclosures.

2.2.6. Details included in voice recordings while callers are holding on to connected to the operator

or waiting to be put through to the required department or individual such as an undertaking

notice referring to Fit and Proper status of representatives generally.

3. The Section 13 Certificate must include a reference to the representative meeting the Fit and Proper

requirements including whether or not the representative is under supervision. As it is possible for the

representative’s status to change (eg: from supervised to unsupervised) the FSP will have to ensure that

the Section 13 Certificate is updated and is relevant at all times in terms of the Fit and Proper

requirements. It is suggested that an assessment of the representatives’ status, which must be done

utilising a fit and proper questionnaire be completed by the representative annually and that once

completed the Section 13 Certificate be accordingly updated.

3.5. The FAIS Act, subsequent to the introduction of section 13(1)(c), further provides that a representative

9 See s13(b) of the FAIS Act


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may only render financial services or contract in respect of financial services in the name of the FSP of

which the person is a representative10.

This means that all regulated products (short-term insurance and long-term insurance), the record of advice, complaints processes etc that fall under the governance of FAIS must be done in the name of the licensed FSP as the primary, the juristic dealership would be included in the relevant documentation in its capacity as a juristic representative.

eg: ABC Motors a juristic representative operating under the license of DEF Company, an authorised financial services provider, license no: 1245

4. REASONS FOR INSERTION OF SECTION 13(1)(c)

The reasons for the insertion of the requirement in section 13(1)(c) are:

4.1. to ensure that consumers of financial services know with whom they are contracting and who will

ultimately be responsible to perform in terms of the contract;

4.2. to remove any uncertainty as to whether the representative is acting for or on behalf of a principal, or on

its own behalf;

4.3. to prevent the undesirable business practice of "renting a licence". It has come to the attention of the

Registrar that juristic representatives are, increasingly, contracting in their own names with product

suppliers for the distribution of the latter's products without the FSP being aware of such contracts or

with whom such contracts were concluded. The same ignorance applies when thereupon the

representative contracts with clients not knowing that the representative actually acts on behalf of an

FSP. For obvious reasons, the latter position is not desirable, is contrary to the legal position of a

representative as contemplated by the FAIS Act, and creates uncertainty and the likelihood of disputes

that may be prejudicial to clients. In addition, it creates an unacceptable weakness in the governance of

the FSP's business; and

4.4. to ensure that all monies received by an FSP and its representatives are reported on by the auditor of the

FSP as contemplated by section 19(3) of the FAIS Act11 .

APPLICATION OF SECTION 13(1)(c)

5. COLLECTION OF PREMIUM12

5.1. May a short-term insurer authorise a representative to deal with premiums thereby sidestepping the

representative's FSP?

(a) The question at issue is whether a representative (including a juristic representative) may collect

premiums in its own name on behalf of a short-term Insurer and whether the short-term insurer

10In practice a contract concluded by one person In the name of another person is regarded as a contract concluded by the former

as the representative of the latter. The expression "in the name of another" can only mean that the person acts as the representative of the other person. See LAWSA Vall par 133.

11 Section 19(3) of the FAIS Act provides as follows: "The authorised financial services provider must maintain records in accordance with subsection (1)(a) in respect of money and assets held on behalf af clients, and must, in addition to and simultaneously with the financial statements referred to in subsection (2), submit to the registrar a report, by the auditor who performed the audit, which confirms, in the form and manner determined by the registrar by notice on the official web site for different categories of financial services providers

(a) the amount of money and financial products at year end held by the provider on behalf of clients;

(b) that such money and financial products were throughout the financial year kept separate from those of the business of the authorised financial services provider, and report any instance of non-compliance Identified in the course of the audit and the extent thereof; and

(c) any other information required by the registrar.” 12 For purposes of this Guidance Note, a reference to premiums includes any other monies payable by a client to a product supplier

as contemplated in paragraph (b)(ii) of the definition of "intermediary services" In section 1(1) of the FAIS Act.


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may authorise a representative to deal with such premiums, in each instance to the exclusion of

the representative's FSP? To answer the question cognisance should be taken of section 13(1)(c)

of the FAIS Act read with section 45 of the Short-term Insurance Act, 1998 (and the regulations

promulgated under that Act).

(b) Section 13(1)(c) has the effect that a representative will no longer be able to contract directly with

or be authorised by the insurer in its own name in respect of the collection of premiums. This is so

because the collection of premium constitutes the rendering of financial services as contemplated

in section 1(1) of the FAIS Act and a representative may not render financial services or contract in

respect of financial services other than in the name of its FSP.

(c) The insurer, likewise, will not be able to grant authorisation as contemplated by section 45 of the

Short-term Insurance Act to a representative to deal with premiums. The representative's principal

(i.e. the FSP on whose behalf he/she or it is acting) will have to contract with or be authorised by

the insurer for the collection of premiums in accordance with Regulation 4.1 of the Short-term

Insurance Regulations13.

5.2. Section 45 Guarantee -Short-term Insurance

(a) As stated, the representative's principal (i.e. the FSP on whose behalf it acts) is required to contract

with the insurer or be authorised by the insurer for the collection of premiums. The effect thereof,

having regard to section 45 of the Short-term Insurance Act read with the regulations, is that the

IGF cover must be in the name of the FSP as it is the latter who is authorised to collect the

premiums. It would be wrong of a representative to arrange IGF cover in its own name as this will

contravene section 13(1)(c).

(b) An FSP who delegates the function of premium collection to its representatives may obtain an IGF

guarantee that applies to all its representatives who collect premiums or it may obtain multiple IGF

guarantees in the name of the FSP, each relating to a specific representative.

5.3. May an FSP authorise a representative to collect premium on the FSP's behalf?

The FAIS Act does not prohibit an FSP from delegating the function of premium collection to one or more

of its representatives. The representative, therefore, may collect premiums in its capacity as a

representative of the FSP, but only in the name of the FSP, not in its own name.

This means the a dealership that is a juristic representative can collect premium into the account of the

FSP (as per the diagram on page 1) provided the FSP has the relevant guarantees in place, be it directly

in terms of cash transactions or via split premium methodology as explained below:

1. IGF

When read with FSB Directive 156.A.i, there is an additional requirement for a FSP to have an IGF

(Intermediary Guarantee Facility – renewable annually) in place otherwise it cannot accept any

premium (either from the client, or from the bank where it forms part of the pay-out) as it is an

offence in respect of insurance laws. Additionally the FSP must also have the written authorisation

to collect premiums from the insurer that underwrites the products

2. Split Invoicing

As a result of the changes to legislation the most practical and workable solution is to split invoicing

to regulated and non-regulated products. However, split invoicing is only part of the solution you

need to ensure that the collection and distribution of premiums is also done in accordance with the

law, particularly on cash transactions where traditionally all money is paid to the dealer. Now there

will have to be two payments (perhaps more, if more than one insurer/FSP is involved in the

transaction):

a. One for the vehicle, accessories and non-regulated VAPS

13 Regulations under section 70 of the Short-term Insurance Act


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b. Payment to the relevant insurers – this cannot be the dealer’s account unless the dealer is a

licensed FSP and has a valid IGF in force.

Additionally there is a cost attached to this service provided by the credit providers and fees range

R35 to R114 PER PRODUCT, plus the fees charged by the service provider that facilitates the split

premium invoicing. See information below and relevant attachments.

These costs can be recouped from clients, as long as the fees are disclosed upfront.

Suppliers that offer split invoicing are:

1. Debella (Annexure B)

The Annexure is self-explanatory. As an independent 3rd party, Debella specialises in split

premium handling for the majority of product suppliers. It has been facilitating split premiums,

invoices and commission payments to relevant parties prior to the changes and implementation

of Section 13(1)(c).

The Debella administration fee is R100.00 (VAT exclusive) per invoice plus the respective bank's

fee.

2. Innovation Group (Annexure C)

Available for Innovation Group Products at no cost. They are prepared to extend this service to

other product suppliers but there will be costs associated with this development.

Please consult with Innovation directly if additional information is required.

3. VAPs Consulting – their own Split Payment System

This is an online system and users create an invoice for the respective products to allow split

payments. This is being integrated with the electronic platforms. Agreements are in place

between the FSP and underwriters / administrators for all products on their system.

The VAPS administration fee is R35.00 (VAT exclusive) per invoice plus the respective bank's fee.

This functionality is only available for dealers (juristic representatives) of FSP 24337. Please

consult with Innovation directly if additional information is required.

4. Intelli-app – part of the F&I Platform, linked to all the banks also allows for splitting of relevant

invoices and can channel the insurance products to either the insurer directly or to an FSP that

has IGF. The administration fee is R55 per transaction plus the respective bank’s fee

5. Group Systems – internal systems

Internally developed by the groups. Group dealers need to consult with their relevant

compliance authorities if any additional information may be required.

In order to ensure compliance you need to assess where your dealership fits in with regards to the

changes implemented on 1 July 2015, in terms of the available options as set out below.

OPTION 1: The Motor Dealer is the FSP, has contracts with Insurers and a valid IGF - the Credit

Provider and Cash clients will be permitted to pay the Motor Dealer for the Vehicle, Accessories and

Regulated Products in one payment to the bank account of the dealer.

OPTIONS 2 AND 3 (confirm with the relevant financial institution/s that the spilt invoicing and

payment is operating and functional)

OPTION 2: The Motor Dealer is a Juristic Representative of a FSP that has the required contracts (in

terms of the Binder Regulations) in place with Insurers and a valid IGF. Credit Providers and Cash

clients will be permitted to pay the Motor Dealer for the Vehicle, Accessories and Non-Regulated

Products and will separately pay the Regulated Products either to the FSP or directly to the Insurer.

On cash transactions Clients will have to pay the Insurer/FSP directly or utilise a facility like Debella.

OPTION 3: The FSP, has contracts (in terms of the Binder Regulations) with Insurers but does not

have the required IGF. The FSP will NOT be allowed to receive premiums from the Client or Credit


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Provider for any Regulated Products. The split invoice process will be followed where the Credit

Provider will only pay the Motor Dealer for the Vehicle, Accessories and Non-Regulated Products.

On cash transactions Clients will have to pay the Insurer directly or utilise a facility like Debella.

OPTION 4: The Motor Dealer is not a FSP nor is it a Juristic Representative – in this scenario the

Motor Dealer will have to outsource the sale of Regulated Products and collection of premium to a

duly registered third party and will only be paid for the Vehicle and Accessories. In this scenario the

Motor Dealer is NOT allowed to earn commission.

Where juristic representatives have an IGF in place they must apply to the IGF to cancel the IGF, or the

issuer of the guarantee as these guarantees are obsolete.

5.4. May a representative collect or hold premium in its own name?

(a) Section 13(1)(c) of the FAIS Act prohibits a representative to render any type of financial service

(including the collection of premium) other than in the name of its FSP. The effect thereof is that

the representative may not collect or hold premium in respect of a financial product other than in

the name of its FSP.

(b) This also means that premiums collected by a representative must be deposited into the FSP's bank

account to make it clear that the service was rendered in the name of the FSP. In addition, all

premiums collected or held must be reported on as contemplated by section 19(3) of the FAIS Act.

(see footnote 11)

6. CONTRACTS WITH PRODUCT SUPPLIERS AND MANDATES WITH CLIENTS

6.1. A representative will not be able to contract with product suppliers regarding the distribution of their

products or in respect of any other business relating to the rendering of financial services other than in

the name of the FSP of which it is a representative.

6.2. A representative further will not be able to enter into a mandate with a client in its own name. The

mandate obtained from the client must be in the name of the FSP as represented by the representative.

7. BINDER AGREEMENTS (INSURANCE)

7.1. A representative will not, in its own name, be able to enter into a binder agreement as contemplated in

sections 49A of the Long-term Insurance Act, 1998, and 48A of the Short-term Insurance Act, 1998, read

with Parts 6 of the Regulations made under the Long-term Insurance Act and the Short-term Insurance

Act, respectively.

7.2. The activities that constitute binder functions are activities that also constitute the rendering of

intermediary services as defined in section 1(1) of the FAIS Act. The binder agreement, therefore, must

be entered into between the insurer and the FSP as the party who is ultimately responsible to perform in

terms of the agreement.

7.3. In addition, both the Long-term Insurance Act14 and the Short-term Insurance Act15 prohibits a binder-

holder from delegating, assigning or subcontracting any of its binder functions16 to another person17 .

14 See section 49A(2)(i) of the Long-term Insurance Act. 15 See section 48A(2)(i) of the Short-term Insurance Act. 16 See section 49A(l) of the Long-term Insurance Act and section 48A(l) of the Short-term Insurance Act. 17 The Registrar of Insurance regards "another person" as a person who is not an employee of the binder holder. Therefore, the

delegation, assignment or subcontracting of a binder function by an FSP to a person who is not an employee of that FSP will constitute a contravention of those sections respectively, which sections have been in effect since 2008.


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Binder Regulations

In order for the dealerships to sell the insurance products and perform “insurance related” functions/activities on

behalf of the insurers the insurer and the licensed FSP has to enter into “Binder Agreements” and “Intermediary

Agreements” whereby the insurer authorises the Binder Holder and/or Intermediary to perform the activities as

defined in the Binder Regulations.

The Binder Holder and Intermediary is essentially the licensed FSP who is authorised to perform these activities on

behalf of the Insurers for a consideration. These relationships, fees and commissions are governed by:

Long Term Insurance Act

Short Term Insurance Act

FAIS Act

subordinate legislation and regulations.

The interaction between the client and the F&I in choosing a product is considered advice and insurance related

activities in terms of the aforementioned legislation therefore relevant agreements have to be signed by

intermediaries performing activities insurers would normally do.

There are two types of agreements that are required to be signed by all dealerships that are licensed FSP’s for the

sale of Insurance products, namely.

Top-Up

Credit Life

Mechanical Breakdown Warranties (Extended and Pre-Owned)

Insurer

Contracts with the Licensed FSP

Financial Services Provider

Binder Agreement

Intermediary Agreement

RepresentativesJuristic (Dealer)

Juristic Representative Mandate Agreement (mirroring the FSP’s responsibilities)

Natural (F&)

Mandate from FSP plus the LOA, KPAs from Dealer


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Tyre and Rim Warranties

Autobody Warranty, Painttech etc

If the FSP sells both life and short term insurance then it will be two agreements per insurance type. The agreements

could be as follows:

Binder Agreements (1 for Short Term and 1 for Long Term Insurances) (each FSP needs to check with its

compliance officer and product suppliers to establish if a Binder Agreement would be required)

Intermediary Agreements (1 for Short Term and 1 for Long Term Insurances)

Dealers that are juristic representatives would have back to back Juristic Representative contracts that mirror the

roles and responsibilities of the FSP within the framework of the Binder regulations and Section 13(1)(c)

amendments.

Salient Clauses in these agreement that dealers need to understand when signing these agreements:

Definitions, Interpretation, Introduction

Services and activities

Period /Duration

Remuneration

Disclosures

Recordkeeping, Confidentiality, Privacy, Security

Termination, Cancellation

Dispute Resolution, Legal Processes, Notices, Applicable Law, Jurisdiction

Assignment, Cession, Delegation

Non waiver, Non variation

General

Signatures

Annexures

8. BUSINESS DOCUMENTATION AND ADVERTISING

8.1. A representative will not be able to market or advertise any services relating to the rendering of financial

services in its own name. All marketing material or advertisements must clearly stipulate that the

marketing of the services or any advertisements, relating to the rendering of financial services, are

undertaken on behalf of the FSP of which it is a representative.

8.2. A representative's business documentation must clearly reflect the position that it is not acting as a

principal but as a representative. The business documentation must further clearly and prominently

indicate the name of the FSP on whose behalf the representative acts.

Take note that if the dealership is a juristic representative it needs to ensure that all business documentation

comply with this standard, and that it is clear that the dealership is the juristic representative of the licensed FSP

operating under the required mandates.

Motor dealers need to ensure that they:

1. have the relevant agreements in place including required insurances for these changes;

2. update systems and have the required facilities and process in place;

3. train your staff on the required operational changes, as insurance premiums cannot be paid into a

motor dealer’s bank account if the dealership is:

2.1. not a licensed FSP

2.2. is a licensed FSP but does not have a valid IGF (IGF is renewable annually)

April 2015 DEALER COMMUNICATION

INNOVATION GROUP’S WEBSITE ELECTRONIC INVOICING SYSTEM FOR SPLIT PREMIUM.

Dear Valued Dealer

Innovation Group recognises its accountability to its stakeholders under the legal and regulatory

requirements and we are committed to high standards on integrity and fair dealing in the conduct of our

business.

Innovation Group proposes that your dealership utilises the Website Electronic Invoicing System to cater

for the split premium payment (the dealer requires basic internet facility)

To register and utilise Innovation Group’s system, please use the following link

http://innovationportal.co.za/igf which will allow you to register on the system. Upon completion of

registration you will receive a password which will allow you to log in and operate the system. The use of

Innovation Group’s Split payment system is free of charge.

The Process:

1. Selling Dealer confirms sale of vehicle and insurance product 2. Dealer sends two invoices to the financial institution

Invoice 1=Vehicle

The dealer separately invoices the financial institution for the vehicle.

Invoice 2= Insurance Product

Dealers would be invoicing on behalf of Innovation Group/Underwriter and submitting the

invoices to the financial institution. A separate invoice must be completed for each product.

3. The financial institutions will process the 2 invoices (vehicle & insurance product). Payment for the vehicle will be made directly to the dealer and the premium payment (less commission where applicable) for the insurance product will be made directly to Innovation Group.

4. The transaction fee does not form part of the premium. 5. The original signed proposal form, a copy of the invoice and the PDI documentation will be kept

by the dealer for collection by the sales consultants. 6. Premium payments will occur on a daily or weekly basis depending on the financial institution. 7. Commissions and/or Pre-Delivery Inspection (PDI) fees, if applicable, will be paid to the dealers

on a weekly basis, after receipt of premium payment. The required PDI form must be completed and submitted.

Dealers are encouraged to make use of Innovation Group’s Website Electronic Invoicing functionality.

Please feel free to contact one of our sales consultants should you have any queries.

http://innovationportal.co.za/igf

1

MOTOR DEALERS WHO ARE JURISTIC REPRESENTATIVES

A great number of motor dealers have chosen to be mandated as juristic representatives of

well‐established and properly managed Financial Services Providers (FSP’s).

This arrangement provides a tailor‐made risk management plan for motor dealers that

allows a motor vehicle dealer to operate as a duly authorised representative in terms of a

mandatory agreement under the particular FSP Licence to render financial services to its

customers.

Motor dealers who are juristic representatives of an FSP were, prior to the amendments to

Section 13(1)(c) of the FAIS Act, 2002, able to contract directly with warranty administrators

and insurers, to sell their products and to receive the commission due for such sales.

If a motor dealer as a juristic representative, wished to collect premiums on warranties sold

by the dealership, then that dealership was able to obtain the necessary security as required

by Regulation 4 to the Short Term Insurance Act (usually an IGF policy) and to collect such

premiums itself.

In January 2014 the FAIS Act – particularly S 13(1) of the Act ‐ was amended and as from 1st

July 2015, these procedures will no longer be permitted.

AMENDMENTS TO THE FAIS ACT, 2002

In terms of the amended S 13(1)(c) of the FAIS Act, a motor dealer who is a juristic

representative of an FSP may no longer render financial services or contract in respect of

the rendering of financial services in its own name, but must now do so in the name of the

FSP itself.

The motor dealer as juristic representative must act as the agent of the FSP.

The amendment has three practical implications:

1. All contracts with product suppliers such as the various warranty administrators will

have to be entered into between the FSP itself and the warranty administrator. These

new contracts will contain provisions that allow the FSP to nominate representatives to

render the financial services and receive the commission for rendering such service.

In other words, the FSP will have to be made aware of all contracts that exist between

its juristic representatives and the various warranty administrators and will have to sign

new agreements with all these warranty administrators. These new agreements will

contain specific provision that will allow juristic representatives to sell the products on

behalf of the FSP and to earn the commission on such sales.

2. All sales of extended motor warranties and other insurance products will have to be

done in the name of the FSP. In other words, the individual in the dealership who

2

interacts with the client to whom the policy is sold, will have to disclose that the

financial service is being rendered as a representative of the FSP and therefore in the

name of the FSP. This means that proper disclosures will be required every time a policy

is sold.

3. If the motor dealer, as a juristic representative, has been collecting premiums on any

warranties sold by that dealership, it will no longer be allowed to do so. There are

several reasons for this.

The FSB was asked for guidance on this matter and their response was that

section 13(1)(c) of the FAIS Act must be read in conjunction with section 45 of

the Short‐term Insurance Act and the regulations under the Short‐term Insurance

Act.

The FSB interpretation of section 13(1)(c) of the FAIS Act means that a juristic

representative is not allowed to contract directly with the insurer. The juristic

representative's principal (i.e. the FSP) must contract with the insurer. The

insurer will therefore have to authorise the FSP to collect premiums and not the

juristic representative.

Regulation 4(1)(2) (under the Short‐term Insurance Act) states that a person may

not be authorised to collect premiums unless that person has provided security

(e.g. IGF). Therefore, the person that is authorised to collect premiums must

provide the security. As it is the FSP and not the juristic representative that will

have to be authorised to collect premiums, it will therefore have to be the FSP

that provides the security (IGF).

The juristic representative will now be required to make use of one or other split invoice

system that allows the financing bank to pay two invoices:

One payment to the dealership for the vehicle and any unregulated product;

One payment of the premium into the bank account of the insurer or into the bank

account of an entity that has been properly authorised by the insurer to collect the

premiums on its behalf.

Careful consideration must be given to the split invoice system that is chosen. Is the

system able to manage commission payments and VIF payments on at least a weekly

basis and does the system provide fully VAT compliant reconciliations and bordereaux?

The Debella Premium Collection Facilitation System is the best split invoice system

available and has been designed to ensure maximum benefits for motor dealers who sell

extended motor warranties and who do not wish to collect the premiums on these

products.

3

THE DEBELLA SOLUTION

Debella Finance and Compliance Consulting CC (an authorised financial services provider FSP

34111) in association with Compliance Monitoring Systems CC (an external FAIS Compliance

Practice No 4453) using a patented (PA146309/ZA) Premium Collection Facilitation System

has developed a user‐friendly solution that enables motor dealers who are juristic

representatives of a particular FSP to continue selling short term insurance products such as

extended motor warranties, tyre and rim products and certain chip and dent products.

Debella, together with the EPiC division of Insure Group Managers Ltd (FSP 45351) will

collect the premiums payable for these products, pay all commissions and Vehicle

Inspection Fees to the motor dealer on a weekly basis and pay the net premium to the

insurer concerned in accordance with S 45 of the Short Term Insurance Act 1998.

Methodology:

(i) Insure Group Managers Ltd (IGM) is a fully authorised financial services provider and

conducts business as a premium collection agency. IGM has IGF cover for the

maximum required in terms of the Short Term Insurance Act 1998 – currently R100

million. A corporate brochure is available.

(ii) IGM through its EPiC division has concluded agreements with all insurers who

currently underwrite extended motor warranties. These Agreements authorise IGM to

collect extended motor warranty premiums on behalf of these insurers. Such

agreements comply with the requirements of the Section 45 of the Short Term

Insurance Act 53 of 1998.

(iii) Debella has also signed an agreement with the warranty administrators in their capacity

as binder holders for an insurer. These agreements authorise Debella to issue an invoice

on behalf of the insurer or binder holder, as the case may be, for the amount of the

premium on each extended warranty sold by such participating motor dealers. This

ensures compliance with the provisions of the VAT Act 89 of 1991 and in particular with

the requirements of Binding General Ruling (VAT) NO: 14 of 22 March 2013 (VAT

Treatment Of Specific Supplies In The Short‐Term Insurance Industry) and VAT 421:

Guide to Short Term Insurance of 28 March 2013.

(iv) Any motor dealer who wishes to use the Debella system may apply for membership by

a simple online application process.

(v) Once membership has been confirmed the participating motor dealer will, whenever

an extended motor warranty is sold to a client, issue an invoice in the name of Debella

for the warranty premium.

(vi) If the motor dealer uses either the Seriti or the Signio dealer platform, then the

Debella invoice for the premium can be generated automatically. Debella is fully

integrated with both dealer platforms.

(vii) The Debella invoice is handed to the credit provider (bank) together with the motor

dealer’s invoice for the vehicle.

4

(viii) The credit provider (bank) will pay the motor dealer for the vehicle and will pay the

premium for the warranty product into a bank account controlled by IGM.

(ix) Each day Debella reconciles the deposits received and matches these to the relevant

invoices.

(x) Debella calculates the relevant commission, together with any Vehicle Inspection Fee

that may be due, and instructs IGM to pay this to the motor dealer on a weekly basis.

Net premiums are paid to the insurers within the time frames contemplated in S 45 of

STIA.

(xi) The system reconciles all receipts and payments on a weekly (or any other) basis,

produces detailed VAT compliant bordereaux and reports for all parties and accounts

to each dealer, warranty provider and each insurer for the period.

(xii) A full audit trail of all transactions is permanently maintained.

(xiii) Each member dealership is able to log on to the system at any time and track the

current status of any transaction, including outstanding invoices and may also

generate detailed reports as required.

(xiv) The system can be customised to deal with varying instructions from different insurers

and can also be customised to deal with differing payment instructions in respect of

individual products.

(xv) This system has been integrated into IGM's EPiC systems, is fully tested and operating

successfully.

COSTS

DEBELLA

Debella charge a fee of R100 plus VAT for each invoice processed. This amount is charged

irrespective of the number or values of the short term insurance products included in the

invoice.

This fee is deducted from the amount payable to the Motor Dealer in each instance and may

be passed on to the client as part of the principal debt.

BANK CHARGES

The only other charges payable are the bank charges that are levied by the individual banks

for splitting the amount of the finance granted to the client and paying two invoices. These

charges may be paid by the Warranty Administrator or the Motor dealer as directed.

CONTRACTUAL REQUIREMENTS

Motor Dealers are not contractually bound to use the Debella system but when using the

system motor dealers are bound by the terms and conditions of membership. These are

attached as Annexure A

5

F&I SellsVehicle for R 100 000Warranty for R 7 296

Bank Approves the facility

to the customer for R 107 296

F&I creates a Debella Invoice For R7 296

using the Debella SystemOr Signio or Seriti

F&I Issues a Dealer InvoiceFor R100 000

Bank Pays DealershipR 100 000

Bank Pays IGM

R 7 296

IGM Pays Dealership

Commission andInspection Fee

IGM Pays Insurer

the Net Premium

This step must be taken each time a warranty

product is sold

F&I Sends Dealer InvoiceFor R100 000

To Bank

F&I Sends Debella Invoice

For R7 296To Bank

Debella System creates payment instructions

For IGM

Debella system reconciles and produces

VAT compliant bordereaux

Solution as a Graphic

6

Benefits of the Solution

BENEFITS TO MOTOR DEALERS:

The motor dealership, as a properly authorised juristic representative of the FSP, will be

entitled to sell extended motor warranties and so receive commissions and Vehicle

Inspection Fees (where applicable)

VAT complexities in respect of premiums and commissions all attended to by Debella

The dealership does not collect any premiums and so is not in contravention of any

aspect of the FAIS Act, 2002 or the Short Term Insurance Act 1998.

BENEFITS TO THE FSP:

The FSP will not be required to hold IGF cover;

The FSP will not be required to appoint auditors unless compelled to do so in terms of

the Companies Act 2008;

The FSP will not be required to comply with the liquid assets stipulation contained in

Part IX paragraph 9(3)(c) of Board Notice 106 of 2008. (Financial Soundness

requirement)

VAT responsibilities are minimised

Marketing statistics in such format and form as the Dealership may request

BENEFITS TO WARRANTY PROVIDERS

Prompt payment of all amounts due on a monthly basis

Detailed VAT compliant bordereaux for every Motor Dealer thus facilitating policy

administration

Audit trails of all transactions, clients' details and vehicles covered.

Marketing statistics in such format and form as the warranty provider may request

BENEFITS TO CLIENTS

The short term insurance policy comes into being and is of force and effect immediately

the premium is paid to IGM by the bank. (Section 54(4) of the Short Term Insurance Act

1998)

Contact

Robin Administration & Technical 010 590 3032 x 1

082 871 5602 [email protected]

Alan Legal & Compliance 010 590 3032 x 2

082 413 6565 [email protected]

7

Annexure A

Terms and Conditions

1. By providing the information called for on this website, the participating motor dealer shall be considered

a Member of the Debella solution. As such, the Member shall be deemed to be bound by the conditions

referred to herein.

2. The Member has previously received short term insurance premiums on extended motor warranties and

other short term insurance products that are payable to product suppliers and now wishes to comply with

the requirements of Section 45 of the Short Term Insurance Act 53 of 1998 and the Regulations

promulgated in terms thereof;

3. The use of the Debella web site and the services provided by Debella and Insure Group Managers Ltd

(hereinafter referred to as IGM) is subject to the terms and conditions set out below. By using this web

site, you are deemed to have agreed to the following terms and conditions set out in this Terms of Use

Agreement. By accessing or using our Web sites, or by registering on any of our pages and applying for any

services offered on these pages, you are deemed to have agreed to all of the following terms and

conditions. You are advised to carefully and regularly review these terms and conditions as the terms and

conditions as well as the information products and services on our Web site may change at any time and

without notice.

4. The Member hereby warrants that every person employed, authorised or mandated by the Member to

sell any form of short term insurance policy to purchasers of vehicles as may be sold by the Member or

who sells any form of short term insurance policy to any other person, is properly accredited and

authorised as required by the Financial Advisory and Intermediary Services Act 37 of 2002.

5. Debella, in its capacity as duly authorised VAT agent of the Insurer, shall be responsible in each instance

the Member sells any extended motor warranty or other single premium short term insurance product,

for invoicing the purchaser or the bank, finance house or other credit grantor who may provide financial

assistance or credit to any purchaser of any vehicle sold by the Member where such sale includes the sale

of the said short term insurance policy.

6. All statutory commission payable in respect of the sale of policies for which Debella has issued an invoice

shall accrue to and be paid to the Member: Provided however that the person who sold the short term

insurance policy was at the time of the sale properly authorised and accredited as provided for in clause 1

hereof and payment of the commission to the Member is properly authorised.

7. The Member shall ensure that the appropriate software and other communication systems are installed to

enable the Member to issue an invoice on behalf of Debella to the relevant bank, finance house or credit

grantor as the case may be, and shall ensure that all staff are properly trained in the use of such software

systems and remain competent to use the systems at all relevant times.

8. The Member shall provide the information required by Debella in the form that has been provided and

shall indicate the person authorised to validate, confirm or change any of such information.

9. Debella shall not be held responsible for any misallocation or errors in any remittance advice or errors in

any payments made in consequence of incorrect information and/or details having been furnished to

Debella by the Member.

10. Debella shall ensure that all premiums payable in terms of the sale of any short term motor insurance

policy sold by the Member or by any person employed or mandated by the Member to provide financial

services on behalf of the Member, are collected by a properly accredited and authorised collection agency

8

as required in terms of section 45 of the Short Term Insurance Act 53 of 1998. In this regard it is recorded

that Debella has appointed EPiC, a division of IGM to collect the premiums aforesaid.

11. Debella shall be entitled to charge a fee of R100 plus VAT, or such other amount as may from time to time

be agreed in respect of each transaction. This fee may be amended by Debella from time to time. Should

any bank levy any additional charges for this facility, these charges will be added to the transaction fee

described above.

12. Debella shall maintain accurate records of all transactions and shall provide such summaries and

reconciliations to the Member, to any bank, finance house or credit grantor as the case may be and to

every product supplier concerned as may be agreed as being necessary in each instance.

13. Debella shall make payments of all amounts as may, in terms of the instructions received from any

Administrator concerned, be due to the Member. Such payments will be made on a weekly basis or such

longer period as the parties hereto may agree. Payment shall be done by the EPiC division of IGM which

payment shall be done by way of Electronic Funds Transfer to the bank account of the Member as

provided by the Member as part of the Debella joining process.

14. Debella shall provide a detailed bordereaux that will reflect the details relating to each payment to the

Member reflecting the commission due to the Member for that month and shall pay the amount due to

the Member by the last day of each week.

15. The Member hereby grants Debella the authority to instruct EPiC, a division of IGM, permission to deposit

commissions as legislated, due in respect of all motor policies the premiums of which have been collected

by EPiC, into the bank account the details of which have been provided by the Member and which details

may not be changed except on written instructions from the authorised person appointed by the

Member.

16. Debella reserves the right in its sole discretion to change, modify, add or remove these terms and

conditions in whole or in part and at any time.

17. The Member accepts the risk of choosing electronic communication as the channel to be utilised by the

parties. The Member authorises Debella and IGM to act on the information that has been provided by the

Member. The Member further agrees that all records will be stored electronically by Debella and IGM and

such electronic record will constitute conclusive proof of the contents of such record, unless the Member

proves otherwise. Any email sent to the Member will be deemed received by the Member upon dispatch

by Debella and/or IOM.

18. Neither Debella nor IGM will sell, rent, or trade any Member's personal information with any third party.

Debella will disclose information when required to do so:

18.1. by any regulatory authority

18.2. to comply with any regulation passed under the relevant legislation, or any legal process

18.3. to protect and defend Debella and/or IGM's rights and property (including intellectual property).

19. The obligation not to sell, rent, or trade any Member's personal information with any third party

contemplated in clause 18 will survive the termination of this agreement, but the prohibition on disclosure

will not apply to information which is already in the public domain, other than as a result of being divulged

by the service provider.

1Page

An authorised Financial Services Provider FSP 34111

Contact us on 010 590 3032

www.debella.co.za

DebellaSignUpGuideAstep-by-stepexplanation

Contact Support

010 590 3032

http://www.debella.co.za

2Page



www.debella.co.za

Signing up to the Debella facility is designed to be as user friendly as possible

This is how it works . . .

Ÿ Go to the Debella website www.debella.co.za

Ÿ Fill in the Registra�on form

Ÿ Dealer Pla�orm Ac�va�on (see page 9)

Steps

Sign Up on Debella

3Page



www.debella.co.za

Step 1

Sign Up on Debella

Go to in your favorite internet browser and click on thewww.debella.co.zalink to Sign Up.

4Page



www.debella.co.za

Sign Up to Debella

Complete the Registration form:

Step 2

Fill in all your motor dealers information. Required fields are denoted with a *

Motor Dealer Details

Ÿ Name of BusinessŸ Trading Name (If applicable)Ÿ Type of businessŸ FSP NumberŸ VAT Number (If applicable)

5Page



www.debella.co.za

Sign Up to Debella

Fill in the Contact Details for the dealership:

Contact Details

Ÿ Contact Person First NameŸ Contact Person SurnameŸ Telephone NumberŸ Fax NumberŸ Email AddressŸ Physical AddressŸ Postal Address

6Page



www.debella.co.za

Sign Up to Debella

Fill in the Bank Account Details for the dealership:

Bank Account Details

Ÿ Name of AccountŸ BankŸ Branch NameŸ Branch CodeŸ Account Number

7Page



www.debella.co.za

Sign Up to Debella

Fill in the Authorised Person’s Details for the dealership:

This is the Person Authorised to confirm or change any of the delarship information

Person Authorised Details

Ÿ TitleŸ First NameŸ SurnameŸ Telephone NumberŸ Email AddressŸ Position in the Business

8Page



www.debella.co.za

Sign Up to Debella

Select the Extended Motor Warranties that you sell:

Security Check:

Type the word that you see in the textbox and click Submit

The sign up process is now complete.

Once your application has been approved you will receive an email with your username and password to login to the Debella website.

You will also receive a detailed User Guide.

9Page



www.debella.co.za

Sign Up to Debella

Dealer Platforms.If you are using one of the Dealer Platforms (Signio / Seriti) you will need to activate Debella on your platform.

In order to activate Debella on your dealer platform you will need you Debella Code.

To get your Debella Code, login to the Debella website using your email address and password.

Your Debella Code is in brackets after your dealership name.

Please contact your platform provider with this code in order for them to activate Debella for you on your dealer platform.

explanatory guide on the changes and how they …...allowed to contract directly with the insurer in...

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