FSCA clamps down on dodgy funeral parlours over regulatory non-compliance

Summary of FSCA enforcement interventions.

By Neesa Moodley

1 Jul 2024

In the finalised investigations, 12 out of 25 funeral parlours were found to be non-compliant.

The overall, consistent theme that came through in the regulatory report of the Financial Sector Conduct Authority (FSCA) for the past year was one of dishonesty – sometimes linked to financial desperation, but more often linked to greed.

“There are relatively few people who will always do the right thing or always do the wrong thing. Most of us sit on a spectrum … somewhere in the middle, and this is why, particularly in the financial sector, it is so important to set the norms that govern how we behave,” says Katherine Gibson, deputy commissioner of the FSCA.

Deputy Commissioner of the FSCA Katherine Gibson. (Photo: Supplied)

The report laid out the regulatory actions taken by the FSCA over the last year, highlighting several notable cases including that of Markus Jooste, Craig Warriner (BHI) and Tongaat Hulett.

On the subject of Jooste, the FSCA divisional executive of enforcement, Gerhard van Deventer, reiterated that the fine against Jooste was part of a civil case and not a criminal case.

“In a criminal case, the fine dies with the individual concerned. In this case, we are in the process of lodging a claim against his estate for the penalty,” he said.

Gibson says the FSCA hopes to engage and guide the financial services sector through ongoing supervisory engagement and to nudge or shift behaviour in a positive direction through enforceable undertakings.

For example, the FSCA is currently implementing an enforcement strategy after observing a significant number of funeral parlours engaging in the self-underwriting of insurance policies and unauthorised collection of “premiums” from clients, contravening prevailing insurance legislation and exhibiting poor practices.

During the year to the end of March, the FSCA recorded 67 new unregistered insurance and funeral parlour investigations. The cases were identified through referrals by the ombuds, anonymous tip-offs, and complaints. A total of 25 investigations were finalised, while 42 are ongoing.

In 12 of the 25 finalised investigations, the funeral parlours were found to be non-compliant. In all of these cases, the parlours were offered the opportunity to regularise their businesses by applying for an FSP licence or becoming a juristic representative of an FSP, and ensuring that their clients were underwritten by a licensed insurer. In the remaining 13 cases, the funeral parlours were found to be licensed and authorised.

Summary of FSCA enforcement interventions.

‘Up to 50% of the funeral industry operates illegally’

“The regulated, legal, above-board side of the funeral insurance industry is worth between R15-20 billion annually, but it is estimated that up to 50% of the funeral industry operates illegally – without insurance or legal compliance. This puts consumers at great risk,” says Clinton Macdonald, chief executive officer of KGA Life, specialists in funeral policy underwriting and regulatory compliance.

Macdonald says an after-effect of the pandemic years is the breakdown of trust between key parties to the regulated and compliant side of the industry.

He says tensions are particularly strongly felt between licensed insurers and insurance intermediaries, such as registered funeral parlours, who by extension of their legal compliance are compelled to sell insurance policies from reputable insurers and to use the services of registered insurance underwriters, both of which they may perceive to be putting pressure on their profit margins.

“This is because the parlours typically sell their services as monthly subscriptions to consumers, and out of every R100 they charge the customer, R10 might have to go to the insurers or underwriters with whom the policies are registered in the background,” he says.

Macdonald says many parlours view insurance and underwriting services as grudge purchases.

“In the past, the parlours could squeeze the insurers for lower prices, but now additional regulation has come into play to clamp down on parlours who were under-insured and under-financed during the Covid era, putting their customers at risk.

“In the past, many parlours would shift around from insurer to insurer, underwriter to underwriter, to put pressure on them to cut their prices, unbeknownst to the consumer. This created a lot of tension in the industry.

“The FSCA has put a stop to it by making it illegal for parlours to move policies around without the customer’s written consent, and by doing spot checks to monitor the industry,” he explains.

One bad practice the FSCA is monitoring is instances where intermediaries in the industry, such as funeral parlours and burial societies, only underwrite half of their client book in the hope that they can look above board while still saving on expenses.

Over the course of the year, the FSCA issued almost R1-billion in administrative penalties (R943-million). However, these included the significant penalties of R475-million on Jooste for market abuse contraventions; approximately R216-million on Coenraad Botha; and R143-million on Jacobus Geldenhuis.

A further R109-million worth of administrative penalties were levied against 28 people. DM

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‘Up to 50% of the funeral industry operates illegally’