The financial sector faces multifaceted and interconnected challenges within a complex regulatory landscape, a growing cyber security risk and rising geopolitical threats. In addition, South Africa’s financial institutions operate within a heavily regulated environment from a regulatory perspective.
- The FSCA[1] is the market conduct regulator of financial institutions, that provide financial products and financial services, financial institutions that are licensed in terms of a financial sector law, including banks, insurers, retirement funds and administrators, and market infrastructures.
- The Financial Intelligence Centre (FIC)[2] as the country’s financial intelligence unit, implements its role in the country’s framework for anti-money laundering, countering the financing of terrorism and proliferation (AML, CFT and CPF).
In Aon’s latest Global Risk Management Survey, it is no surprise that regulatory or legislative changes made it into the top 10 risks that financial institutions and advisors are faced with. “Keeping track of and complying with a wide variety of complex laws and regulations is ongoing, challenging and administratively burdensome,” says Sam Varela, Senior Legal Risk Advisor at Aon South Africa.
“Anything from employee fraud, incorrect advice and the subsequent financial loss can have dire financial repercussions if a claim is lodged. This is where Professional Indemnity (PI) insurance is essential in providing financial institutions and independent financial advisors with indemnity in respect of legal liability arising out of the practice of their profession,” says Sam.
“Professional liability doesn’t just arise from compiling a proposal for a client, but exists in the advice given, which can lead to a liability claim for damages arising out of errors, omissions or negligent acts while rendering – or failing to render – a professional service. Any client who suffers harm as a result can have a claim against you,” Sam explains.
PI cover may include the professional’s own legal costs, as well as any damages and legal costs that are due to the claimant, up to a defined limit, which is why the insured limit should always be considered carefully.
“While no professional relishes the thought of being accused of being negligent, if a PI claim is lodged against you or your business, an appropriate policy will mitigate both the financial and business impact. Claims are typically long-tailed by nature, taking years and huge legal costs before being finalised, highlighting the critical role that PI insurance plays in protecting your reputation and ability to work as a professional,” says Sam.
“The operating environment for financial advisory professionals comes with many interrelated risks, which is why it is important to speak to a professional broker about your risk profile,” Sam concludes.
