In recent years, the Financial Sector Conduct Authority (FSCA) has received multiple complaints regarding unlicensed entities issuing performance guarantees.
State entities, including municipalities and government departments, often require these guarantees from contractors bidding on infrastructure projects, as stipulated in the National Treasury’s General Code of Contractors.
However, investigations revealed that many entities offering these guarantees were conducting unauthorised insurance business. The FSCA emphasizes that holding a National Credit Act licence or an FSP licence does not permit an entity to issue insurance products.
Why This Poses a Risk
The FSCA warns that:
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Guarantees issued by unlicensed insurers may not be legally enforceable.
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The Insurance Act protects policyholders and ensures market integrity—benefits not available with unregulated entities.
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State entities and contractors could face financial and legal risks if guarantees are invalid.
“Contractors and state entities must verify that performance guarantees comply with legal requirements and confirm the issuer’s insurance licence status,” the FSCA stated.
What Should Contractors and State Entities Do?
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Ensure guarantees meet regulatory standards.
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Seek independent legal advice to confirm if the guarantee qualifies as insurance.
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Check the FSCA’s website to verify if the issuer is a registered insurer.
Pending Legal Case
A High Court case (No. 020740/2023) is underway, where an applicant argues that certain guarantees fall under the National Credit Act, not the Insurance Act. The FSCA is opposing this, maintaining that such guarantees should be regulated as insurance products.
The FSCA urges vigilance to avoid financial and legal repercussions from unlicensed guarantees.
