A surety does not usually operate a business providing security at a price nicely determined according to the assessed likelihood of the risk occurring. That is what insurers do.

Fusion Underwriting Guarantees Agency provided suretyships, called guarantees, as performance guarantees to contractors performing work on behalf of employer municipalities. Before doing so Fusion required a range of details from the contractor so that the risk of default could be assessed. The guarantees were held to fall within the statutory definition of a guarantee policy in the Short-term Insurance Act, 1998. It was therefore unlawful for Fusion to issue the suretyships because they are not a registered insurer under the Act.

The Appeal Board said “Generally, a surety provides security only on rare occasions; without charge, for family, a friend or his private company.” The real distinction is in the phrase “without charge”. If you charge for providing guarantees and suretyships you need to be a bank or a registered insurer. Charging on the basis of assessing the risk and pooling the charges paid by a number of clients is insurance business.

[Ilse Becker v The Registrar of Financial Services Providers:  Appeal Board of the Financial Services Board: 13 January 2015]