A changing landscape

The Financial Services Board (FSB) has been open and consistent with its messages in the market regarding regulatory reform and the need for it. We are all aware of Treating Customers Fairly (TCF), the Retail Distribution Review (RDR) and Solvency Asset Management (SAM); we have also heard the reports from the FSB on how it plans to implement this. But what does this all mean to the insurer?

This is becoming an important issue as we move closer towards destination 2016, a time when the Twin Peaks regulation will be implemented. This is important because the full requirements of RDR, TCF and SAM can only be implemented onto the market once Twin Peaks has been launched. Speaking at New National Assurance’s Big Ideas Forum, Marike Matteus, Manager: Market Conduct Supervision at the FSB, spoke about the move towards this new ideal.

Market conduct regulation

When Twin Peaks is implemented, the regulatory responsibilities in the industry will be split, and the FSB will become known as the Financial Sector Conduct Authority (FCSA) and will be responsible for the oversight of the market conduct of insurers.

There have been some concerns around what market conduct regulation actually means. Matteus reports that it is concerned with the way financial institutions conduct their business and whether this conduct delivers fair customer outcomes (TCF) and supports the integrity of the financial markets.

“This regulation considers product and service relationships - retail and wholesale - between two financial services institutions and between financial services institutions and customers, to assess customer outcomes and market integrity outcomes. It monitors and seeks to mitigate conduct risk, the risk that an entity conducts its business in a way that does not deliver fair customer outcomes or undermines the integrity of the financial markets,” says Matteus.

A look into the future

While this seems like a significant undertaking, it is nothing that the FSB has not currently been doing. However, the FSCA will be doing this on a higher level than the FSB has done it in the past.

“To ensure that the regulatory framework supports the delivery of the desired outcomes, we need to assess the current regulatory framework against its ability to drive TCF and market integrity outcomes. We will then make structural interventions where necessary,” said Matteus

She adds that examples of this more interventionist approach includes:

-               RDR;
-               the Consumer Credit Insurance (CCI) Report which proposes structural changes to the way in which credit consumers are protected against certain defaults; and
-               the Retirement Reform process.

Implementation: a possible roadmap

This is a big change for the industry as the FSB has already said that their future presence in the market will be very visible when it comes to market conduct regulation. Naturally, there have been some concerns from companies in the industry.

“The FSCA needs to analyse outcomes delivered by the sector as a whole. This will require skills such as proactively monitoring emerging conduct risks and trends – locally and internationally, the analysis of Big Data, behavioural economics, business model analysis, and deep industry and sector knowledge to allow credible judgement based supervision,” said Matteus.

The big worry

One of the biggest concerns in the market is the future of RDR and how it will affect the market and actions of brokers.

Matteus reports that RDR has been undertaken in the context of the Twin Peaks market conduct mandate and the TCF framework. RDR has also been undertaken to ensure that financial products are distributed in ways that support delivery of TCF outcomes and enable:

-               delivery of suitable products and fair access to suitable advice;
-               customers to understand and compare the nature, value and cost of advice and other services;
-               enhanced intermediary professionalism to build consumer confidence and trust;
-               benefit of fair competition for quality advice and services, at prices more closely aligned with the service provided; and
-               sustainable business models. 

The FSB has released its RDR White Paper for industry comment, and it reports that the feedback from the industry has been extensive. Where possible, these comments have been considered and possibly included into the final outlook of the RDR legislation. Speaking at the Old Mutual Advice Matters Roadshow, Caroline Da Silva, Financial Advisory and Intermediary Services Deputy Executive Officer at the FSB, pointed out that RDR will be implemented in a phased approach so that insurers and brokers are not overwhelmed.

Editor’s Thoughts:
Whichever form regulatory reform takes, and no matter how it is carried out, the financial services sector will take on a completely new look from next year. Interesting times lies ahead. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.