The Treating Customers Fairly (TCF) juggernaut is finally on track
If you’re one of the hundreds of financial services professionals with a keen passion for golf then you might have to cancel this week’s round. Instead of chasing your ball for eighteen holes you’ll have to spend some time digesting the long-awaited Financial Services Board (FSB) Treating Customers Fairly (TCF) Roadmap. The document – which contains a summary of the TCF concept, proposed timelines for the development and implementation of the regulation in South Africa, plus a review and feedback by the FSB of industry comments received to date – runs to 43 A4 pages! You can obtain a copy of the TCF Roadmap from the FSB… Just visit http://www.fsb.co.za/ and download the document by following the link provided.
Getting to grips with the six “fairness” outcomes
Stakeholders in the financial services industry have had a considerable amount of time to get used to the TCF concept. The FSB published their first discussion document entitled Treating Customers Fairly (The TCF Discussion Document) in April 2010. The regulation tackles the unfair treatment of financial services customers from a principles rather than rules-based perspective. “Typically, financial institutions have far more expertise and resources available to them in designing, distributing and servicing financial products than consumers have available to them in making decisions about financial transactions,” notes the FSB. TCF aims to be “a holistic and coordinated consumer protection regulatory framework that applies consistently across the financial services sector – and is tailored to address the specific conduct risks peculiar to the sector!”
The regulation will ensure that the following fairness outcomes (as they apply to financial services customers) are demonstrably delivered by regulated financial institutions. Financial services providers should apply these principles at all times keeping the customer in mind:
· Outcome 1: Customers are confident that they are dealing with firms where the fair treatment of customers is central to the firm culture.
· Outcome 2: Products and services marketed and sold in the retail market are designed to meet the needs of identified customer groups and are targeted accordingly.
· Outcome 3: Customers are given clear information and are kept appropriately informed before, during and after the time of contracting.
· Outcome 4: Where customers receive advice, the advice is suitable and takes account of their circumstances.
· Outcome 5: Customers are provided with products that perform as firms have led them to expect, and the associated service is both of an acceptable standard and what they have been led to expect.
· Outcome 6: Customers do not face unreasonable post-sale barriers to change product, switch provider, submit a claim or make a complaint.
These fairness outcomes must manifest in financial services corporate culture at every organizational level, and at every stage of the produce lifecycle. The FSB observes: “TCF will require regulated firms to consider their treatment of customers at all stages of their relationship with the customer, from product design and marketing, through to the advice, point-of-sale and after-sale stages.” And although attendees at the recent Association of Savings and Investments (Asisa) 2011 Conference agreed that the TCF regulation largely embodies industry best practice, it will require a concerted effort from all stakeholders for success. Specific challenges include the legacy of decades of unfair treatment of financial services customers and the country’s poor financial literacy situation.
How to implement TCF in South Africa
The FSB has proposed a three pillar model for TCF implementation in South Africa. This model requires different emphasis from firms and the regulator – with “buy in” from a broad range of stakeholders across the industry. The three pillars include: Pillar One – The TCF Framework, Pillar Two – Implementing TCF and Pillar Three – Incentives and Deterrence.
From a service provider perspective firms will have to conduct their business within a regulatory framework comprising a combination of market conduct principles and explicit rules – Pillar One. These principles and rules will be implemented under ‘Pillar Two’ through each company’s culture and governance. The FSB notes: “Firms must demonstrably embed a TCF culture, supported by controls, governance structures, management information and self-assessment.” And finally, under Pillar Three, firms will have to publicly disclose their TCF performance measures to the regulator.
TCF looks slightly different from the regulator’s perspective. Under ‘Pillar One’ the FSB “will develop a framework for effective, intensive and intrusive supervision of firms’ adherence to the market conduct regulatory framework.” They will conduct monitoring by reviewing company reports, off-site analysis and site visits. This monitoring role will be made easier during the ‘Pillar Two’ proactive supervision implementation of TCF. TCF will be designed to allow “proactive monitoring of and response to industry (macro) and firm-specific (micro) TCF risks and outcomes.” Enforcement will include pre-emptive intervention, regulatory imposed sanctions and prosecution of individuals.
Next steps
There are a number of TCF initiatives that will play out through 2011. As a first step the FSB is working on a TCF Self Assessment Tool which will allow regulated firms to gauge their success levels in achieving the TCF fairness outcomes and culture framework requirements. This “test” will include questions focused on each of the six fairness outcomes and will be piloted at between 20 and 25 firms before being made available to the entire industry. “It is important for firms to appreciate, as the FSB does, that although the self-assessment tool will hopefully serve a useful purpose in aiding TCF implementation and understanding, it cannot serve as a definitive ‘template’ to guarantee full compliance with TCF accountabilities!”
A second step will be to conduct a TCF benchmarking exercise to see how well existing financial services practices hold up to the goals and objectives of the TCF regulation. And finally, step three, will be to identify and engage stakeholders to participate in the further roll-out of TCF. The current project timeline pencils in January 2014 as the date from which the FSB will begin enforcing TCF, though changes to the timeline haven’t been ruled out.
Editor’s thoughts: It is extremely difficult to summarise the content of the FSB Treating Customers Fairly Roadmap in a single newsletter. I would urge all financial services professionals to read the document as soon as possible. If you want to get a head start on TCF you should consider to what extent the six “fairness” outcomes already reflect in your business. How does your business stack up against the six fairness criteria? Please add your comment below, or send it to [email protected]
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