Changing business culture to treat customers fairly
The Financial Services Board (FSB) issued a discussion paper titled Treating Customers Fairly (TCF) during May 2010. The paper was commissioned to bring the local financial services industry in line with the TCF implementation in the UK (since 2001). In the first part of our TCF investigation we looked at what TCF entails. Today we’re taking a closer look at the cultural changes required for its successful implementation. Dr Penelope Hawkins, managing director of Feasibility (Pty) Ltd, and the person who authored the report, was on hand at a recent Masthead professional development day to discuss aspects of the 78-page proposal.
Critical success factors
TCF is to product providers what the FAIS Act is to financial services providers and intermediaries! The concept relies on full buy in from the directors and executives at each and every product provider throughout South Africa. The success or failure of TCF hinges on how seriously management adopts the concept. They should be asking questions like: Is our strategy guided by TCF? Can we release this product via the following distribution channel given its complexity and target market? Etc.
Product provides will have to somehow bridge the gap between the executive and the sales staff. You cannot have a situation where the chief executive says something isn’t happening – and then make a couple of “mystery shopper” visits to prove the exact opposite, opined Hawkins.
Unfortunately many of the problems in the modern financial services space can be linked to cause and effect: offer better remuneration and you get more sales! The mass investigation into behaviour in the credit life insurance industry is a case in point. The FAIS Ombud initiated the investigation after repeated cases of illiterate and poor individuals being sold exorbitant credit life (and other) policies at furniture stores. “If you offer an incentive to your sales people to push as much credit as they can, you shouldn’t be surprised when you end up with high debt levels,” said Hawkins. Under TCF remuneration would have to be linked to the sustainability of each arrangement rather than volume.
The way forward
The regulator has already done the hard miles. They examined the TCF implementation in the UK, looked at specific examples of its successes and failures, and held stakeholder meetings and workshops locally prior to releasing the first discussion document. How will the FSB drive the TCF policy going forward? According to Hawkins the regulator is now reviewing stakeholder responses to the discussion document and working on a second “roadmap” document to be released before the end of 2010. The regulator will also release a self assessment pack for product providers, followed by more comprehensive guidance for intermediaries early next year.
She suggested that industry stakeholders begin thinking about how they conduct their business by including the TCF principles at the heart of every business decision. You cannot afford to view TCF as a compliance issue. “You need ownership at very senior level – driven by the board – to provide guidance throughout the product life cycle,” she said. The board cannot simply rely on issuing press statements or answering FSB enquiries while the shop front conducts “business as usual”.
Moving from a rules-based to outcomes-based system
Adviser organisations will have to complete a thorough gap analysis, to see where the FAIS Act falls short of TCF expectations. An overlap analysis should also be conducted, to see where the current regulation and TCF overlap. “The reality is that FAIS is locked into the previous way of seeing things – when we were obsessed with making rules to regulate intermediary activity – now we’re looking at the links between FAIS and TCF!”
A proper implementation of TCF will require a proactive (rather than reactive) approach from the FSB. The regulator will have to make use of extensive on site visits to test companies’ compliance and impose fines in the event failures occur. It’s still early days in the process. “The FSB’s TCF approach aims to elevate fair treatment of the customer by financial institutions,” said Hawkins. “To implement this behavioural change will take many years – which is why the speedy release of detailed guidance regards product providers and the obligation of boards and senior management of firms is imperative!”
Editor’s thoughts: One of the complaints about regulation in the financial services industry is that it singles out intermediaries as the “root of all evil”. I think the TCF initiative is long overdue – because it seeks to address shortcomings higher up in the product life cycle. Do you think the TCF legislation will shift accountability for financial services product failings back to the product providers? Add your comment below, or send it to [email protected]
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