Nothing is certain but death, taxes and legislation
It’s difficult to keep abreast of all of the legislative changes impacting professionals in the financial services space. Although the foundations governing sub-sectors of the industry have been in place for decades – think of the Pension Funds Act 24 of 196, the Financial Services Board Act of 1990, the Long-term Insurance Act 52 of 1998 and the Short-term Insurance Act 53 of 1998, for example – it’s only with the advent of the Financial Advisory & Intermediary Services Act 37 of 2002 (referred to in the industry as the FAIS Act) that individuals have become more legally “hands on”.
Since the implementation of the FAIS Act (in 2004) the financial intermediary who works at the proverbial coalface of the industry has had to improve his / her knowledge and understanding of the regulatory tenfold. I’ve paged through many of the abovementioned Acts, including the FAIS Act and the accompanying General Code of Conduct, and attaining an adequate understanding of the regulation appears to be an extremely daunting task!
A never-ending requirement for law and order
The problem with a dynamic financial services environment is that legislation can never keep pace. In their Annual Report 2010 the Financial Services Board (FSB) reveals some of the difficulties they face. In the 2009/10 year they had to complete detailed studies of the Companies Act (2008), Consumer Protection Act (2008) and Competition Amendment Act (2009) to determine the impact on other pieces of legislation they (the FSB) administer. The result – you guessed it – another piece of legislation! “The crucial outcomes of this assessment,” notes the FSB, “have been addressed in the Financial Institutions Amendment Bill, 2010.”
And while industry stakeholders (particularly intermediaries with limited human resources) struggle to determine how Conflict of Interest provisions, the Consumer Protection Act and the Insurance Laws Amendments Act (promulgated in 2008) affect their businesses, the next piece of regulation is already well underway. And no – we’re not referring here to the proposal to implement a micro-insurance regulatory framework, for which draft regulation will be “offered up” in 2012.
The next chapter – preparing for TCF
What we’re talking about is “TCF” – an acronym that everyone in the financial services industry will have heard of by now. Like many of the recent interventions in the financial services space TCF, “Treating Customers Fairly”, was cloned from the FSB’s UK counterparts. England’s Financial Service Authority (FSA) identified a need for further regulation following an alarming increase in the number of consumer complaints – typically against product providers – brought to various financial consumer ombudsman schemes. As the complaints trend plays out locally it makes sense for the TCF “cure” to be implemented here too.
The interaction between product provider, tied agent, independent intermediary, regulator and consumer is extremely complex. UK regulators soon realised there were numerous “events” which could influence how customers were treated. Some stemmed from accepted practices (firm incentives) and others from factors beyond any party’s direct control (market failures). Apart from detailing best practices to handle the aforementioned events, TCF will also encourage financial service providers to offer the end-consumer as much price and product transparency as possible.
In the FSB Annual Report 2010 the TCF program is described as “a regulatory initiative that requires firms to consider their treatment of customers at all the stages of the product lifecycle, including the design, marketing, advice, point-of-sale and after-sale stages.” The intermediary’s cry has finally been heard and the regulator is “inviting” the product providers to up their game. Insurers, fund managers, banks and others will have to assess their company culture and inculcate the attitude of TCF, hopefully generating a positive outcome for all industry stakeholders.
A long and drawn out process
The FSB’s TCF Discussion Document was distributed in May 2010 with requests for comments by 9 June of the same year. We’re now waiting for the TCF Roadmap, scheduled for publication December 2010, and now promised by the end of Q1 2011, to find out what the next steps will be. The hope is that the Roadmap will deal with the many comments received in response to the discussion paper. It will also outline the FSB approach regard implementation across all relevant financial services sectors.
Editor’s thoughts: Nothing is certain but death, taxes and legislation – and financial services professionals certainly have to deal with their fair share of the latter. As the volume of legislation increases it must be really difficult to decide which law or amendments to prioritise. We’d love to hear how you (or your practice) stay up to date with regulation? Add your comment below, or send it to gareth@fanews.co.za
