Prepare for ‘Treating Customers Fairly’ – conference told

Companies should start putting appropriate mechanisms in place to ensure that the six fairness outcomes contained in the Treating Customers Fairly (TCF) programme are incorporated in their businesses and delivered on. This was the message from Leanne Jackson, Head of Treating Customers Fairly at the Financial Services Board. Jackson was speaking the 8^th Cape Conference of the Compliance Institute of South Africa.

The Financial Services Board is implementing TCF, a programme for regulating the market conduct of financial services firms. A steering committee to develop the regulatory framework for the programme is scheduled to be constituted by June and the overall target is to produce a complete TCF regulatory framework proposal for approval by Treasury in the last quarter of 2012.

The approach of the programme is to ensure that fair treatment of customers is embedded within the culture of financial firms. “We’ll be using a combination of market conduct principles and explicit rules to drive the delivery of clear and measureable fairness outcomes, and will enforce delivery through a range of visible, credible deterrents to unfair treatment,” Jackson said.

Julie Methven, CEO of the Compliance Institute, said that ultimately, a principles-based regime is infinitely preferable to a 100% rules-based regime but the challenge for compliance officers, management and regulators will be to accurately assess principles-based compliance.

Premised on the TCF approach implemented by the Financial Services Authority (ASA) in the United Kingdom (UK), the programme is aligned with Treasury’s four major policy directives, as set out in its policy paper “A safer financial sector to serve South Africa better” ‘, published along with the Budget. These are: financial stability; consumer protection and market conduct; expanding access through financial inclusion; and integrity of the financial system.

Jackson told the conference that firms should not regard TCF as a ‘compliance project’; rather, it must be integrated into the company’s overall business strategy and risk management framework, of which compliance is a key part.

“Compliance officers being tasked to take lead responsibility for implementing TCF could be set-up for failure, especially if the programme isn’t part of their company’s overall strategic and risk management framework.”

She said that compliance officers should ensure they really know the businesses they support so they can grasp the conduct risks they face and contribute meaningfully to embedding a TCF culture in their companies.

The six desired outcomes of TCF are to ensure that:

(1) Customers are confident they are dealing with firms where the fair treatment of customers is central to the company culture;

(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;

(3) Customers are given clear information and kept appropriately informed before, during and after the time of contracting;

(4) Where customers receive advice, it is suitable and takes account of customer circumstances;

(5) Products perform as firms have led customers to expect, and service is of an acceptable standard and as they have been led to expect;

(6) Customers do not face unreasonable post-sale barriers imposed by firms to change a product, switch providers, submit a claim or make a complaint.

“These outcomes will be required to be demonstrably delivered by service providers,” said Jackson. Visible enforcement will also be essential to ensure TCF delivery and, in order to align the framework with the expectations of consumers, education and awareness is vital. “The ultimate cure for financial asymmetry is consumer education.”