Stringent Supervisory Regime for Treating Customers Fairly
The Financial Services Board will need to develop a more pre-emptive, intensive and intrusive supervisory framework if its Treating Customers Fairly (TCF) programme is to be successful. The regulator will also have to ensure its staff are sufficiently skilled to grasp TCF issues in all sectors of the industry, said Leanne Jackson, head of Treating Customers Fairly at the FSB. She was addressing delegates at the recent 12th Annual Conference of the Compliance Institute of South Africa.
Likewise, compliance professionals will need to know the businesses they support well enough to grasp the conduct risks they face and contribute meaningfully to embedding a TCF culture, she said.
Implementing TCF will be a key component of the FSB’s enhanced market conduct mandate as per Treasury’s twin peaks regulatory model. The programme requires companies to treat customers fairly throughout the product life cycle, from product design and promotion, through advice and servicing, to complaints and claims handling.
TCF is outcomes-based, as opposed to rules-based. Six outcomes have been formulated that enable firms, and the regulator, to know that customers are being treated fairly. Outcomes-based regulation requires companies to be able to demonstrate their commitment to broad principles, over and above following any applicable detailed rules. As such, logic says it should require less, not more supervision, but the reverse is true, Jackson said.
“An important lesson learned from implementing TCF in the UK is that, sadly, in some cases visible enforcement was the only thing that really ensured that delivery of the outcomes was taken seriously.”
She said that TCF would require the regulator to be more proactive in identifying emerging conduct risks, both in terms of industry-wide issues and issues at individual companies that could lead to market conduct concerns.
“We are developing new reporting requirements as well as new approaches to on-site and off-site supervision to enable us to monitor TCF and identify emerging conduct risks,” Jackson said.
“We will also find appropriate TCF measures that can be put out by the regulator in the public domain. This will be done with great care so that firms are treated fairly while, at the same time, ensuring that consumers are given a correct assessment. We wouldn’t want to give customers either a false sense of security or unwarranted poor perceptions about customer treatment in a given oragnisation.”
Naming and shaming will thus be one of the mechanisms used to enforce TCF. “We believe that a public pressure mechanism will help with implementation and act as both an incentive and a deterrent.”
She said the FSB would look at new forms of off-site supervision such as “mystery shopping”, scrutinising issues raised in the media more carefully, and finding better ways to evaluate the information coming from industry ombudsmen. “We’ll be looking at broader sources of information to gain more direct insight.”
The FSB will find ways to intervene pre-emptively if it detects unfair customer treatment in an organisation. It will also ensure that firms are able to identify risks that are occurring so they can take action proactively and engage the regulator, if appropriate.
To this end, the FSB is developing a self-assessment tool that regulated firms can use to gauge their success in achieving the TCF outcomes. A TCF self-assessment pilot is currently underway, with over 20 companies, many of which are multi-entity organisations. “In reality the number of pilot participants is closer to 100.”
