TCF: a consultative process you need not fear

Fiona Zerbst, FAnews Online Editor

We know with virtual certainty that Treating Customers Fairly (TCF) will change the way the industry looks next year. But should we fear the inevitable? When TCF was implanted in the UK, significant changes led some commentators to conclude that it was bo

According to Carel Nolte of Etana, who is the chairperson of the TCF committee at SAIA, it is important that we not view the new regime as ‘the end of the world’. “In essence, it is not rocket science – it is fairly simple. Being outcomes-based, you will need to be able to demonstrate that you have done all you can to treat customers fairly. Most intermediaries are already doing this.”

Nolte suggests that advisers look to their day-to-day dealings with clients to be sure they are adhering to FAIS, being clear and direct when selling and ensuring that they will be able to demonstrate they have taken the necessary steps to treat customers fairly, since the Financial Services Board (FSB) is expecting them to focus on outcomes, not rules. Keeping documentary evidence of these processes is a good idea. Although this might result in an increase in administrative work, it may be no more than what advisers are already putting in place.

One of the key challenges will be consumer education, because keeping clients informed before, during and after point-of-sale is part of the process of clear, direct communication.

“Bear in mind, though, that if a customer is unhappy it doesn’t mean they’ve been treated unfairly,” says Nolte. An unhappy customer doesn’t necessarily mean a business is shirking its TCF obligations.

“TCF will create even more consumer awareness, which can only be a good thing,” Nolte says. “Consumers may well have higher demands, but what this means is that the top intermediaries and insurers will continue to do well and unscrupulous financial services providers will be weeded out.”  

TCF involves everyone in the industry

“The assumption that TCF applies to some industry stakeholders and not others is wholly incorrect, and there are no exceptions” says Nolte.

Because the TCF process is a widely consultative one, liaising closely with the FSB is recommended. Intermediaries should make use of the opportunity to comment through the Financial Intermediaries Association (FIA), as well as work with insurers to find out how they intend complying with TCF.

“You can’t have advisers pointing fingers at insurers, for example – the regulator will expect everyone to be equally accountable,” Nolte says.

Determine where the highest risk is

Nolte says that a business should engage with TCF from the perspective of where the highest risk is and work from there. A sense of proportionality will ensure that businesses are not ‘overwhelmed’ as they work through TCF outcomes and assess where more needs to be done.

In the meantime, intermediaries and insurers should be pleased that certain industry issues, like standard terminology for terms, are likely to be ironed out. “These are easily solved problems that will streamline processes in the industry, and this will be good for industry and consumer alike,” predicts Nolte. Meanwhile, it is important for industry stakeholders to be proactive so laws are not written without their input.

“This is a good time to comment and get involved in what is essentially a consultative process – the FSB is not being heavy-handed in any way,” says Nolte.

Editor’s thoughts:
The Financial Services Authority (FSA) in the UK has highlighted two key principles that are vital for stakeholders to understand: consumers must be educated about the risks and benefits of financial products they wish to buy; and ongoing TCF practices should be able to minimise the sale of any unsuitable products to consumers. But TCF is not just about tick-boxes and compliance – it is a culture that has to permeate throughout a business. TCF will likely be enforced by means of business self-assessment and compliance reporting on the one hand and on-site inspections on the other, with the FSB able to impose penalties. We may even see the appointment of a TCF ombud for consumer complaints. Do you think TCF will have an onerous impact on financial services? Comment below or email fiona@fanews.co.za.