You must play your part in Treating Customers Fairly
Last week I reminded stakeholders in the financials services space that the Financial Services Board (FSB) was hard at work to bring Treating Customers Fairly (TCF) regulation to our shores. These regulations – already implemented in the United Kingdom – will change the way we interact with our clients, but hopefully not too much! That’s because the regulation simply requires product providers, financial services providers and intermediaries to provide the best possible level of care and service to the end consumer at all stages of the product life cycle. It’s something we should be doing already!
On Friday, 11 February 2011, I had the opportunity to learn more about what the regulator expects form financial services intermediaries where TCF is concerned. Leanne Jackson, Head TCF at the FSB, kicked off proceedings at the Santam-sponsored FAnews Events seminar on the topic.
Where does TCF fit?
This new piece of regulation is far reaching. “The fair treatment of financial services consumers is one of the mandates of the FSB,” said Jackson, “which means that TCF will apply to all FSB-regulated entities.” The FSB wants to implement TCF as a “blanket regulation” for every stakeholder regulated by it – so whether you’re in Long-term Insurance, Short-term insurance, Collective Investments, Pensions, etc, the regulation will apply to you. As such TCF must recognise and seamlessly integrate with existing financial services regulations such as FAIS, the Consumer Protection Act, Protection of Private Information Bill, National Credit Act etc. The “ultimate fairness” remains the domain of the various Ombudsman Schemes.
Why is the regulation necessary? Towards the beginning of 2010 it became clear that while the FAIS Act went a long way to addressing the “advice” side of TCF, little had been done to enforce market conduct in the product provider space. Existing regulation focused on ensuring the financial soundness of product providers rather than their interaction with other industry stakeholders. “The primary purpose of TCF is to imbed the culture of treating customers fairly across the regulated environment,” said Jackson.
What should financial advisers be doing
Jackson warned against the notion that TCF is some form of “payback” aimed at product providers. “This is certainly not the case and financial advisors cannot ignore TCF,” she said. Every client-facing stakeholder must deliver on the six TCF outcomes. Although the FAIS compliance obligation remains, TCF will demand a more meaningful focus on the outcomes of such compliance. Jackson explains: “If TCF is regarded within a company as a compliance responsibility then unfortunately its chances of success are limited!”
The culture proposed by TCF only succeeds if it is adopted industry wide – which means the financial intermediary practice too. Financial advisers will have to play their part in delivering the TCF outcomes by improved interaction with product providers. The bottom line is that the focus in the financial advice space must be on the customer, on product selection and on ongoing after-sales responsibilities. Organisations can start work on TCF by using the self-assessment tools currently available from the Financial Services Authority in the UK. Jackson suggests measuring your business against UK outcomes – after all service is service – wherever you are.
A roadmap is being carved out...
How far has the FSB got with the TCF process? The broader regulatory approach still has to be determined. “The challenge is to find the appropriate balance between rules and enforcement – the spirit and intent behind those rules,” said Jackson. The regulator’s role will be to provide the correct level of guidance, clearly state the requirements and outcomes it expects, and take a more “hands on” approach to enforcement.
Jackson said the regulator had already established a team drawn from its various sectors to ensure representation for every product with a retail impact. A great deal of progress has already been made in determining at what point in the value chain the TCF obligations apply. But the tough tasks ahead include working out the gaps and overlaps in the existing regulation and tackling these consistently across sectors. This team will pull together the TCF Roadmap, which the FSB has promised towards the end of March this year.
Aside from incorporating the detailed industry comment on the TCF Discussion Document (Jackson said around 25 detailed submissions were made) the Roadmap will provide a way forward toward TCF implementation. There’s plenty of work still to do. Jackson believes the way forward includes benchmarking studies against selected companies, developing the TCF regulatory framework, conducting detailed gap analysis, consulting with the industry and developing a suitable monitoring and enforcement structure.
TCF represents an interesting shift in the focus on rules-based compliance to an outcomes based system. Jackson warned companies they would not be able to rely on random visits from compliance officers, but would have to adopt TCF as part of their business culture for its successful implementation. In the UK the regulation has been monitored by, among others, mystery shopping. It’s also envisaged the regulator will introduce a credible deterrent – “real” consequences for non-delivery.
Editor’s thoughts: The Treating Customers Fairly regulation is slowly taking shape. As things stand we’ll have to wait until the end of March before we have a clearer picture of how the Financial Services Board will implement the regulation. But we can start making preparations by instilling a TCF culture in our companies today. Do you think compliance with the FAIS Act will ensure TCF compliance too – or does your organisation need to make some serious changes? Add your comment below, or send it to gareth@fanews.co.za
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