A good decade for South African consumers
The South African consumer is among the best-protected in the world. Since 2004, financial services consumers have engaged confidently with intermediaries and product providers thanks to safeguards introduced in the Financial Advisory and Intermediary Ser
Consumers of financial services will soon benefit from additional protections following the Financial Services Board (FSB) decision to implement Treating Customers Fairly (TCF) regulations. This regulation will ensure a higher standard of consumer protection across the financial services space. Its primary objective is to embed the fair treatment of consumers into corporate culture. There are six “fairness” outcomes embedded in the regulation to ensure the consumer gets a “fair” deal from product design to performance! “TCF applies to all FSB regulated entities,” says Wassermann. It offers a fuller and more comprehensive set of consumer protections than the FAIS Act because it forces companies to reform their business practices. The regulation demands a proactive approach and encourages companies to identify problems and implement redress as early as possible. Unfortunately banks and medical schemes will fall outside the TCF regulation for now.
Banks must treat customers fairly too
The regulators will have to bring banks into the fold due to ongoing complaints about their fee structures and financial product distribution practices. Phil Billingham, a regulatory change specialist at UK-based Threesixty Services, shared the following at a recent FAnews TCF Seminar: “It is clear from UK statistics that the adviser, who accounts for around 80% of financial services product distribution, only contributes to around 1.5% of complaints. Banks meanwhile, with a mere 20% of the distribution load, were responsible for 90% of post-sales disputes.” We expect a detailed analysis of post-sales financial services complaints in the domestic market would yield a similar “result”.
Local financial services stakeholders can expect many regulatory changes over the next three years. National Treasury recently published their vision for the South African financial services environment in a paper titled A Safer Financial Sector to Serve South Africa Better. The so-called “Red Book” documents a series of legislative changes that South Africa will have to implement to meet undertakings given at the G20. These changes will lead to greater financial stability at an institutional level, extended consumer protection, improved access to financial services products and reductions in financial crime. South Africa will develop a “twin peaks” model under which the Reserve Bank is tasked with prudential regulation and the FSB with market conduct. As National Treasury pushes ahead with these changes, banks will eventually be drawn in.
Future consumer protections
FAIS, the CPA, the various industry ombudsman schemes and TCF are the first steps on the path to holistic consumer protection. “Apart from TCF there are a couple of other consumer protection issues that must be considered,” said Wassermann. The insurance industry regulation has to “tie in” with the CPA by October 2012. Further changes to the insurance Acts are likely to be introduced throughout 2012. And all industries will soon have to comply with the Protection of Personal Information Bill too…
For the long-suffering intermediary – the commission debate is warming up again. The FSB has fired the next salvo in this debate by inviting stakeholders to comment on the role of intermediaries and intermediary remuneration. They will be asking to what extent consumers are insulated from commissions being used as incentives to sell product. Another possibility is that the existing ombudsman schemes, both statutory and voluntary, will be drawn together under a super ombudsman. This structure has already had success in the UK – a jurisdiction the FSB has proven keen to copy over time. Solvency Assessment and Management (SAM) – which must come into effect from January 2014 – is also on the cards. This framework brings South Africa in line with the European Solvency II regulation and will address solvency issues and risk management issues to ensure local insurance institutions are adequately capitalised.
Consumer rights are at the forefront of current regulatory interventions and there will be many fundamental changes over the next three years. “Consumers have the right to deal with financial services firms where TCF is central to the culture of the firm, the right to access of financial services at both low and high end, the right to be informed of their purchase, the right to protection of personal information, the right to receive correct and unbiased advice on financial products regardless of the circumstances, the right that the product must perform as promised, and the right to free and easy resolution of complaints,” concluded Wassermann. By sticking with the provisions in the FAIS Act (intermediaries) and TCF (product providers) the industry is certain to enshrine these rights.
Editor’s thoughts: In a recent discussion with an insurance company chief executive concerns were raised over whether the current consumer protections were a step too far. Financial services companies are concerned that the cost associated with consumer protection compliance could make it impossible to service the lower income market. Additional regulation will protect consumers but reduce access! Is there a risk that TCF will reduce access to financial services products, particularly in the low income space? Add your comment below, or send it to [email protected]
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