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Treating Customers FairlyMyhendri Govender November 2011
Background
Why?
• Knowledge gap between Financial institutions and consumers
• Close the gaps in consumer protection regulations
• Financial institutions expertise in design, distribution and servicing Products Versus Consumer’s decision making
• Consumer exploitation, unfair/inequitable treatment of consumers, poor decision making on part of the consumer
Background /cont
• A holistic and coordinated consumer protection regulatory
framework that
• applies consistently across the financial services sector has
been lacking
• National Treasury published a policy document in which
SA is moving toward a “twin peaks” model of financial
regulation
• SARB as the macro prudential regulator and the FSB as
the market conduct regulator
Source: Leeanne Jackson - FSB
TCF and the Product Life Cycle
• Financial institutions will need to consider their treatment of customers at all stages of their relationship with the customer, from product design and marketing, through to the advice, point-of-sale and after-sale stages
TCF and Product Life Cycle Continued…..
• Product and service design: Must be based on a clear understanding of the likely needs and financial capability of each customer group
• Promotion and marketing: Marketing communications to specific target groups must be clear, fair, not misleading and appropriate for the target group
• Advice: Ensure that advisers are fully equipped to provide advice that is suitable to the needs of the customer concerned, balancing the commercial objective of increasing sales with the objectives of TCF and avoiding conflicts of interest
• Point-of-sale:• Provide clear and fair information to enable customers to make informed
decisions including transparency on product risks, commitments, limitations and charges
• Disclosure around bundled products must enable customers to understand the different components of the bundle
TCF and Product Life Cycle Continued…..
Information after point-of-sale:
• Provide customers with ongoing relevant information to enable them to monitor whether the product or service continues to meet their needs and expectations
• Provide acceptable levels of service for post-sale transactions or enquiries
• Monitor and respond to changes in the wider environment that may affect products and impact on particular groups of customers
Complaints and claims handling:
• Honor representations, assurances and promises that lead to legitimate customer expectations
• No unreasonable post-sale barriers
• Fairness and consistency
• Timeous resolution
• Actions to eliminate of the root cause of the Complaints
Final Outcome
Intermediate Outcomes
Immediate Outcomes
Customers’ financial services needs are appropriately met through a sustainable industry
1. Improved customer
confidence
2. Appropriate
products and services
3. Enhanced transparency and discipline
4. Where customers receive advice, it
is suitable and takes account of their circum-
stances.
2. Products perform as firms have
led customers to expect; Service is
of an acceptable standard.
1. Customers
are confident that they
are dealing with firms where the
fair treatment of customers
is central to the firm culture.
3. Products and
services are designed to
meet the needs of identified customer
groups and are targeted accordingly.
6. Customers do not face unreasonable post-sale barriers to
change product, switch
provider, submit a claim or make a
complaint.
5. Customers are given
clear information
and kept appropriately informed
before, during and
after contracting.
Source: Leanne Jackson - FSB
Desired Outcomes
The six outcomes of TCF explained
Outcome 1
Customers are confident that they are dealing with firms where the fair treatment of customers is central to the firm culture
Incorporation of TCF into firm’s values, culture and standards
Awareness and understanding of TCF among Board members and senior management
Transmission of the Board and senior management’s commitment to TCF to staff,
intermediaries and business partners
Incorporation of TCF outcomes into strategic planning process, business
cases, projects or material expenditure
Encouragement of staff and management to evaluate TCF impact on Ops and
decision making
Forums for debating TCF
Assignment of TCF responsibilities in the Organisation
Reporting process for TCF
Changes to business operations
MI for the above
Outcome 2Products and services marketed and sold in the retail market are designed to meet the needs of identified customer groups and are targeted accordingly
Design of product to meet requirements of target group
Testing of product to meet the needs of target group
Assess suitability of the advertising and promotional material for the product
Product approval process and promotions approval process
Selection of appropriate distribution channel to ensure appropriateness for target market taking into account risk and complexity
Suitability of related or optional products
Measures to ensure understanding of product and type of client it is suitable for
Measures to evaluate customer’s financial capability and understanding of product
Processes to ensure fair treatment of customers wrt bundled products and loyalty programs
Tracking of sales to ensure products sold to target client group and process to address mismatch
Alignment of incentives with TCF objectives
Measuring success of product
Feedback of complaints to product design phase
MI for the above
Outcome 3
Customers are given clear information and are kept appropriately informed before, during and after the time of contracting
Process for evaluating clarity and fairness of product information
Approach to ensure client is aware of key product features and risks
Process to ensure complaints about promotion or quality of information is fed to ensure improvement of information quality or to stop the promotion
Process to ensure accuracy and quality of once off or non standard product information
Record keeping of discussion and communication with customers
Processes to review communications to the customer
Processes to consider redress for financial prejudice caused by misleading information
Monitoring and acting on feedback, complaints and suggestions from clients on products
Notification of changes in products
MI Measures
Outcome 4
Where customers receive advice, the advice is suitable and takes account of their circumstances
Mystery shopping by product supplier processes to determine
whether advice appropriate
Processes by product supplier to ensure intermediaries have
adequate knowledge
Monitoring and mitigation of risks with regard to lapses in quality
of advice, conflict and sales incentives and targets
Addressing feedback or complaints relating to quality of advice
Process to compensate clients where inappropriately advised
Changes to business practises as a result of TCF
MI for the above
Outcome 5
Customers are provided with products that perform as firms have led them to expect, and the associated service is both of an acceptable standard and what they have been led to expect
Evaluation of customer expectations met
Mechanisms to ensure that products are supported after launch
Process to alert customers to the risks of action or non-action
Monitoring of ongoing developments that impact on customer’s benefit expectations
Assessment of service standards of agents and staff toward customers
Monitor and act on feedback, complaints and suggestions received
for improvement in types of services or service standards
Process to mitigate risks to customer where products not performing
Where 3rd parties part of value chain measure in ensure adequate
standard for fair treatment of the client
Mitigation of risks where 3rd party product not performing
Outcome 6
Customers do not face unreasonable post-sale barriers to change product, switch provider, submit a claim or make a complaint Incorporation of product flexibility and product switching incorporated
into design phase of product
Communication of product flexibility and product switching information during marketing, sales and after sales
Service standards to product switching reflective of TCF outcomes
Claims /complaints handling ensure that customers expectations are met
Monitoring of the above
Complaints/Claims processes
Use of complaints data, claims data and lapse/early termination
data to evaluate success of product or service and firm’s fairness to clients
Pillar 1:TCF Framework
Pillar 2: Implementing TCF
Pillar 3: Incentives & deterrence
Firms Regulatory FrameworkWill be developed within which firms must conduct their business. Combination of market conduct principals and explicit rules
Culture & governanceFirms must demonstrably embed a TCF culture, supported by controls, governance structures, management information and self-assessment
Disclosure & reportingFirms will be required to publicly disclose identified TCF performance measures and submit non-public TCF reports as required by the FSB
FSB Supervisory frameworkThe FSB will develop a framework for effective, intensive and intrusive supervision of firms’ adherence to the market conduct regulatory framework. The framework will comprise monitoring, reporting, off-site analysis and on-site components
Proactive supervisionThe FSB must implement the supervisory framework to enable proactive monitoring of and response to industry (macro) and firm-specific (micro) TCF risks and outcomes
Enforcement mechanismsThe FSB will enforce the TCF framework through a combination of pre-emptive intervention for identified industry and firm-specific conduct risks, regulatory sanctions (incl. “naming and shaming”) for firms in breach and prosecution of individual wrongdoers
A structural model to deliver TCF
Supporting Structures
Ultimate Fairness - Ombudsman with jurisdiction
Regulatory co-ordination and information sharing – FSB to take the lead on market conduct initiatives
Consumer education and awareness – TCF included in FSB and national consumer education strategies
Ultimate Fairness - Ombudsman with jurisdiction
What does this mean for the Financial Adviser?
FAIS imposes obligations on FSPs
• FAIS imposes obligations on FSPs and reps which are relevant to TCF outcomes
• Outcomes 3 (clear information) and 4 (suitable advice) are driven by the disclosure, advice, conflict of interest and licensing requirements under the FAIS Act
• Intermediaries’ adherence to FAIS must be complemented by demonstrating that they have embedded the broader TCF culture framework within their organisation (TCF fairness outcome 1)
• Intermediaries will also be expected to consider their role in delivering TCF fairness outcomes 2, 5 and 6 (the outcomes related to appropriate product and service design, product performance and service levels, and post-sale barriers)
• Duty on Product supplier in ensuring a product is appropriate for a particular target market but on financial adviser to ensure the product is suitable for the particular customer concerned
• However, an appropriate level of product “due diligence” is expected from financial advisers
• TCF will require product suppliers and intermediaries to share accountability for fair treatment of their mutual customers
• Note the product cycle
Regulatory alignment analysis will start in January 2011
Draft and publishing of the legislative proposal document will start in
Q1 2012
Development of the internal FSB framework will start in
May 2011
Developing and publishing the TCF supervisory framework will start
During November 2011 and will be finalised during Q4 2012
Pilot participants submit completed questionnaires during
June 2011
Interview pilot participants should be finalised during July 2011
July 2011
Stakeholder input should be finalised during August 2011
Timelines
Publish final self-assessment tool for industry use by
August 2011
Provide feedback to pilot participants by September 2011
Identify benchmark participants & distribute self-assessment tool by
August 2011
Publish benchmark exercise findings by Q1 2012
FSB publishes guidance notes during Q1 2012 and should be finalised during
Q4 2013
Include TCF in 2011 FSB Annual Report and annually thereafter
Q3 2012
Develop initial non-public and public reporting requirements will commence during October 2011 and should be finalised by
Q1 & Q2 2012
FSB begins pro-active intervention for identified TCF conduct risks will commence
Q1 2012
Formal TCF enforcement Jan 2014
• Momentum participated in a self assessment in July/August
• 20 firms participated
• Results will be published by December 2011
Implementation of the TCF principals in Momentum Sales
• Leadership: The Board, senior and middle management need to provide direction and monitor the delivery of the TCF behaviours and outcomes
• Strategy: The TCF aims should form part of Momentum’s stated vision, values and broader business strategy
• Decision-making: Decision-making procedures should ensure that decisions are tested for customer impact
• Governance and controls: Governance processes around product approval, distribution models, service standards, claims reviews and complaint escalations should cater for TCF. We will need to focus on TCF outcomes at all stages of product life cycle
• Performance management: TCF deliverables should form part of staff performance appraisals where appropriate
• Reward: Remuneration, incentive and reward policies must take into consideration fair customer outcomes and entail consequences for TCF successes and failures
Source
• The Road Map – Leanne Jackson (FSB)
Thank youMyhendri Govender November 2011
Questions?