FINANCE: Financial Service Providers Are Taking the Lead in Treating Customers Fairly
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WITH the imminent rollout of the much anticipated Twin Peaks financial regulations in South Africa in 2018, aspects of it are already entrenched in the way financial services companies deal with their clients.
One of these aspects is Treating Customers Fairly (TCF), which was initially introduced by the Financial Services Board (FSB) in 2011, and is an outcomes-based regulatory and supervisory approach to ensure that financial services providers treat their customers fairly.
Financial services providers are required to deliver six outcomes that are applied to every step of the financial service cycle and the relationship between them and their clients.
Twin Peaks will result in the restructure of the financial services environment, including the transformation of the FSB in its current form into the Financial Services Conduct Authority (FSCA), which will focus on supervising financial providers’ market conduct.
“The implementation of TCF outcomes, which is a crucial element of market conduct, is incremental in any financial business and has been given extensive consideration in our business,” says Gavin Smith, head of Africa at deVere Acuma.
The six key outcomes of TCF are:
· That customers must feel confident they are dealing with an institution where TCF is at the core of its culture
· That products and services are designed to meet their needs
· That customers are provided with clear information and kept informed
· That advice is suitable and according to the customer’s circumstances
· That service is of an acceptable standard and products perform as customers have been led to expect
· That customers do not face unreasonable barriers when they want to change a product, switch providers, submit a claim or make a complaint.
Although some TCF outcome principles are already manifest in the Financial Advisory and Intermediary Services Act and sub-ordinated legislation, e.g. the general code of conduct, the TCF outcomes require an additional layer of requirements to ensure fair treatment of customers.
“While most financial service providers are progressing well with their TCF programs, smaller financial services providers might need further support from the FSB and/or financial industry bodies, says Smith. "Investors should make themselves familiar with the TCF outcomes and ensure they reap the benefits thereof."
In earlier communication, the FSB said all customers, regardless of sophistication, are entitled to fair treatment, but “the nature and intensity of conduct of business supervision will be proportional to the risks posed to relevant customers and the vulnerability of those customers to potential abuse”. It said that specific TCF-related requirements will not be required for certain classes of customer and/or product.
Financial services providers, representatives and Intermediary services providers will also have to work together closely to ensure financial services offered and provided are aligned to TCF outcomes, irrespective of where they are located in the value chain.
According to the FSB, investment managers, while not directly responsible for customer experience, will have to identify how their business models, processes and offerings contribute to the end customer experience and consider whether they are in a position to mitigate the risk of unfair customer outcomes.
“What clients can be assured of is increased protection when buying investment products under the new regulation, which is expected to work in conjunction with the proposed Retail Distribution Review, proposing substantive reforms to the regulatory framework for financial advice and distribution of financial products to customers and, of course, Twin Peaks itself,” Smith adds.
“At deVere we believe that placing clients’ needs at the center of our business culture is central to how we do business. We are in full support of these important developments and, as a company, we are continuously working on further enhancing our company culture and processes," he concludes.
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