Treating Customers Fairly

The Treating Customers Fairly (TCF) initiative falls under the FSB’s mandate to regulate market conduct, with the aim to improve the conduct of service providers. The FSB released a lengthy document in May 2010 on this project, setting out its objectives: to change the industry mindset; to clarify the regulator’s expectations; to educate service providers to behave more responsibly towards consumers; and to establish a pre-emptive and intensive supervisory approach, to ensure the necessary enforcement and compliance.

Fairness Outcomes

Service providers must achieve six “fairness outcomes” for their customers:

1. Customers are confident that they are dealing with a firm that regards the fair treatment of its customers as central to its culture
2. Products and services marketed and sold in the retail market are designed to meet the needs of identified customer groups and are targeted accordingly
3. Customers are given clear information and are kept informed appropriately before, during and after the time of contracting
4. Where customers receive advice, the advice is suitable and takes account of their circumstances
5. Customers receive products that perform as they have been led to expect, and the associated service is of an acceptable standard and as they have been led to expect
6. Customers do not face unreasonable post-sale barriers to change product, switch provider, submit a claim or make a complaint.

Exemptions specific to the retirement funds industry

The TCF framework aims to deliver on the following intermediate outcomes:

• Improved customer confidence
• The supply of appropriate products and services
• Enhanced transparency and discipline in the industry.

The FSB bases its intended roll out of the TCF initiative on 3 pillars, as set out
below:

Pillar 1: Regulatory and supervisory framework

Regulatory framework

The FSB believes that service providers require legislation, rules and specific guidance to ensure they meet the FSB’s expectations in terms of the required cultural shift. The aims of the regulatory framework are:

• Consistently fair outcomes for customers across retail financial sectors
• Complete consumer protection coverage and regulation
• Co-ordinated legislative review
• Alignment with international best practice.

Supervisory framework

The FSB’s supervisory framework intends to be:

• Risk-based and proportional (to ensure more intensive supervision of service providers and sectors posing a greater risk of providing unfair customer treatment)
• Pro-active and pre-emptive
• Intensive and intrusive.

Pillar 2: Culture framework and proactive supervision

Culture framework

A TCF culture requires that service providers implement the following:

• Leadership: senior management must ensure that the TCF outcomes are delivered
• Strategy: TCF must be part of service providers’ vision, values and business strategies
• Decision-making: all business decisions must be tested for their customer impact
• Governance and controls: service providers must put controls in place to create discipline around TCF at every stage of the product life cycle
• Performance management: staff must receive appropriate training and the application of TCF principles must form part of their performance contracts
• Reward: the firm’s remuneration policies must consider TCF failure and success.

Proactive supervision

The FSB intends to implement the following:

• Reporting mechanisms, taking into account existing regulatory returns and compliance reports
• On-site supervision, including discussions with management
• Off-site supervision, which could include surveys and “mystery shopping”.

Pillar 3: Incentives and deterrents

Service providers will be required to publicly disclose their progress towards TCF implementation. This could include publishing the firms’ complaint volumes, repudiation of claims, disputes they are involved in and their timelines in attending to complaints.

To proactively and pre-emptively intervene in the implementation of TCF, the FSB may:

• Engage with industry bodies to drive communication and self-regulation
• Issue specific guidance notes
• Conduct on-site monitoring of relevant firms to gather information
• Publish warnings to consumers
• Introduce or tighten regulation
• Change legislation.

Formal action by the FSB against service providers would include:

• Referrals to the Enforcement Committee, High Court or National Prosecuting Authority
• Issuing fines and penalties
• Suspending or withdrawing licences
• Granting damages and compensation awards
• Declaring business practices undesirable
• Terminating or withdrawing approval for individuals to act in certain capacities
• Naming and shaming firms.

Support structures for TCF

There are various structures in place to assist the FSB in implementing and enforcing the TCF. These include the Ombudsman and Adjudicator Offices and a new Council of Financial Regulators, to co-ordinate information sharing and consumer education.

Self-assessment tool for service providers

The FSB is developing a self-assessment tool for service providers. This is in the form of a questionnaire structured on the six fairness outcomes set out above. The FSB will conduct a pilot roll-out of this tool with +/- 2 service providers, before finalising it in the latter part of 2011. The complete TCF proposal should be submitted to National Treasury for approval by the end of 2012.