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A robust regulatory
framework that
promotes fair
customer treatment

Treating Customers Fairly (TCF) is an initiative that has been in existence for the past six years. In the new regulatory environment TCF has become a key cornerstone. As such, it is important to understand how TCF is applied to the existing regulatory and advisory frameworks and also to the proposed activity-based licensing model. The FSCA’s predecessor, the Financial Services Board (FSB), started a process of steadily increasing the implementation and harmonisation of regulatory changes to bring them in line with the delivery of fair treatment of customers.

The FCSA will continue this alignment of regulations with outcomes that lead to the increased fair treatment of customers and a regulatory framework whose changes reflect the support of TCF. This is achievable because of the powers vested to the regulator by the FSR Act, to use its rule-making capacity to further entrench the fair treatment of the customer.

Fair treatment underpins a regulatory and supervisory approach that seeks to achieve specific outcomes for the financial services customer. The six core outcomes of the TCF based approach are:

  1. Culture and governance
    Customers are confident that they are dealing with financial institutions in which the fair treatment of customers is central to their culture.

  2. Product design
    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. Clear communication
    Customers are given clear information and are kept appropriately informed before, during and after they sign on the dotted line.

  4. Suitable advice
    Customers are given advice that is suitable and takes account of their circumstances.

  5. Performance and standards
    Customers are provided with products that perform as financial institutions have led them to believe, and the services associated with those products is of an acceptable standard and is in agreement with what they have been led to expect.

  6. Claims, complaints and changes
    Customers do not find themselves faced with unreasonable post-contract barriers to change the product, switch provider or register a complaint.

“These outcomes act as the guiding principles that the FSCA will use to design both our regulatory as well as supervisory frameworks to ensure that financial institutions will indeed prioritise these outcomes,” says Caroline Da Silva, Divisional Executive: Regulatory Policy at the FSCA.
Da Silva considers the alignment of financial institutions to TCF principles as critical to a fairer financial industry for customers: “As part of the focus on regulatory projects that centers on a TCF-based approach, the institutional governance and culture of financial services providers will be a core interest area for the FSCA as we move to make financial institutions ever more TCF-aligned.”

Furthermore, the FSCA will concentrate on ensuring that access to fair and appropriate financial advice, at a reasonable cost and through sustainable business models, is an essential element of the consumer protection framework. “This we intend to achieve through the ongoing, phased implementation of the Retail Distribution Review (RDR), which will address key issues such as access to fair and affordable advice, conflicted remuneration and incentives.

Other important projects will address Key Information Documents (KIDS), performance fee standards, unclaimed benefits, conduct returns and a complaints management review,” Da Silva stated.

Embedding TCF in supervision and enforcement has to do with monitoring industry commitment to the fair treatment of customers, as well as the actions the FSCA will take when financial institutions fail to live up to this commitment. These two responsibilities will be carried out through the careful monitoring of TFC delivery by regulated entities. This will include the gathering of information, and primarily using a number of conduct-of-business statutory returns where businesses will have to report on the progress they are making with regards to TCF.

The FSCA will have ongoing engagements with senior leadership of financial institutions, focusing on the progress they are making towards TCF-based business practice. Advertising, marketing and social media tools will be deployed by the Authority to monitor market practices, and a data analytics capability will be built to assess all data to enable pro-active supervision. The research capability that is underway will also support evidence-based regulation as we address poor market practices.

Moving to an activity-based licensing model will also form a critical component of the supervisory role that the FSCA is required to play. To this end, we will work towards ensuring that the licensing model is brought in line with the approach of the FSR Act and is built around the specific regulated activities carried out by financial institutions.

“The establishment of our new centralised Licensing Division prepares us for this future model,” says Felicity Mabaso, Divisional Executive:Licensing and Business Centre. “Licensing is important and must be rigorous in order to ensure that only good, sustainable applications that will not pose unnecessary risk to the customer are accepted.”

Mabaso says the FSCA is also mindful that the activity-based licensing model must ensure that licensing requirements do not become an unnecessary barrier to entry into the financial services sector.

What will give the FSCA “teeth” in fulfilling its new mandate are the enforcement powers built into the FSR Act and endorsement by National Treasury. The power to ensure enforcement brings the financial industry closer to the realisation of the TCF principles. Over and above the enforcement powers, the Authority has also reorganised itself to enable meaningful enforcement, growing the team from less than 20 people to close to 50, and introducing new governance models to drive quick decision making and visibility.

The FSCA is committed to enhancing and supporting a robust regulatory framework that promotes fair customer treatment by ensuring that financial institutions comply with the set out TCF principles and that it regulates and supervises financial institutions in a manner that empowers them to comply with the conduct standards and guiding principles of the FSCA and international best practice. Our medium-term strategy, pending implementation of the far-reaching COFI Bill, is the incremental embedding of a TCF-based business framework.