The financial services sector is at the heart of the South African economy and touches the life of each one of us. If you think about it, financial services allow people to make daily economic transactions, save to meet future goals, preserve wealth for retirement and other needs, and insure against personal disaster.
The global financial crisis which we experienced, highlighted the huge costs of things going wrong. The indirect impact through job losses is devastating. We cannot afford to continue being unconcerned.
As a response to this, National Treasury launched a formal review of the financial regulatory system in 2007. This work was completed around 2010, and turned out to be in what we now know as “Treating Customers Fairly” or TCF
WHAT IS TCF?
It is not an Act, it is a mindset, a way of doing business, and a Regulatory approach, focusing on results or outcomes, not rules, and it applies to the entire product life cycle. This means distribution and product suppliers are included and must comply.
The approach focuses on being pro-active, not reactive, and ensuring that desired outcomes are identified, and measures implemented to demonstrate that the outcomes are being met and achieved. The Regulator wants to identify and address conduct risks in the industry and at firm level at an early stage – before they become too large. Conduct risk is broadly defined as any action of a regulated firm or individual that leads to customer detriment or has an adverse effect on market stability or effective competition.
To give effect to this, there have been changes to legislation to give effect to the principles and outcomes. This is the legislated part of TCF.
For example, in terms of the new Fit and Proper which has come into effect in April, a non-negotiable element of product training must now include who the product is suitable for, or not suitable for, which will better equip an advisor in making a recommendation and a supervisor in assessing advice quality.
Outcome is important and is emphasised, however, process is the way to achieve this, and fairness is fundamental. TCF is not the same as being nice to customers, nor does it amount to creating satisfied customers even though these are the likely outcomes of TCF.
For instance, the complexity of many products, combined with the low level of consumer understanding, means there could be occasions when customers are satisfied because they do not realise that they have not been fairly treated.
Customers with unrealistic expectations might feel dissatisfied even though they have been treated fairly.
The regulatory initiative requires the industry to re-consider the treatment of customers at all the stages of the product life cycle, including the design, marketing, advice, point-of-sale, and after-sale stages.
What is required is the supply of appropriate financial products and services to customers, in a fair and transparent manner, which will result in improved customer confidence.
In the TCF approach, we have 6 fairness outcomes that are required. These are very specific, and it is essential that these are delivered in a way that is clear, evident, and proved.