Treating Customers Fairly Myhendri Govender November 2011

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Treating Customers Fairly Myhendri Govender November 2011 Slide 2 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 Consumers decision making Consumer exploitation, unfair/inequitable treatment of consumers, poor decision making on part of the consumer Slide 3 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 Slide 4 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 Slide 5 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 Slide 6 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 Slide 7 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 customer s 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 unreasonab le post-sale barriers to change product, switch provider, submit a claim or make a complaint. 5. Customers are given clear information and kept appropriatel y informed before, during and after contracting. Source: Leanne Jackson - FSB Desired Outcomes Slide 8 The six outcomes of TCF explained Slide 9 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 firms values, culture and standards Awareness and understanding of TCF among Board members and senior management Transmission of the Board and senior managements 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 Slide 10 Outcome 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 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 customers 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 Slide 11 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 Slide 12 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 Slide 13 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 customers 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 3 rd parties part of value chain measure in ensure adequate standard for fair treatment of the client Mitigation of risks where 3 rd party product not performing Slide 14 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 firms fairness to clients Slide 15 Pillar 1: TCF Framework Pillar 2: Implementing TCF Pillar 3: Incentives & deterrence FirmsRegulatory Framework Will be developed within which firms must conduct their business. Combination of market conduct principals and explicit rules Culture & governance Firms must demonstrably embed a TCF culture, supported by controls, governance structures, management information and self-assessment Disclosure & reporting Firms will be required to publicly disclose identified TCF performance measures and submit non-public TCF reports as required by the FSB FSBSupervisory framework The 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 supervision The 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 mechanisms The 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 Slide 16 Supporting Structures Ultimate Fairness - Ombudsman with jurisdiction Regulatory co-ordination and information shari