Update on TCF regulatory framework - fsb.co.za · 2 Treating Customers Fairly TCF Regulatory Framework Steering Committee – work done so far • Multi-stakeholder consultation forum

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Treating Customers Fairly:

Update on TCF regulatory framework

Presentation forFSB Insurance Regulatory Seminar

22 November 2012

Financial Services Board

By: Leanne Jackson Head: Treating Customers Fairly

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Treating Customers Fairly

TCF Regulatory Framework Steering Committee – work done so far

• Multi-stakeholder consultation forum – industry and professional bodies, NT, SARB, voluntary ombud schemes, PFA

• Has reviewed existing consumer protection legislation, regulation and industry codes - approx. 30 primary items, many subordinate items – both FSB and non-FSB legislation

• Analysis was done per sector – insurers, pensions, CIS, FAIS, banks – plus various items of overarching legislation

• Gap analyses have identified key inconsistencies, gaps and overlaps in the current framework from a TCF / consumer protection perspective

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Regulatory Framework Steering Committee – next steps

• The FSB will formulate high level TCF regulatory framework recommendations

• Recommendations will build on:• Findings of TCF regulatory framework gap analyses• Specific market conduct policy concerns – e.g. consumer

credit insurance practices, unregulated products and services• Other FSB regulatory focus areas – e.g. intermediary

remuneration review, micro-insurance proposals• International standards • Regulatory & supervisory principles• Findings of self-assessment pilot study and baseline exercise

• Will need to align with evolving “Twin Peaks” market conduct mandate and regulatory architecture

• Will be subject to extensive stakeholder consultation

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International standards: G20 Principles on Financial Consumer Protection

• Principle 3, Equitable and fair treatment of customers:“All financial consumers should be treated equitably, honestly and fairly at all stages of their relationship with financial service providers. Treating consumers fairly should be an integral part of the good governance and corporate culture of all financial services providers and authorised agents. Special attention should be given to the needs of vulnerable groups.”

• See also Principles 4 (Disclosure & transparency); 6 (Responsible business conduct); 9 (Complaints handling and redress)

These have been prioritised by the OECD Financial Consumer Protection in Task Force in their action plan to implement the G20 principles.

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International standards: IAIS

ICP 19, Conduct of business:• The supervisor sets requirements for the conduct of the business of

insurance to ensure customers are treated fairly, both before a contract is entered into and through to the point at which all obligations under a contract have been satisfied.

• Further specific obligations for supervisors to ensure TCF delivery by insurers and intermediaries throughout product life cycle

ICP 9, Supervisory review and reporting:• This ICP has been extensively revised to provide explicit guidance on

supervision of treatment of customers

IAIS Market Conduct Sub-committee (FSB has vice chair position)• Developing an Application Paper on approaches to conduct of business

supervision – FSB leading the drafting

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TCF regulatory and supervisory principles

• Consistency – will seek opportunities for overarching “best of breed” regulation, sectoral differences only where justified

• Completeness – will seek to minimise gaps and opportunities for arbitrage, expand regulatory perimeter where necessary

• Co-ordination – between Twin Peaks and other relevant agencies, ombud schemes, other sources of conduct risk information

• Outcomes based – optimal mix of enforceable principles and rules • International best practice• Must support supervisory framework that is -

• Risk-based and proportional • Pre-emptive and pro-active• Intensive and intrusive• A credible deterrent

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Outcome 1- Culture and governance

• Develop requirements to be addressed in firms’ internal governance, measurement and control systems in relation to TCF / conduct risks – mix of principles and rules

• Need to align and rationalise with existing / other frameworks – e.g. SAM, Basel, King III, etc.

• Need to align with prudential governance and risk management requirements

• Proportionality to be addressed for smaller / lower risk entities and activities

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Outcome 2 – Product and service design

• Develop appropriate set of product intervention powers for regulator

• Obligations on firms to have product approval processes and standards in place that support TCF

• Need to consider allocation of TCF responsibility for product suitability between advisers, other intermediaries / administrators and product manufacturers

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Outcome 3 – Clear information

• Reasonably consistent disclosure standards – to cover timing, clarity, target market and format issues

• Should address all relevant media / channels• Should include advertising, marketing, product

specific and formal contractual content• “Key Information Documents” already being

developed – to be built into regulatory framework• Responsibilities regarding develop, dissemination,

quality control of disclosures to be confirmed• Emphasis on both up front and ongoing disclosure

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Outcome 4 – Suitable advice

• Consider opportunities to streamline interaction between FAIS and sector specific frameworks

• In particular, will need to consider obligations of product suppliers / manufacturers in relation to this TCF Outcome, for e.g. product supplier obligations in relation to -• Providing information to others in the value chain• Product specific training• Monitoring extent to which contracted distributors

deliver suitable advice on the supplier’s products

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Outcome 5 – Performance & service meets expectations created

• Obligations of firms – across value chain - to monitor and communicate product performance

• General obligations of firms to monitor and mitigate the risks of products & services not meeting expectations created

• Mix of principles-based and rules-based service standards

• Controls to ensure TCF delivery is not compromised in the event of outsourcing (including but not limited to “binders”)

• Controls to ensure TCF delivery is not compromised where bundled or add-on benefits are offered

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Outcome 6 – Claims, complaints, changes

• Reasonably consistent, mainly principles-based, claims (where applicable) and complaints handling processes

• Processes to be target market appropriate• Liaison with alternative dispute resolution

structures to be streamlined• Unreasonable limitations on product flexibility,

switching and access to funds to be addressed where appropriate

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Roll-out of the TCF regulatory framework

• Final TCF self assessment tool has been issued for industry use – to be regarded as regulatory guidance

• A TCF benchmarking / baseline exercise will be undertaken, using the self-assessment tool and a broader sample than pilot – results will be published

• TCF reporting requirements and indicators – for both regulatory and public reporting – to be developed

• Internal work being undertaken on integrating TCF into FSB TCF supervisory tools and approach

Note that not all elements of the TCF regulatory an d supervisory framework require legislative amendment – a number o f elements can be rolled out within the existing regulatory fr amework