It is important to review your policies and procedures to bring them in line with the amendments to the General Code of Conduct (GCOC) for FSPs and Representatives, which were published on 26 June 2020.
Some of the long-awaited amendments were effective immediately, while others come into effect in December 2020 or June 2021. It is therefore prudent to prioritise reviewing your processes that are affected by the amendments already in effect.
One of the areas to focus on is the suitability of the advice process. The section on suitability in the GCOC has been overhauled and now clarifies the often-debated topic of a holistic or full analysis vs a single or focused analysis. The amendments specify what you need to do before providing advice and the type of information to consider. For example, this may be the client’s ability to bear any costs and risks associated with a product.
The amendments also set out what is expected when giving advice to a pension fund, medical scheme, employer or other body. Several aspects determine the extent of information needed to perform an analysis to dispense appropriate advice. These include the needs and objectives the client explicitly requests you to focus on, and to what you and the client specifically agree. Other factors include reasonable expectations in the circumstances, and any requested information the client explicitly declines to provide.
Similar to the ‘old’ requirements for performing an analysis based on limited information, which results in providing limited advice, clients must be alerted to the associated risks and warned accordingly. Clients who opt to conclude transactions that differ from your recommendation also need to be warned.
In addition, if you cannot identify a suitable product for a client, you are obliged to turn the client away and take specific steps in these circumstances.
Considering the amendments to the GCOC, and in particular section 8 which has already taken effect, FSPs that provide advice (including Direct Marketers as there is no longer a distinction made between Direct Marketers and other FSPs) should review their Advice Process. Consider how you agree with your clients on the financial services to be provided in the context of what you can provide. Look at the type of information you request from clients and how this varies depending on the extent of services to be provided. Are you keeping a record of the information requested from clients that they cannot or are unwilling to provide, whether partially or in full? How do you record that a client specifically declined to supply information?
Changing your processes may also require you to update your Operations Manual or documented business procedures. You may also need to review and update your Record Of Advice templates or guidelines.
Service Level Agreements
Although a Client Service Level Agreement (SLA) is not prescribed in FAIS legislation, it should form the foundation of your busines relationship with clients. In light of the GCOC amendments to the suitability requirements, consider revisiting – or implementing – your SLA.
An SLA can help you manage both your risk and clients’ expectations, and achieve minimum service standards. It should make provision for clients to agree on the areas they specifically want you to focus on, as well as your and the client’s obligations. Agreeing on these matters at the outset reduces the likelihood of complaints if things go wrong later.
The service standards in the SLA should take the six TCF Outcomes into consideration. To demonstrate delivery of fair outcomes for clients, you will need to gather management information from existing or new data. For example, you could look at your service satisfaction score over a certain period rated out of 10, or the number of new client referrals received in a certain period, such as three months.
Once your service standards and the advice process have been reviewed, consider reviewing your client value proposition to ensure alignment between these key business processes.
Conflict of interest management policy, remuneration policy and fee agreements
The conflict of interest requirements in section 3A of the GCOC have been enhanced. Coming into effect on 26 December 2020, these amendments require that clients fully understand and agree to the fees payable and the services they can expect for those fees.
The financial interests which can be offered by an FSP to its representatives have also been expanded to incorporate measures relating to minimum service level standards, fair customer outcomes and the quality of representatives’ compliance with the FAIS requirements. These changes will require you to relook at your Conflict of Interest Management Policy.
To ensure alignment with the GCOC amendments, you will also need to review how you remunerate representatives and document this in your Remuneration Policy, as well as any Fee Agreements with clients.
Advertising policy
The amendments to section 14 of the GCOC introduce significant changes, which you will need to incorporate in your Advertising Policy by 26 December 2020. If you are not operating as a sole proprietor, you will be required to document a process to approve your advertisements before they are published. This seeks to ensure the content of your advertisements complies with the requirements.
Some of these requirements are to provide information that is factually correct, balanced and not misleading; use plain language and prominently display important information. Your process should also include keeping a record of your advertisements.
Complaints management framework
Some of the amendments relating to complaints commence on 26 December 2020 and the others on 26 June 2021. While there is time to do so, consider relooking at your complaints process and compare your Complaints Management Framework against the new requirements to identify any gaps.
The amendments define what constitutes a ‘complaint’, and it is far broader than a FAIS Ombud complaint or only complaints of a serious nature. It now also includes where a client alleges there has been unfair treatment.
The amendments also set out what must be included in your complaints management framework, for example:
- allocating responsibilities to deal with complaints
- documenting procedures, including timeframes
- deciding when and how to escalate complaints
- monitoring, analysing and keeping a record of complaints to identify trends over time and recording the actions taken in response to trends
- setting processes to manage complaints relating to your representatives and the financial products and services you offer.
You will need to categorise complaints, linking them to the various TCF outcomes and other relevant categories to maintain and analyse very specific data relating to the complaints. Be sure to check your Complaints Register to ensure the data is being captured in a format which is easy to monitor, report and analyse.
In addition to these obligations, insurers are also required to monitor complaints relating to their financial products. This means you may need to make complaint related information available to the product providers with whom you have contracts.
Conclusion
The first step is to ensure you understand what the amendments mean and how they will impact your current business operations. Thereafter, look for efficient ways to embrace and implement the principles and various requirements in your processes.
This not only requires a review of various policies and procedures, but also ensuring that staff are trained on any changes and have a good understanding of their role and what is expected of them. This will support the consistent delivery on the TCF Outcomes to clients, securing long-term relationships with clients.
Although compliance can be burdensome, there are solid business principles that underpin many of the requirements. These can support sustainable business.
Click here to read the Amendment of the General Code of Conduct for Authorised FSPs and Representatives.
Click here to read a previous article relating to the amendments to the GCOC.