In December 2014, the National Treasury published the discussion paper entitled, ‘Treating Customers Fairly in the Financial Sector: A Draft Market Conduct Policy Framework in South Africa’ (the Market Conduct paper), together with the second draft Financial Sector Regulation Bill (FSR Bill).
The new regulatory environment will give effect to the Twin Peaks model of financial sector regulation and will have two primary regulators: a prudential regulator, the Prudential Authority (PA) and a new market conduct regulator (the Financial Sector Conduct Authority (FSCA) that will replace the Financial Services Board (FSB).
The Market Conduct Policy Framework discussion document provides detail about how the market conduct regulator will operate across all financial institutions to ensure fair outcomes for customers.
As a refresher, the six Treating Customers Fairly (TCF) outcomes are:
- Customers must feel comfortable that they are dealing with an institution where TCF is at the core of their culture.
- Products and services in the retail market which are sold and marketed are designed according to the needs of the customers identified and targeted accordingly.
- Customers are provided with clear information and kept appropriately informed before, during and after point of sale.
- Advice is suitable and according to the customer’s circumstances.
- Service is of an acceptable standard and products perform as customers have been led to expect.
- Customers do not face unreasonable post-sale barriers imposed by institutions when they want to change a product, switch providers, submit a claim or make a complaint.
The principles of TCF are being incorporated by the FSB into its regulatory and supervisory frameworks on an incremental basis. This approach will form a fundamental part of the foundation of the new Financial Sector Conduct Authority (FSCA).
As a FSP, it is important to ensure that customers are provided with essential information in order for them to make informed decisions. Information must therefore not be deceptive, misleading or confusing. Customers must feel comfortable that they have all the information they require to understand the product chosen for them and that they agree thereto. Most financial products are complex in nature and even with all available information, comparison of products may be difficult to understand. It is therefore important that key information is provided to customers in a way where they can easily compare and understand information needed to make an informed decision.
In the retail space, the aspect of giving clients essential information is going to be standardised. The National Treasury, FSB and industry stakeholders are working on developing Key Information Documents (KIDs) to ensure that financial consumers are given information about the product that is:
- In language they can easily understand.
- Concise and understandable
- In a standardised format assisting with comparability
- Given at a time relevant to a consumer’s decision.
KIDs will be compulsory across the entire range of retail financial products in order to ensure standardised disclosure across retail markets.
This chapter of the Market Policy Conduct Framework indicates how the financial sector will have to adapt to ensure that customers are treated fairly. This can be used as a guideline to test whether proper processes are in place to ensure that clients are comfortable with the financial service they are receiving. The new conduct framework is especially going to focus on whether the documents given to customers are clear and understandable. It is therefore imperative to continue assessing the documents and information given to customers, to bring it in line with a standardised process focusing on the customer’s understanding.