By Ryan Chegwidden, Executive Head of Product and Technical at Altrisk
Hefty fines issued in the UK for breach of TCF principles. What should SA firms expect?
As South Africa’s insurance industry grapples with the phased implementation of National Treasury’s Twin Peaks system of financial regulation and the Financial Services Board’s (FSB) Treating Customers Fairly which has been legislated under Twin Peaks, recent hefty fines issued against various insurance product providers and brokerages in the UK for contravention of TCF principles could be the warning salvo of what’s to come in South Africa.
The top 20 fines imposed by the Financial Conduct Authority (FCA) in the UK during 2013 and 2014 amounted to over 180million Pounds (British) for breaches of TCF ranging from failing to ensure suitable advice was given to customers, ensuring that financial promotions and communications with customers were clear and not misleading through to poor complaints handling and inadequate administration processes.
This could be a glimpse of what’s to come locally, especially since our own regulatory reform has so closely mapped that of the UK’s financial services industry.
The Financial Services Board’s (FSB) deputy executive officer, Jonathan Dixon has already been quoted in May as saying that there will be increasingly harsh penalties for insurers and advisors who do not embed TCF practices into their frameworks as an utmost priority.
The TCF approach places emphasis on the outcomes and suitability of the advice provided, product design, the responsibilities of all role players throughout the distribution channel and the manner in which products are marketed. Ensuring that customers are treated fairly is now a joint responsibility for product providers and advisors.
At the same time, the current retail distribution review (RDR) currently underway also needs to ensure that the advice, distribution and earnings structures for advisors support the delivery of TCF outcomes.
The bottom line is that the FSB has expressed a desire to not only develop and monitor the TCF framework, but also to enforce adherence.
This would include initial negotiation of any corrective action by engaging with the firm’s senior management as per the TCF roadmap, right through to formal action against the firm if the breach was deemed to be a significant risk to consumers.
The FSB’s current enforcement powers include:
- Administrative fines and penalties;
- Declaration of business practices to be undesirable, with associated powers to order cessation or amendment of the practices concerned;
- Suspension or withdrawal of regulatory licenses;
- Termination or withdrawal of the approval of certain individuals to act in certain capacities;
- Damages and compensation awards (including punitive damages);
- Referral of certain matters to the High Court; and
- Referral to the National Prosecuting Authority for criminal prosecution of individual wrongdoers, where a statutory or common law criminal offence is committed.
Treating Customers Fairly (TCF) is an outcomes-based regulatory and supervisory approach designed to ensure that specific, clearly articulated fairness outcomes for financial services consumers are delivered by regulated financial firms.
Companies are expected to demonstrate that they deliver the following six TCF outcomes to their customers throughout the product life cycle, from product design and promotion, through advice and servicing, to complaints and claims handling – and throughout the product value chain:
- Customers are confident that they are dealing with firms where the fair treatment of customers is central to the firm culture;
- Products and services marketed and sold in the retail market are designed to meet the needs of identified customer groups and are targeted accordingly;
- Customers are given clear information and are kept appropriately informed before, during and after the time of contracting;
- Where customers receive advice, the advice is suitable and takes account of their circumstances;
- 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; and
- Customers do not face unreasonable post-sale barriers to change product, switch provider, submit a claim or make a complaint.
The principles of TCF are very much part of what we subscribe to at Altrisk already. TCF essentially provides the formalised framework of how treating the customer fairly needs to be demonstrated across the industry in a consistent manner.
It provides the discipline and focus with systems and processes that place the consumer at the core of everything we do. It also means that the bar will be raised substantially for industry players as there will be greater competition but off a level playing field, and advisors can get to demonstrate their expertise and added value with a real sense of trust from their customers.