Treating Customers Fairly (TCF) is the new mantra in financial services, and will be at the heart of future supervision and regulation in South Africa. Those in the industry are actively readying themselves for TCF and embarking on implementation plans across their multiple business models and product lines. There is no official once-off launch date for TCF and rather it will incrementally start appearing in new legislation, education and guidelines, and be core to the Financial Services Board (FSB) investigations into financial services practices.
A recent report, published by the FSB, details how a wide range of financial services participants rate their own customer treatment practices. The general sentiment seems to be from OK to average, with most firms rating themselves overall as being 65-69% ready for TCF.
There was unanimity on one area of weakness. All firms admit that they are lagging when it comes to successfully embedding a TCF culture into their operations and governance approach – and more specifically they are not up to scratch on aligning their staff remuneration practices to TCF outcomes and deliverables.
What exactly is TCF?
With TCF now a global phenomenon, it is worth stepping back a bit and outlining what customers can expect from their financial services providers under this new regime.
The TCF approach encompasses six outcomes. Outcome 1 requires that the fair treatment of customers must be central to the culture of a firm. The other five outcomes flow on from this and include that products and services are designed to meet the needs of identified customer groups and are targeted accordingly; that disclosures are clear and customers are kept appropriately informed at all stages of contracting; that advice is suitable and takes account of customer circumstances; that products perform as firms have led customers to expect; and lastly, that customers can reasonably change products, switch providers, claim or complain.
Embedding a culture of TCF – Outcome 1
The most notable observation in the FSB’s self-assessment exercise is that Outcome 1 – TCF must be embedded in a firm’s culture and governance models – is the problem child across the local financial services sector. “All industry sectors gave Outcome 1 their lowest rating”. This is concerning, as Outcome 1 is the foundation of all the other TCF deliverables. It sets the tone and will heavily influence the success (or not) of the other five TCF outcomes.
The FSB asked firms to rate themselves on the various subcomponents of what goes into achieving Outcome 1 – such as top-down direction from senior management; incorporating TCF into strategy, decision making and governance controls; and generating appropriate and relevant TCF information.
Also key to achieving a successful Outcome 1 is that staff performance measurements and employee rewards and incentives take into account TCF successes and failures. It is here that SA financial services providers admit they are weak, especially when it comes to aligning staff remuneration to TCF outcomes. Particularly lacking on this point are the long-term insurers; collective investment scheme managers; financial services providers in Category II, IIA & III (investment and hedge fund managers, and administrative FSPs/LISPs); and retirement fund administrators.
The FSB emphasises that in a TCF culture, measurement of staff performance must include TCF objectives, and this can be achieved by incorporating goals and objectives into employment contracts. Also, employee remuneration and reward policies must take cognisance of fair customer outcomes and there should be financial consequences for staff.
The FSB also notes that TCF staff performance measurement and aligned incentives should not be limited to customer facing operational staff – they should apply at all appropriate leadership levels, right up to top-level decision makers.
Firms also conceded they were weak on effective TCF management information and need to improve how they measure the quality of the customer experience.
What outcomes were well-rated?
The SA financial services industry rated itself highly on two TCF outcomes. The first is quality of disclosure, which involves giving customers ongoing and clear information; the second is product flexibility and claims handling practices. Interestingly, the banks rated themselves poorly on ease of switching providers and in terms of claims handling, in contrast to other sectors which rated themselves highly in this regard.
Despite these high self-assessments, the FSB points out that it is concerned about the existing quality of disclosure, claims and complaints handling, and product and provider switching. It has embarked on specific regulatory projects to ensure improved standards for product disclosure, advertising and marketing, and complaints management. Additionally, it is planning a review of insurance claims handling practices, with another key focus area being early termination charges on insurance savings products.
TCF applies across the value chain
In some instances in the self-assessment exercise, certain respondents considered TCF outcomes to be not applicable, because of where they sit in the value chain. The FSB reminds all players – including those who offer purely administrative services or product platforms – to look through the various layers to the impact on the ultimate end user. Firms can no longer shift responsibility to the advisor or the trustee, using the argument that they do not directly interface with the retail consumer or end member, and that they are simply third parties looking after outsourced activities.
Clients have now become a priority for everyone in the game and this means having structured TCF programs in place – not simply tweaking a couple of processes and controls. The preparation required for effective TCF implementation should not be underestimated.