Meeting the expectations of a new regulatory era- Treating the customer fairly meeting future regulatory expectations

Transcription

1 Meeting the expectations of a new regulatory era- Treating the customer fairly meeting future regulatory expectations Christine Rodrigues Director March 2016

2 The philosophy of TCF Customers have high expectations of their financial services providers and they rely on the information provided by these professionals when making decisions on products and services they want to engage with SAICA Project Manager: Financial Services 2

3 The philosophy of TCF A consumer protection policy Not the same as being nice to customers Regulatory and compliance framework Aspects congruent to Consumer Protection Act, 2008 Improved customer confidence The supply of appropriate products and services Enhanced transparency and discipline in the industry 3

4 The 6 outcomes in South Africa 1. Consumers can be confident that they are dealing with firms where the fair treatment of customers is central to the corporate culture. 2. Products and services marketed and sold in the retail market are designed to meet the needs of identified consumer groups and are targeted accordingly. 3. Consumers are provided with clear information and are kept appropriately informed before, during and after the point of sale. 4. Where consumers receive advice, the advice is suitable and takes account of their circumstances. 5. Consumers 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. 6. Consumers do not face unreasonable post-sale barriers to changing product, switching provider, submitting a claim or making a complaint. 4

5 UK- was there anything wrong with such a sophisticated market? Until 2005 the UK had light touch regulation. It mostly focused on solvency and licensing Early 2005 the UK regulator received a clear warning that payment protection insurance (PPI) was being mis-sold. Since January 2011 banks have paid out 17.3 billion in compensation for mis-selling PPI uncovered that the market was mis-behaving for example in 2006, Carphone Warehouse was fined for not sending out statements of demands and needs By December 2012, the regulator caught up with CPP that was selling credit card protection to customers for things they could never be liable for 5

6 UK- was there anything wrong with such a sophisticated market? 2014 Stonebridge International Insurance Limited agreed to a fine for telephone non-advised selling of personal accident, accidental death and cash plan products. The problem was that these products actually did not cover anything worth protecting The regulator also found breaches of systems and controls of price comparison websites. It found failures to: Explain the site s role consistently and prominently; Distinguish accurately between whether the site introduces, informs or advices; Disclose conflict of interests; and Explain the use of customer data or have secure controls over it. 6

7 Some fines in the UK thus far Fine Firm Breach Outcome 1. 30,6m HomeServe Membership Mis-selling policies, 1,2,3 mis-handling complaints 2. 28m Lloyds TSB Failure in controls of financial 1 incentives to sales staff 3. 16m Prudential Assurance Co Uncooperative with FSA m Prudential Plc Uncooperative with FSA m Swinton Group Mis-selling ( aggressive 1,2,3 sales strategy of add-ons) m Sesame Limited Failing to ensure advice was 4, 1 suitable m Lloyds TSB Delayed PPI redress payments m Policy Administration Services Poor complaints handling 1, m JLT Specialty Limited No appropriate checks to 1 prevent bribery and corruption Harbinder Panesar Misappropriating money and 1 7 selling worthless policies

8 UK- TCF outcomes based regulation The result was that the Financial Services Authority (FSA) introduced TCF The initiative's aim was to deliver six outcomes for retail customers and that firms should be focused on trying to achieve these outcomes FSA hopes to see a change in the behavior of the financial services sector by creating consumer centric firms The outcomes are not detailed rules, it is principle based regulation. Principles = Rules TCF is market conduct regulation. The conduct of the firm and organization and of the individuals of the firm determine the impact on customers outside the firm 8

9 UK- the result TCF outcomes based regulation Senior management are expected to embed the principles of TCF into the firm s corporate strategy and build it into the culture Fair treatment of customers happens through the product cycle: Product design and governance; Identify target markets; Marketing and promoting products; Sales and advice processes; After-sales information and services; and Complaints handling Some ways of measuring of outcomes: Findings from TCF or other relevant thematic work; Findings from day-to-day supervision of individual firms; FSA research; and Data received from the Ombud on complaints 9

10 TCF focus TCF focuses on two key principles: 1. Ensuring that consumers understand the risks and benefits of the financial products they are investing in; and 2. Minimising the sale of unsuitable products. New product design Marketing and promotion Advice Point of sale Information after point of sale Complaints and claims 10

11 Learn from PPI- what went wrong The way the product was sold was a failure Customers pressurised to buy 11 Assumption that the consumer wanted the product from the outset Mis-led the customer. They believed PPI was necessary in order to get the loan or loan quotation Just made the sale- did not bother to ask the customer if they really wanted the product Disclosures not made at the time of sale e.g. optional cover and what parts of the cover did not apply

12 Learn from PPI- what went wrong The way the product was sold was a failure Written documents were not provided to customers Firms did not take reasonable steps to ensure the customer only bought a policy where the customer was eligible to claim benefits Inaccurate advice provided (where advice was needed) where advice was not needed the firm failed to make the point it was only providing information The total cost of the policy exceeded the policy benefits 12

13 What do you need to do within your organisation? Be fair at the point of sale Be open, honest and transparent Make relevant disclosures- don t overburden with unnecessary information Honour representations made Act in accordance with the contract or otherwise in accordance with the obvious intentions of the parties even when there are conflicts with the small print 13

14 What do you need to do within your organisation? Treat like situations alike Act impartially and reasonably Be accessible to customers Make sure product information is written is a way that makes it easy for them to understand 14

15 What do you need to do within your organisation? Deal with customer complaints fairly- don t ignore them Embed a TCF culture into your organisation Keep customers informed before, during and after point of sale Don t develop or offer unfair products which gives rise to consumer detriment Conduct proper market research What risks is the product actually covering- are they relevant What is the target market Don t have unfair contract terms to make the product more profitable Clear and fair marketing Train your staff Ensure you don t put in place financial incentives for staff or distribution channels that will amplify non-tcf principles Test the market 15

16 What do you need to do within your organisation? Analyse your complaints Identify trends or themes Monitor and remedy Handle claims promptly and fairly Don t just unreasonably reject claims Settle successful claims promptly Ensure you have strong leadership from senior managers and your board Have a TCF plan 16

17 What do you need to do within your organisation? Make sure there is regular reporting Foster good relationships between marketing and compliance teams to avoid a tug of war Obtain external views on whether your product is TCF compliant Responsible outsourcing 17

18 What do you need to do within your organisation? Don t only think that this is an insurer problem Insurers will not distribute via intermediaries that do not behave in a TCF manner TRAIN TRAIN TRAIN On your TCF plan On TCF in general On your products Both to employees and distribution channels 18

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