FINANCIAL SECTOR CONDUCT AUTHORITY: MANDATE AND ROLE

Transcription

1 FINANCIAL SECTOR CONDUCT AUTHORITY: MANDATE AND ROLE Caroline Da Silva DEO: FSB SOUTH AFRICA

2 Agenda Where we have come from Twin Peaks/ Market Conduct TCF RDR Slide 3

3 Where we have come from Supervisor: Backward-looking Compliance-based One-size-fits-all not risk-based Industry silo approach to regulation and supervision Outcomes: Despite rules, too many examples of poor customer outcomes Culture not customer-centric Conduct and integrity risks not proactively managed

4 Twin Peaks in brief A new financial regulatory architecture structured around objectives of financial regulation and supervision rather than an industry silos approach Rationale: Incorporates lessons from financial crisis Judged particularly relevant for SA: Prominence of financial conglomerates stability enhanced through role of SARB Allows for dedicated focus on market conduct issues

5 Twin Peaks MARKET CONDUCT PRUDENTIAL FINANCIAL STABILITY Conduct of Business Market Integrity Banking Insurance Stability Oversight Committee Market Infrastructure Consumer Education Conglomerates Resolution Authority FSCA PA SARB

6 Regulatory paradigm shift Forward-looking Backward-looking Compliance-based One-size-fits-all Silo approach Pre-emptive and proactive Outcomes-based Risk-based and proportionate Comprehensive and consistent National Treasury, February 2011 A safer financial sector to serve South Africa better Intensive and intrusive

7 Mandate of the FSCA The objective of the Sector Conduct Authority (FSCA) is to protect financial customers by: ensuring that financial institutions treat financial customers fairly; enhancing the efficiency and integrity of the financial system; and providing financial customers and potential financial customers with financial education programs, and otherwise promoting financial literacy and financial capability. Slide 8

8 Slide 9 Functions of the FSCA To achieve its objective the FSCA must: regulate and supervise conduct of financial institutions in a manner that is pre-emptive, outcomes focused, and risk-based; co-operate with & support SARB with respect to financial stability; co-operate with & support the PA, NCR, CMS and FIC promote competition, with the Competition Commission; support financial inclusion; regularly review the perimeter and scope of financial sector regulation, to proactively address risks; publish research on developments in the financial system and the extent to which it is meeting the needs of financial customers; co-operate with foreign regulators, participate in international standard-setting, and have regard for international standards

9 Conduct of business Slide 10 Forward-looking Pre-emptive and proactive Outcomes focused Risk-based and proportionate Comprehensive and consistent Intensive and intrusive - FSCA / firms to identify future conduct risks - Market and consumer research - Not just responding to complaints - On-site visits, thematic reviews, off-site reporting, mystery shopping - Addressing risks at source (culture, governance, structural interventions) - Firms to demonstrate delivery of TCF outcomes - On-site / off-site testing of TCF commitment - Testing TCF in complaints handling - Tiered regulatory framework based on risks to customer outcomes - Expanding scope of conduct supervision - Cross-cutting activity-based focus areas - Consolidated legislative framework - Build up a centralised conduct profile of entities & groups - Visible enforcement

10 Activity-based focus areas Culture and governance Product value Unfair contract terms Misleading advertising/marketing Ineffective disclosure Conflicted advice Testing outcomes, rather than compliance tick-box Rebalancing of responsibilities: Increased scrutiny of the way firms develop products; Product provider oversight of chosen distribution channel Poor claims handling Poor complaints handling Empowered customers Fair outcomes can be achieved in different ways, through emphasising different TCF elements Slide 11

11 Slide 12 Implications for FSCA Centralised capacity along functional lines Regulatory framework (standard setting), licensing; supervision; and enforcement functions organised centrally to ensure consistency IT system support to drive efficiency Information system upgrades to support efficient business processes and to enable analysis and identification of risks Skills development to drive judgment-based supervision Outcomes focused approach requires supervisory judgment Need specialist support teams and skills development Enhanced checks and balances Expanded powers and judgment-based approach require a robust system of review for consistency of regulatory decisions Robust mechanisms for consultation and cooperation Stakeholder consultation on standard setting Coordination with other regulators

12 TCF 1. Customers can be confident they are dealing with firms where TCF is central to the corporate culture 2. Products & services marketed and sold in the retail market are designed to meet the needs of identified customer groups and are targeted accordingly 3. Customers are provided with clear information and kept appropriately informed before, during and after point of sale 4. Where advice is given, it is suitable and takes account of customer circumstances Slide 13

13 TCF Slide Products perform as firms have led customers to expect, and service is of an acceptable standard and as they have been led to expect 6. Customers do not face unreasonable post-sale barriers imposed by firms to change product, switch providers, submit a claim or make a complaint These outcomes are to be demonstrably delivered 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.

14 Highlights Treating Customers Fairly in the Sector: A draft Market Conduct Policy framework for SA, National Treasury, December 2014 RDR - An example of this more interventionist approach to market conduct regulation to ensure that financial products are distributed in ways that support delivery of TCF outcomes

15 Retail Distribution Review

16 Objectives of the RDR To ensure that financial products are distributed in ways that support delivery of TCF outcomes and enable Delivery of suitable products and fair access to suitable advice Customers to understand and compare the nature, value and cost of advice and other services Enhanced intermediary professionalism to build consumer confidence and trust Customers and distributors to benefit from fair competition for quality advice and services, at prices more closely aligned with the service provided Sustainable business models for financial advice

17 Scope of the RDR A mainly retail focus wholesale market reforms are being addressed through complementary processes (e.g. retirement reform) A cross-cutting, cross-sectoral approach Particular focus on advice and conflicts of interest

18 Risks of current distribution landscape Risks to fair customer outcomes: Inherent conflicts of interest in commission/fees from product provider Accountability for quality of advice/customer outcomes not always clear Risks to intermediary sustainability: advisers not always properly remunerated for advice Value of financial adviser s services not properly recognised Up-front commission not a sustainable business model Inappropriate incentive structures expose intermediaries to regulatory risk Risks to effective supervision: Imbalances in product supplier/intermediary responsibilities

19 RDR proposals RDR outlines a total 55 specific proposals, under 3 main headings: provided by intermediaries Product supplier / intermediary relationships Remuneration Final RDR proposals, informed by the consultation process, will be implemented in 3 phases as the Twin Peaks legislative architecture evolves

20 An activity-based approach to customer Advice planning Up-front product advice connecting product suppliers and customers Sales execution Ongoing maintenance/ servicing to product supplier Outsourced functions Binder Functions Ongoing product advice Platforms Aggregation services / referrals Other Outsourced Functions

21 Questions?