The Financial Sector Conduct Authority (FSCA) recently published a Conduct Standard for banks along with a document detailing its expected impact and a report on the consultation process.
“Over the past decade a number of conduct weaknesses have been identified in the South African banking sector. With the advent of the FSRA in 2018, the FSCA has been given the explicit mandate of regulating and supervising the conduct of banks in relation to the provision of financial products and services.”
One of the important aspects that the Conduct Standard addresses is the matter of disclosures. The Treating Customers Fairly (TCF) Outcome 3 states that customers are provided with clear information and kept appropriately informed before, during and after point of sale. As a result, Section 7 of the Conduct Standard sets out the disclosures that must be made to a financial customer in order to ensure that the financial customer is aware of and understands all the relevant facts that could reasonably be expected to influence his or her decisions relating to the financial product or financial service.
Section 7 further aligns with TCF Outcome 4 (“Where advice is given, it is suitable and takes account of customer circumstances”) as it identifies the factors that need to be taken into account when making disclosures to financial customers, such as the nature and complexity of the financial product.
As a result, the following needs to be provided:
|(a)||a balanced presentation of benefits and risks in relation to the financial product or financial service;|
|(b)||all estimated costs to the financial customer in relation to the supply of that financial product or financial service, including the total expected or actual costs as may be appropriate, and, for the same period, the total expected, or actual returns earned by the financial customer in relation to the supply of that financial product or financial service as may be appropriate;|
|(c)||contractual obligations of the financial customer and the bank;|
|(d)||the consequences for each party should there be a breach of contract; and|
|(e)||recourse options available to the financial customer in the case of a dispute.|
These disclosures also need to be provided in plain language, be actually correct and not misleading.
The days of punting products that are more profitable for the provider are numbered, and not only for the banks. How well it will be monitored and regulated will depend more the ethics of providers than expecting the authorities to police each and every product and transaction. Unfortunately, past experience has shown that there will always be those who are prepared to sail close to the wind, and take an “Oops, we misunderstood/were given the wrong legal advice” attitude.
Click here to download the Conduct Standard for Banks to understand for more details.