FSB Clarifies Outcomes-Based TCF

Ms Leanne Jackson, Head of Treating Customers Fairly at the Financial Services Board recently responded to a Moonstone article published on the Insurance Gateway website:

An article headlined “Not quite Treating Customers Fairly?” by Paul Kruger, published on Insurance Gateway®, quotes from an earlier (9 February 2014) Personal Finance article by Bruce Cameron, headlined “Treating you fairly seems a pipe dream” and we take this opportunity of responding to the suggestion that the TCF outcomes based regulation is subjective.

In particular, the Personal Finance article (in the paragraphs quoted in Mr Kruger’s article) mentions that TCF is “what is called principle-based regulation” and that because of this “there is little definition and it is subjective, rather than objective.”

The FSB would like to comment on this positioning (and has also shared these comments with Mr Cameron), as follows:

The FSB has repeatedly made the following point in our communications regarding TCF: The TCF framework is not solely principles-based, but is outcomes based. This means that the framework will comprise whatever combination of rules-based and principles-based regulation is deemed most effective to achieve the 6 TCF fairness outcomes.I refer for example to the following paragraph on page 12 of the TCF Roadmap, published by the FSB in March 2011: “Although the implementation of TCF will be guided by the six broad fairness outcomes, clear, enforceable rules and regulations must also be in place to ensure that these outcomes are achieved. Experience has shown that relying on firms to “do the right thing” is not on its own sufficient to drive the behavioural and culture change required to deliver consistently fair outcomes for customers. Delivery of TCF therefore requires the development of a regulatory framework that will effectively balance principles-based and rules-based regulation to ensure that regulated firms deliver the desired outcomes of discipline and transparency in a consistent manner.”

This approach is confirmed in the draft Financial Sector Regulation Bill which was published for comment in December 2013 and represents the first legislative phase of the “Twin Peaks” model of regulation. Section 16(1)(d) of the Bill provides that one of the guiding principles to be applied by the new regulators is “achieving outcomes-based results through the application of a combination of binding principles and rules”. It is also important to note, as reflected in the draft Bill, that even where principles-based regulation is applied, the principles will be binding and failure to adhere to the principles will be enforceable.

Pending the next phase of the “Twin Peaks” legislation, there are already a number of other regulatory projects underway within the FSB, aimed at strengthening existing regulations to better support the six TCF outcomes. Some of these have been outlined in the Insurance Regulatory Seminar the FSB hosted late last year. Copies of the relevant presentations are available on the FSB website.

I trust that this will help to clarify some aspects of the FSB’s approach to TCF.

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