A presentation at the FSB Insurance Regulatory Seminar provided practical insight into what we can expect from market conduct supervision when the new regulatory body is in place.
We are rapidly approaching the time where you can start pencilling in “FSCA” in place of “FSB”. The formation of the “Financial Sector Conduct Authority” is well under way.
Treating Customers Fairly
The guiding principles for future market regulation by the FSCA are based on the six TCF outcomes. The message is very clear:
It is time to move on from talking about TCF outcomes to proactive management of market conduct risks to ensure the desired outcomes. Emphasis was placed on the fact that the industry will not be expected to change overnight – an incremental implementation process will be followed.
Financial services providers are expected to be able to demonstrate that the principles of TCF form part of the culture of their practices. There is no list of requirements to tick off and then forget about TCF until the next time.
In line with this, current visits to insurers by the FSB appear to be more educational in nature, and entail the following:
- Challenging TCF commitment when investigating concerns
- Testing TCF commitment and culture – focus on effectiveness of operational implementation
- Identifying market conduct risk indicators
- Specific thematic supervisory initiatives testing risks to fair customer outcomes
The following will be added as we progress with the implementation of Twin Peaks:
- Structured reporting on market conduct risk indicators
- Reviewing of existing regulatory frameworks to test whether they support fair customer outcomes
- Introducing TCF principles into existing regulation
- Reflecting TCF principles into the overarching Twin Peaks regulatory framework
Market Conduct Supervision
It is clear that a proactive approach will be followed by the FCSA in future to prevent, rather than address problems. In fact, many of the above actions are already in progress to prepare the industry for what is to come.
What is refreshing is that more emphasis is being placed on product providers to ensure fair outcomes to clients, rather than on advisers.
The complaints thematic review, conducted in 2014, is an example of this. After visiting a number of insurers, Information Letter 3 of 2014, containing key findings and supervisory expectations, was published as a guide to the industry on how to use data to improve complaints handling.
Similar interventions are planned for amongst others, claims, binders/outsourcing and premium reviews, enhanced by quarterly market conduct review meetings with senior management.
FSPs will be able to implement the lessons learnt from these actions in their practices. Documents like Information Letter 3 of 2014 will provide clear guidelines to the industry on how to proceed.
An informed industry, and a Regulator who understands the practical implications of regulation on businesses, certainly sounds like a recipe for improved supervision in the future.
Please click here to download the FSB presentation.