Treating Customers Fairly

TCF is closer than we think. It appears to be on the FSB’s radar screen already, despite expectations that it will only become a reality next year. In an article we published on Monday, we quoted the following extract from the FSB media release on its decision to initiate regulatory action against a major product provider:

“Appropriate remuneration practises and the avoidance of conflicts of interest are two corner stones in achieving the fair treatment of existing and potential policyholders…”

Whilst news on the current status of TCF is scarce, we came across a very educational article in the FSB’s Newsletter volume 14. It clarifies the purpose of the TCF initiative, and how it will interact with the FAIS Act. We quote below from the newsletter on these two matters:

What will the impact of TCF be on financial intermediaries, given their existing FAIS obligations?
The FAIS Act already imposes extensive obligations on authorised financial services providers and their representatives that are relevant to the TCF fairness outcomes. However, it does not follow that TCF will have no additional impact on FAIS regulated intermediaries. Where the FAIS obligations are largely compliance and rules based, the outcomes based TCF framework will require intermediaries to ensure that their adherence to FAIS is complemented by being able to demonstrate that they have embedded the broader TCF culture framework within their organisations (TCF fairness outcome 1).

From a risk-based perspective, the culture and governance dimensions will require particular attention by larger financial services providers. Intermediaries will however also be expected to consider their role in delivering the TCF fairness outcomes related to appropriate product and service design, product performance and service levels, and post-sale barriers.

Advisors will feel that Outcome 4 will have the most direct impact on them:

“Where customers receive advice, the advice is suitable and takes account of their circumstances.”

The current obligations under the General Code of Conduct already address this. Recent determinations against intermediaries were based on exactly these points. The client’s circumstances were not taken into account, and unsuitable products were sold.

This should however, not be seen in isolation. There are other specific outcomes which call for cooperation between advisor and product provider.

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