We predicted earlier that 2014 would be a bit of a water-treading year in so far as new regulations and changes relating to financial advice and intermediary services are concerned.
This was based on the fact that the implementation of the Twin Peaks model of regulation would necessitate a slowdown in regulatory changes until such time as the Market Conduct Regulator replaces the Financial Services Board.
This may in fact be true from a FAIS perspective, but not in terms of the avalanche of new legislation in the form of the General Financial Services Laws Amendment Act. Changes to eleven Financial Sector Acts become effective between 28 February and 30 May this year. (See article below for more specific details).
If you have been diligently keeping up to date with FAIS regulatory changes, your main focus in the foreseeable future should be on Treating Customers Fairly (TCF).
Late last year, a guide for small FSPs and Independent Financial Advisors were published, providing direction on what is expected of you in respect of TCF.
Implementation Date for TCF
The TCF Roadmap, published in 2011, indicated that 1 January 2014 would be D-Day, but this is no longer the case. Certain legislative provisions, which were expected to be in place by the end of 2013, failed to make this deadline as a result of developments necessitated by the imminent Twin Peaks.
“…, it is clear that existing legislative and regulatory frameworks already allow us to introduce most elements of TCF. So for financial advisers, for example, section 2 of the FAIS General Code of Conduct already obliges FSP’s to “at all times render financial services honestly, fairly, with due skill, care and diligence, and in the interests of clients and the integrity of the financial services industry.”
We already saw a number of practical applications of this in FAIS Ombud determinations.
“In practice, a material failure to deliver one or more of the TCF Outcomes will already constitute a breach of this obligation, and would therefore be actionable by the Regulator. A number of the more specific obligations in the General Code, for example those relating to disclosure, suitability of advice, etc. are equally consistent with the TCF principles. Similar examples exist in other pieces of FSB-supervised legislation.”
Put simply: TCF is not something in the future – it is already with us. We do expect some leniency in the beginning, just like there was when FAIS first became a reality, but relying on this as an excuse for doing nothing is as close as playing Russian Roulette as you can get.
The Road Ahead
“…no regulatory change is required to enable the FSB to start taking TCF considerations into account in its supervisory approach. Increasingly therefore, regulated entities will start seeing that the FSB has already begun asking questions about customer fairness outcomes (over and above checking compliance with specific rules-based provisions) when we carry out on-site visits or when we investigate specific business practices or complaints.”
We commented earlier about the apparent lack of communication to the smaller FSPs. This will now be addressed:
“Where smaller FSPs are concerned, we acknowledge the need for on-going guidance and support regarding our TCF expectations, and the FAIS department is including this support in its supervisory interactions with FSP’s.”
What can you do?
Treating Customers Fairly will be a major focus for us at Moonstone in the months ahead.
We are already hard at work drawing up a TCF Policy document for our compliance clients which can be personalised for their own specific circumstances.
We are also planning workshops towards the middle of the year to educate participants in the finer details, and how to reduce their risk of falling foul of requirements.
We suggest you read as widely as possible on the subject, starting with the information available on the FSB website. There was also a telematics broadcast by the FSB in this regard in November last year. Please click here if you wish to order a DVD of the presentation.
It’s all in the Mind
Complying with TCF requirements is not a case of ticking the right boxes. You will be required to prove that you have adopted a TCF culture which is evident in all systems and procedures.
This view is endorsed in the closing comments in the FSB guide on TCF:
“To a large degree, the FSB is already implementing TCF, and will incrementally keep embedding TCF related elements into our supervisory approach and regulatory framework. Where specific new requirements are introduced, these will always be preceded by appropriate consultation, but the general principles of TCF have been consistently communicated for a number of years, and we therefore expect regulated entities to already be applying fair treatment principles in their overall business processes.”
When the Market Conduct Regulator takes over, we expect heightened disclosure and reporting requirements. Be assured that TCF will play a major role in this regard.