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 regarding 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.
Outcome 3, for instance requires that “Customers are given clear information and are kept appropriately informed before, during and after the time of contracting.” An advisor is very reliant on the product provider in order to be able to conform to this. Marketing material aimed at securing the sale will need to do more than just that – it can no longer be selective, to the point where it is misleading.
In similar vein, Outcome 6 requires that “…customers do not face unreasonable post-sale barriers to change product, switch provider, submit a claim or make a complaint.”
Most intermediaries will agree that call centres, specifically, are the single biggest frustration in terms of client servicing. The amount of extra work an intermediary has had to take on in the past few years is eating into their production time, yet they are the ones who have to bite the bullet as far as bad service is concerned. We trust that the introduction of TCF will address this and spread the load equally.
The article in Newsletter 14 continues:
Although the primary responsibility for these outcomes will rest on product suppliers themselves, financial intermediaries can and should bring greater pressure to bear on product suppliers to ensure that inappropriately designed and marketed products, poor post-sale service practices, and unreasonable post-sale barriers are challenged. TCF will require product suppliers and intermediaries to share accountability for fair treatment of their mutual customers.
Can an intermediary be expected to take on this responsibility? Unless a whistle-blowing mechanism is created, most advisors cannot afford to take on the powerful product providers who can cancel their contracts with the stroke of a pen.
Surely this is the duty of the Regulator?