It proposes a shift from the way in which the financial sector is regulated by two principal regulators:
- A regulator responsible for the prudential supervision (safety, soundness and solvency) of the entire financial sector. (Currently, both the Bank Supervision Department and the Financial Services Board (FSB) have prudential oversight responsibilities.)
- A market conduct regulator.
Gaps in the present market conduct framework, comprising legislation such as FAIS, Credit Providers Association (CPA) and the National Credit Advisor (NCA) will need to be closed as part of the move to the Twin Peaks model. Treating Customers Fairly (TCF) will also be pivotal to ensuring that South Africa’s market conduct regulation is effective in protecting consumers. TCF requires firms to incorporate fair treatment of customers at all stages of the product lifecycle, including design, marketing, advice, point-of-sale and after-sale stages.
The FSB aims to develop a rigorous supervisory approach with positive and negative incentives to encourage commitment to TCF. Supervision will be ‘more intensive and intrusive’ than in the past.
- map the six TCF outcomes in the proposed TCF regulations to management information to address that outcome
- identify the remedial action taken
- demonstrate these controls and actions will be on their way to satisfying the FSB.
Quantitative management information should lead to a qualitative analysis of TCF issues culminating in an answer to:
- What needs to be done to prevent unfair treatment of this nature from recurring?
- Once the root cause has been addressed, will it be possible to demonstrate to senior management and the FSB that customers are being treated fairly?
In other words, TCF management information must measure the extent to which the process is delivering fair treatment and not necessarily whether the process is taking place. In this way, TCF becomes ingrained into an organisation’s culture as envisaged by regulators.
The first step is to identify where in the business TCF will be applicable, particularly where a company makes use of brokers, underwriting managers, group schemes and call centres. This scope analysis should be followed by a gap analysis of the available management information.
It is clear that the regulatory landscape for insurers is set to evolve and insurers should:
- evaluate where the TCF proposals will influence the product lifecycle and identify the business implications. Firms will need to consider the effects of linking their strategies to their TCF culture through visible leadership and defining what fairness means at all points of the lifecycle of each product.
- design a governance structure for TCF characterised by senior management oversight and proactive issue identification and correction.
- determine the impact of establishing mechanisms to ‘prove’ that fair outcomes are being delivered through qualitative management information.
- implement a process so cross-linkages between TCF and other market conduct legislation are flagged.