The Financial Services Conduct Authority (FSCA) (formerly, the Financial Services Board) will in future have a greater focus on customer fairness outcomes (over and above checking compliance with specific rules-based provisions) when conducting on-site visits or when complaints or business practices are investigated. These Treating Customers Fairly (TCF) requirements are contained in four draft notices published for comment in October 2017.
TCF is a consumer protection framework that requires all regulated financial institutions, including retirement funds and their service providers, to demonstrate that they have implemented and are delivering the 6 TCF outcomes in the way they conduct their business.
Although TCF outcomes will be included in future legislation, existing legislative and regulatory frameworks already allow for the application of TCF outcomes. In practice therefore, failure to deliver on one or more of the TCF outcomes will in most cases already constitute a breach of these obligations, and would therefore be actionable by the regulator.
What will retirement funds be required to do?
Once the TCF notices become effective, retirement funds will have to demonstrate that they have implemented and are delivering the six TCF outcomes in the way they conduct their business: that they have integrated TCF into their business culture, including the allocation of resources, the measurement and reporting of compliance, and taking corrective action where necessary.
The 6 TCF outcomes, summaries from the perspective of retirement funds:
- Good governance and ethical management: Retirement fund boards must be confident that the fund is managed and administered in such a way that the fair treatment of members and beneficiaries is central to the fund’s culture.
- Products and services must meet the needs and expectations of members and achieve appropriate retirement income levels: The board must ensure that the products provided by the fund are appropriate, considering the needs and risk profiles of the members and beneficiaries. The board must also ensure that members and beneficiaries have sufficient information to make an informed decision in selecting investment and other options offered by a fund.
- Clear and appropriate information: Members and beneficiaries must receive clear and appropriate information regarding the retirement fund, its benefits and the operations of the fund before joining (where applicable), on joining, and regularly during their membership of the fund.
- Advice by appointed intermediaries must be suitable for the fund and members: Where boards and/or members of retirement funds receive advice, the advice must be suitable and take account of their respective circumstances. Boards will therefore have to understand and clarify the relationship with advisors giving advice to members.
- Appropriate products and services: Retirement funds must provide products and benefits which perform in a manner that meets the needs and reasonable expectations of their members and which are in line with what members have been led to expect. The services provided to members must be suitable, of an acceptable standard and meet their expectations.
- Complaints management: Retirement funds and members should not face unreasonable barriers to submit a claim or make a complaint, or to change products or switch providers.
Complaints management is an effective management tool for boards of retirement funds to determine if they are achieving their communication objectives as required in the Pension Funds Act, to ensure that the interests of members are protected at all times. Retirement funds will in future be required to:
- establish a complaints management framework,
- categorise complaints in nine broad complaints categories, and
- submit quarterly complaints reports to the Commissioner.
TCF implementation strategies
We encourage all funds to put the matter on the agenda and develop measures to ensure compliance in the course of the next year. The TCF approach can be seen as a twin sister of the corporate governance requirements contained in King IV. As a result, many of the master documents, processes and procedures adopted to ensure compliance with King IV will also support compliance with TCF.
One of the aspects that will require special attention is the review of the complaints procedure, especially the way in which complaints are recorded and reported to the FSCA and other stakeholders.
Initial questions that boards of funds should ask themselves:
- Do our members have confidence that we have their best interests at heart (building a trusted relationship)? How do we know this?
- Do the products and services meet the needs and expectations of our members?
- Do we communicate clearly, appropriately and timely?
- Do we have mechanisms in place to enable members to obtain appropriate advice that suits their circumstances?
- Are we making it easy and accessible for members and beneficiaries to lodge claims, complaints and change products or providers?
Contracted Principal Consultant