The Financial Sector Conduct Authority (FSCA) has published a Draft Conduct Standard for Banks, under section 106(2)(b) of the Financial Sector Regulation Act 2017 (FSRA).
The draft Conduct Standard applies to banks, mutual banks, co-operative banks, branches of foreign banks and representative offices of foreign banks (banks) and will apply in addition to any other requirement already imposed on banks by other financial sector laws.
The objective of the proposed Conduct Standard is to introduce requirements that promote the fair treatment of financial customers of banks. The draft Conduct Standard was designed to follow the sequencing of the six Treating Customers Fairly Outcomes (TCF Outcomes) taking into account the sequencing of the typical financial product lifecycle.
The requirements set out in the draft standard, directly informed by the TCF Outcomes are as follows:
- TCF Outcome 1: Customers must be confident that they are dealing with financial institutions in which the fair treatment of customers is central to their culture. Section 3 of the draft standard sets out the manner in which banks would be expected to demonstrate that fair customer treatment is central to their culture, and incorporated into their governance and oversight frameworks.
- TCF Outcome 2: Entails that products and services marketed and sold in the retail market are designed to meet the needs of identified customer groups and are targeted at these customer groups. The draft standard will not be limited to retail financial customers although section 5 has additional requirements specifically for retail customers. Section 4 proposes to regulate the design, suitability and performance requirements for financial products and financial services. The section deals with the oversight arrangements that a bank must have in place in order to ensure that the objective of TCF Outcome 2 is met.
- TCF Outcome 3: Customers must be provided with clear information and kept appropriately informed before, during and after point of sale. Section 6 of the draft standard sets minimum standards for advertising and the governance processes that must be in place for the approval of advertisements. Section 7 sets out the disclosures that must be made to a financial customer in order to ensure that the customer understands the financial product or financial service and is able to make informed decisions in this respect.
- TCF Outcome 4: Where advice is given, it must be suitable and take account of customer circumstances. Section 7 of the draft standard identifies the factors that need to be taken into account when making disclosures to financial customers. These include the nature and complexity of the financial product to ensure that a financial customer is given appropriate information about a financial product or financial service at the point at which the information will be most useful to the financial customer’s decision-making in relation to entering into, using, or maintaining the product or service.
- TCF Outcome 5: Products must perform as firms have led customers to expect, and service must be of an acceptable standard and as customers have been led to expect. Section 5 of the draft Conduct Standard is only applicable to retail financial customers and sets standards for the prohibition of unfair product terms and conditions, including additional product design standards applicable to this market segment.
- TCF Outcome 6: Customers must not face unreasonable post-sales barriers imposed by firms to change products, switch providers, submit a claim or make a complaint. Section 8 of the draft standard is more rules-based than the rest of the draft standard and deals with the Complaints Management Framework that a bank must establish, including appropriate training of responsible staff, the categorisation of complaints and other procedures that need to be in place. Sections 9 and 10 of the draft standard deals with account closure and switching, both when initiated by the bank as well as by the financial customer themselves.
Submissions on the draft Conduct Standard may be submitted in writing on or before 18 June 2019 to the FSCA, at FSCA.RFDConductStandardBanks@fsca.co.za.