TCF implementation update and baseline study feedback report Frameworks/Documents... · 2018. 8. 2. · the application of TCF principles. In addition, the FSB, in consultation with

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TCF implementation

update and baseline

study feedback report

During the period December 2012 to August 2013, the Financial Services

Board (FSB) undertook a baseline study, using the TCF self-assessment

tool published in August 2012. The aim of the study was to provide an

initial snapshot of how customer treatment practices in the financial

services industry measure up against the 6 TCF outcomes and against

which to assess future industry progress in delivering the TCF outcomes.

This document provides feedback on the baseline study findings to the

financial services industry, its customers and other interested observers.

The document also provides an update on the FSB’s overall

implementation of the TCF framework.

The FSB takes this opportunity to thank the baseline study

participants for the extensive work undertaken in participating in

the study and their invaluable contribution to the development of

the TCF framework.

Treating Customers Fairly

TCF baseline study: Feedback Report

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CONTENTS 1. TCF IMPLEMENTATION UPDATE................................................................................ 4

1.1 The FSB's approach to implementing TCF .................................................................. 4

1.2 TCF Roadmap milestones ........................................................................................... 5

The TCF Regulatory Framework Steering Committee ................................................................... 5

Embedding TCF in the regulatory framework ................................................................................. 5

Embedding TCF in the supervisory framework ............................................................................... 6

TCF self-assessment tool and baseline study ................................................................................ 7

TCF reporting requirements ............................................................................................................ 8

TCF guidance .................................................................................................................................. 8

TCF enforcement ............................................................................................................................ 9

2. BACKGROUND, STRUCTURE AND SCOPE OF THE BASELINE STUDY ........ 10

2.1 Background and purpose ........................................................................................... 10

2.2 Structure and scope .................................................................................................. 11

The baseline questionnaire ........................................................................................................... 11

The baseline participants .............................................................................................................. 12

The rating method – a “0 to 4” rating scale ................................................................................... 14

Analysis and follow-up .................................................................................................................. 15

2.3 Nature and structure of this feedback report .............................................................. 16

3. BASELINE STUDY FINDINGS PER INDUSTRY SECTOR ................................. 19

3.1 Long-term insurers .................................................................................................... 19

Ratings .......................................................................................................................................... 19

“Not applicable” responses ........................................................................................................... 22

FSB observations .......................................................................................................................... 24

3.2 Short-term insurers .................................................................................................... 25

Ratings .......................................................................................................................................... 25



3.3 Insurance binder holders ........................................................................................... 31

Ratings .......................................................................................................................................... 31



3.4 FAIS Category I FSP’s (Part of product supplier group) ............................................. 36

Ratings .......................................................................................................................................... 36



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3.5 FAIS Category I FSP’s (Not part of product supplier group) ....................................... 43

Ratings .......................................................................................................................................... 43



3.6. Collective investment scheme managers .................................................................. 49

Ratings .......................................................................................................................................... 49



3.7 FAIS Category II and IIA FSP's (Investment managers and hedge fund investment

managers) ....................................................................................................................... 55

Ratings .......................................................................................................................................... 55



3.8 FAIS Category III FSP's (Administrative FSP's / LISP's) ............................................ 62

Ratings .......................................................................................................................................... 62



3.9 FAIS Category IV FSP's (Funeral benefit administrators) .......................................... 68

Ratings .......................................................................................................................................... 68



3.10 Retirement fund benefit administrators .................................................................... 73

Ratings .......................................................................................................................................... 73



3.11 Retirement funds (Trustees) .................................................................................... 80

Ratings .......................................................................................................................................... 80



3.12 Banks ...................................................................................................................... 87

Ratings .......................................................................................................................................... 87



4.OVERALL TCF READINESS: CONCLUDING OBSERVATIONS ......................... 92

ANNEXURE A: ......................................................................................................... 96


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The six TCF Outcomes and TCF culture framework ................................................ 96

The six TCF fairness outcomes .................................................................................................... 96

TCF culture framework .................................................................................................................. 96

ANNEXURE B: Follow-up information provided ...................................................... 98

1. LONG-TERM INSURERS ......................................................................................................... 98

2. SHORT-TERM INSURERS ..................................................................................................... 103

3. INSURANCE BINDER HOLDERS .......................................................................................... 105

4. FAIS CATEGORY I FSP’S – PART OF A PRODUCT SUPPLIER GROUP .......................... 108

5. FAIS CATEGORY I FSP’S – NOT PART OF A PRODUCT SUPPLIER GROUP .................. 112

6. CIS MANAGEMENT COMPANIES ......................................................................................... 114

7. FAIS CATEGORY II AND IIA FSP’S (INVESTMENT MANAGERS AND HEDGE FUND

MANAGERS)............................................................................................................................... 117

8. FAIS CATEGORY III FSP’S (ADMINISTRATIVE FSP’S / LISP’S) ......................................... 120

9. FAIS CATEGORY IV FSP’S (FUNERAL BENEFIT ADMINISTRATORS) ............................. 120

10. RETIREMENT FUND BENEFIT ADMINISTRATORS .......................................................... 121

11. RETIREMENT FUNDS (TRUSTEES) ................................................................................... 124

12. BANKS .................................................................................................................................. 126


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1. TCF IMPLEMENTATION UPDATE

1.1 The FSB's approach to implementing TCF

In the Treating Customers Fairly Roadmap1, published on 31 March 2011, the FSB set out

the rationale, structure, key features and high level implementation plans for the TCF

framework. Since issuing the Roadmap, considerable progress has been made in

implementing the milestones set out in the Roadmap. The sequencing and timelines of

some of these milestones have however shifted, in part due to the need to align the TCF roll-

out with the roll-out of the broader "Twin Peaks" regulatory reforms being led by the National

Treasury, and in part due to re-prioritisation of some planned actions. This chapter therefore

provides an update on the FSB's progress and current approach to implementing TCF.

The TCF Roadmap suggested 1 January 2014 as an effective date for TCF

enforcement2. The view was that most of the groundwork in creating TCF awareness and

communicating the FSB’s expectations would have been achieved by then – an estimate

which has largely proven accurate. The expectation was also that some specific legislative

provisions would have been in place by end 2013, although the point was made that this was

dependent on the legislative process. In particular, the first phase of legislation to

implement the Twin Peaks framework was anticipated to be in place, which has proven not

to be the case.

However, the key point to highlight is that the FSB is adopting an incremental approach to

implementing the TCF framework. There is no single "launch date" planned for TCF

implementation. Instead, the FSB is in the process of introducing TCF into both its regulatory

and supervisory frameworks on a gradual, incremental basis. Although there will be explicit

inclusion of TCF principles in future new over-arching legislation to be introduced in time

under Twin Peaks, it is clear that existing legislative and regulatory frameworks already allow

the application of TCF principles.

In addition, the FSB, in consultation with the multi-stakeholder TCF Regulatory Framework

Steering Committee, is in the process of identifying opportunities to enhance and align

existing subordinate legislation to further support TCF delivery.

Turning from regulation to supervision, 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.

1 Available on the FSB’s website www.fsb.co.za under “Treating Customers Fairly”, at the following

link: https://www.fsb.co.za/feedback/Documents/Treating%20Customers%20Fairly%20-%20The%20Roadmap%202011.pdf 2 The Roadmap also pointed out however that, where unfair customer treatment constitutes a breach

of existing regulation or legislation, enforcement action can take place at any time. 3 See the TCF Roadmap Timeline on p.37 of the TCF Roadmap.

4 The full set of FSB supervised legislation and subordinate legislation, as well as non-FSB legislation

http://www.fsb.co.za/

https://www.fsb.co.za/feedback/Documents/Treating%20Customers%20Fairly%20-%20The%20Roadmap%202011.pdf

https://www.fsb.co.za/feedback/Documents/Treating%20Customers%20Fairly%20-%20The%20Roadmap%202011.pdf


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In summary, the FSB is already implementing TCF to a large extent, 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 the FSB therefore expects regulated entities to

already be applying fair treatment principles in their overall business processes.

1.2 TCF Roadmap milestones

The TCF Roadmap set out a number of planned implementation milestones3.

Notwithstanding timing changes, good progress has been made on a number of these, and

may be summarised as follows:

The TCF Regulatory Framework Steering Committee

This Committee was established in early 2011, as a consultative forum to provide input on

the future TCF regulatory framework. It is chaired by the FSB, and its membership

comprises representatives from the National Treasury, the South African Reserve Bank, a

broad range of financial services industry associations, a number of financial services

ombud schemes, and subject matter experts from within the FSB. A number of

workstreams, also with multi-stakeholder representation, have been set up under the

Committee, each focussed on one of the six TCF Outcomes.

The primary focus of the Committee and its workstreams has been to conduct a

comprehensive alignment analysis of existing South African consumer protection legislation4

in order to identify gaps and overlaps in the current regulatory protection of financial

consumers. The purpose of the alignment analysis was to inform recommendations for any

legislative or regulatory changes that may be required to provide an effective foundation for

the delivery and enforcement of the TCF Outcomes.

Although overarching future regulatory framework recommendations need to be developed

in line with the still evolving Twin Peaks legislative architecture, two specific regulatory

projects the Committee structures are working on currently are the development of

compulsory, reasonably standardised Key Information Documents (KID's) for all retail

products, and the development of consistent, cross-sectoral standards for customer

complaint management and reporting.

Embedding TCF in the regulatory framework

The current focus is on aligning and harmonising current sector-specific provisions in

existing subordinate legislation. This process, although not dependent on the future Twin

Peaks market conduct framework, is designed to facilitate transition to that framework, which

is expected to adopt a more over-arching approach to market conduct regulation.

3 See the TCF Roadmap Timeline on p.37 of the TCF Roadmap.

4 The full set of FSB supervised legislation and subordinate legislation, as well as non-FSB legislation

such as the Consumer Protection Act, National Credit Act, Banks Act, Protection of Personal Information Act (then Bill) and the Companies Act, among others, were reviewed. Relevant industry association Codes of Conduct were also considered.


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Observers of regulatory developments will have noted that the FSB is increasingly referring

to TCF related objectives in the subordinate regulatory measures it issues, such as FSB

board notices and directives5. This approach will continue to be followed.6

Embedding TCF in the supervisory framework

As contemplated in the TCF Roadmap, the FSB is in the process of a comprehensive review

of its framework for conduct of business supervision, in preparation for its dedicated market

conduct mandate under the Twin Peaks regulatory model. The review is being carried out to

confirm that the FSB’s supervisory approach is designed to consistently apply the principles

of supervision contemplated in the Twin Peaks implementation document7 and to enable

effective supervision of the six TCF Outcomes. The design of all elements of supervision,

including licensing and authorisation; planned on-site supervision; regulatory reporting;

thematic on-site and off-site (desktop) reviews; analysis of third party and ad hoc information

sources; liaison with the future prudential authority; FSB information sharing and information

management; use of regulatory guidance; regulatory development and consultation

processes; and regulatory action and enforcement are in the process of being reviewed.

In particular, the FSB is reviewing its approach to risk-based supervision to ensure that the

approach is designed with reference to market conduct risk, recognising that historically risk

assessment methodologies have focussed primarily on prudential and financial risks. A

focus on conduct risk requires an increased focus on the risks to customers caused by the

regulated entity as a result of its business model and processes. A prudential focus, on the

other hand, mainly considers risks posed to the entity’s financial soundness and ultimately to

stability of the financial system as a whole. A conduct perspective on risk assessment is

therefore likely to produce a different risk rating for an entity to the risk rating that would be

reached by a prudential risk assessment. It is possible for example that an entity may

persistently fail to treat its customers unfairly for a considerable period before its financial

soundness would be impacted, if ever. Equally, an entity that poses minimal if any risk to the

financial system, could for example be serving a highly vulnerable customer group and thus

pose high conduct risk.

Importantly, a risk-based approach to supervision and regulation also needs to be

proportional, ensuring that the intensity of supervision is appropriate to the nature, scale and

complexity of the entity’s business. The FSB recognises that although all regulated firms are

5 Examples include references to fair treatment principles in the insurance Binder Regulations,

Outsourcing Directive and recent Directive addressing early termination charges on the happening of multiple causal events, as well as the draft provisions on advertising and marketing under the Collective Investment Schemes Act. 6 The authority conferred on the Registrar of Insurance under the Financial Services Laws General

Amendment Bill, 2013 to issue Policyholder Protection Rules will, for example, be a key tool for embedding TCF into the insurance regulatory framework 7 See the document “Implementing a Twin Peaks model of financial regulation in South Africa”,

accessible at www.treasury.gov.za. The supervisory principles concerned require regulation and supervision to be: Transparent; Comprehensive and consistent; Appropriate, intensive and intrusive; Outcomes based; Risk-based and proportional; Pre-emptive and proactive; A credible deterrent; and Aligned with international standards.

http://www.treasury.gov.za/


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required to demonstrate TCF delivery, the nature and extent of the controls, processes and

resources different firms can reasonably be expected to commit to TCF implementation will

vary. The FSB’s supervisory focus will be on the effectiveness of the firm’s approach in

demonstrating delivery of fair outcomes for its customers, not the sophistication of the

approach.

The various supervisory areas of the FSB have already begun to embed TCF oversight in

their day to day supervisory activities. As a number of regulated entities will have observed,

FSB supervisors have started reviewing TCF implementation progress during on-site visits,

including testing board and executive management insight into identified conduct risks and

conduct risk mitigation measures. Reviews of product approval processes, advice processes

and operational and customer facing processes are increasingly taking into account not only

regulatory compliance and general efficiency, but also the extent to which the process is fair

and suitable for the customer base concerned. Supervisors are starting to examine the types

of management information (MI) used by firms, to establish whether the MI is fit for the

purpose of measuring delivery of TCF outcomes. Reviews of the firm’s leadership,

governance and control functions, including its risk management functions, will look for

evidence of how these functions demonstrate the embedding of TCF in the firm’s culture.

The FSB has also begun to take TCF Outcomes into account when considering the

appropriate regulatory response when specific concerns regarding an entity’s conduct arise.

In a number of instances, the FSB has challenged firms on the fairness of specific products

or practices which call into question their commitment to TCF principles, over and above any

decision as to whether a legislative breach has been committed. The types of situations

where TCF consideration have been brought to bear include: The impact of product charges

(including but not limited to early termination charges) on reasonable customer benefit

expectations; misleading or confusing claims or slogans in advertising material; conflicts of

interest inherent in some distribution models and distribution support models; obstacles to

product transferability; the extent and application of some insurance excesses and

exclusions; and the transparency of some “value added” product features. Our experience

has been that, in almost all cases, this supervisory approach has resulted in agreement

between the FSB and the firm on pre-emptive action to mitigate ongoing consumer risk,

usually without formal enforcement action being required. We have also found that those

firms whose TCF implementation plans are relatively advanced, are typically more likely to

acknowledge and rectify conduct failings reasonably promptly, than those who have paid

insufficient attention to TCF.

TCF self-assessment tool and baseline study8

A TCF self-assessment tool was published for industry use, together with guidance on its

purpose and use, in August 2012. This was preceded by an extensive pilot study to test the

utility of the tool, including detailed follow-up interviews with all participants in the pilot study,

during 2011. A report on the findings of the pilot study was published as industry guidance in

December 2011.

8 The baseline study was referred to in the TCF Roadmap as a “TCF benchmarking exercise”. The

FSB has subsequently decided that “baseline” is a more accurate description.


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The self-assessment tool was subsequently used to conduct a TCF baseline study during

the period December 2012 and August 2013, using a significantly larger sample of firms than

the pilot study. The purpose of the study was to provide an initial snapshot of how customer

treatment practices in the financial services industry measure up against the 6 TCF

outcomes and against which to assess future industry progress in delivering the TCF

outcomes. The rest of this document is a feedback report on the baseline study findings.

TCF reporting requirements

As stated in the TCF Roadmap, requirements for reporting by regulated firms will need to be

sufficiently comprehensive and rigorous to put the FSB in a position to pro-actively identify

industry level (macro) and firm-specific (micro) conduct risks. The Roadmap undertook that

an appropriate range of reporting mechanisms will be developed, in consultation with

industry and other stakeholders, as part of the supervisory framework.

Steps taken in this regard include the introduction of a new quarterly “Conduct of Business”

statutory return for long-term and short-term insurers, requiring reporting on a wide range of

conduct indicators - on a more granular basis than the almost exclusively financial indicators

required to date historically for prudential supervision purposes. Consultation on these

requirements is currently in progress. Consultation is also in progress on proposed new

cross-sectoral customer complaints management requirements, which will include TCF

aligned categorisation of complaints, and submission of complaints data to the FSB. Next

steps include review of the compliance reports required to be submitted for intermediaries

regulated under the Financial Advisory and Intermediary Services (FAIS) Act, to determine

how they can be enhanced to provide insight on TCF delivery progress as opposed to their

current “rules-based” focus. More generally, the review of the FSB’s approach to conduct of

business supervision as described above, includes a review of regulatory reporting

requirements across all FSB supervised activities.

The TCF Roadmap also contemplates public reporting of identified TCF related measures.

Public reporting requirements will be consulted on once regulatory reporting requirements

are closer to finality.

TCF guidance

The FSB continues to recognise the importance of providing guidance to the firms we

regulate on our regulatory expectations around TCF. Over and above formal, general TCF

guidance material such as the TCF Roadmap, self-assessment tool and other FSB

publications (including this report), the FSB has carried out extensive TCF awareness and

promotion activities since the Roadmap was published. Numerous presentations on TCF

have been delivered at a broad range of conferences and workshop, hosted by the FSB

itself, industry associations, professional associations, consulting firms and individual

regulated entities. The FSB has also accepted numerous invitations from individual firms

and financial groups to meet with their Boards or relevant Board committees, executive

management teams, TCF project teams and even general staff forums to discuss the

implications of TCF for their businesses, the FSB’s expectations and specific areas of

concern or uncertainty.


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The FSB will continue to adopt a consultative approach to TCF implementation. In

particular, we recognise that smaller regulated entities, such as small FAIS-regulated

financial services providers, require support in understanding what TCF implementation

entails for their businesses. This support will be included in the supervisory approach where

appropriate Formal published guidance in respect of specific activities, business models

and / or identified conduct risks will also continue to be provided as the need for it is

identified9.

TCF enforcement

See the discussion above regarding the FSB’s incremental approach to embedding TCF into

both its regulatory and supervisory frameworks. As explained, the FSB has already begun

proactively and pre-emptively intervening for identified TCF conduct risks. Although market

conduct enforcement tools will be strengthened under future legislation, the majority of

material failures to treat customers fairly will already constitute a contravention of existing

legislative or regulatory requirements, and will be actionable as such10 . The TCF Outcomes

serve as a yardstick for identifying such breaches and assessing their impact, to inform the

appropriate regulatory action.

9 The FAIS Department, for example, has hosted workshops and published guidance material on the

implications of TCF for small FSP’s and for investment managers respectively. 10

For financial advisers, for example, s.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.” 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 respect of other FSB regulated financial activities, in other pieces of FSB-supervised legislation.


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2. BACKGROUND, STRUCTURE AND SCOPE OF THE

BASELINE STUDY

2.1 Background and purpose

In the Treating Customers Fairly Roadmap, published on 31 March 2011, the Financial

Services Board (FSB) undertook to develop a TCF self-assessment tool, which FSB

regulated firms can use to gauge their success levels in achieving the TCF fairness

outcomes. The self-assessment tool was published on the FSB’s website, www.fsb.co.za, in

August 2012, following a pilot study11 carried out with a number of regulated firms.

The TCF Roadmap pointed out that, although achievement of TCF outcomes cannot be

reduced to a mathematical exercise, it would be useful to take an initial snapshot of how

current customer treatment practices measure up against the six fairness outcomes. This

snapshot could then be used as a benchmark – albeit approximate – against which to

assess future progress in delivering TCF outcomes12. The FSB undertook to use the self-

assessment tool (or an appropriate variation of the tool) to conduct a TCF benchmarking

exercise. After publication of the Roadmap, the FSB recognised that it was probably more

accurate to refer to this as a “baseline” exercise, to clarify that the intention is not to set a

minimum “TCF score” of any kind. In addition to providing insight into initial TCF readiness

levels, the insights obtained from both the self-assessment pilot study and the baseline study

could be used to inform the development of the TCF regulatory, supervisory and

enforcement frameworks.

In assessing the findings set out in this report, it is important to bear some key features of

the process in mind:

The baseline study findings are based on a self-assessment process – thus reflecting

the participants’ own view of their TCF readiness and implementation effectiveness.

Inevitably therefore, there will be a degree of subjectivity in the ratings. Readers

should bear in mind that any such subjectivity could serve to either over- or under-

estimate a participant’s TCF implementation achievements.

The overall impression of TCF readiness created by this report therefore does not

represent an objectively verifiable view of the TCF readiness of any particular sector,

nor does it necessarily reflect the FSB’s own views.

The report is not intended to provide a “critique” or express a value judgment on the

self-assessed ratings provided. Although the analysis the FSB has undertaken of the

baseline submissions will be used in future to assist us in providing specific guidance

11 See the following documents on the FSB website www.fsb.co.za under the “Treating Customers

Fairly” link: https://www.fsb.co.za/feedback/Pages/tcfhome.aspx,: “TCF Self Assessment”; “Completing the self-assessment” and “Treating Customers Fairly – Feedback report on self-assessment pilot”. 12

See p.34 of the TCF Roadmap



https://www.fsb.co.za/feedback/Pages/tcfhome.aspx


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to the industry on key concerns noted, the primary purpose of this report is simply to

provide feedback to the industry and other stakeholders on the study’s results.

The report reflects only high-level aggregated findings per sector, in some cases

masking considerable variation between the self-ratings of individual firms. The

findings should therefore not be used to draw conclusions about the customer

treatment practices of any particular firm or type of firm within a sector.

The initial baseline responses were submitted to the FSB mainly during February and

March 2013, with follow-up information requested from and submitted by some

participants in July and August 2013. The FSB appreciates that a significant number

of firms – both those who participated in the baseline study and those who did not –

have ongoing TCF implementation projects in place. In some cases, lessons from

participating in the baseline study prompted specific TCF improvement initiatives in

the firms concerned. Accordingly, this report must be interpreted in line with its

purpose – to provide a snapshot of TCF readiness at the time it was conducted – and

recognising that further progress in embedding TCF may have been made since

then.

2.2 Structure and scope

The baseline questionnaire

The main tool used to carry out the baseline study was the TCF self-assessment tool

questionnaire published by the FSB in August 2012.

The questionnaire is structured around each of the six fairness outcomes, with particular

emphasis on Outcome 1 and the elements of the TCF culture framework. The questionnaire

is not customised to accommodate all the financial services sub-sectors, other than to ask

slightly different questions for entities that function primarily as product suppliers, financial

advisers, and those fulfilling various types of administrative functions respectively.

The questionnaire comprises a series of Excel spreadsheets, each relating to one of the six

TCF Outcomes. The questionnaires used for the baseline study also included an additional

set of questions relating to the financial products or services, distribution models and

customer demographics of the participating entity. This step was necessary to enable the

FSB to analyse the baseline data collected across different dimensions, bearing in mind that

the baseline sample includes not only large, multi-license conglomerates but also smaller,

more specialised organisations.

Each spreadsheet also includes two additional questions probing the risk management

frameworks and evidence of TCF improvements of the participating firm. These questions

are intended to provide a reality check on the firm’s self-assessed readiness score,

emphasising that the self-assessment is not a box-ticking exercise, and that success in

delivering TCF outcomes depends on active assessment and management of risks by firms,

together with on-going monitoring of customer experience in terms of the TCF outcomes.

The two additional questions – requiring a “YES / NO” response - are:


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We have identified specific risks in the business that could impact on our ability to

deliver this TCF Outcome, and we are actively managing these risks as part of our

risk management framework.

We are able to provide concrete examples, supported by management information,

of improvement in the extent to which we are delivering this TCF Outcome to our

customers.

The baseline participants

The baseline study included a broader sample of participants than the self-assessment pilot,

covering a greater spread of business models and FSB license categories. Unlike the pilot

study, the baseline exercise included firms that do not necessarily interact directly with end

customers, but whose conduct may nevertheless impact on the achievement of fair

outcomes for end customers, such as investment managers and pension fund

administrators.

Another difference is that, where participation in the pilot study was voluntary, participants

selected for the baseline were obliged to take part in the study. A very small number of

identified participants were excused from participation based on motivated arguments.

Participation by banking groups was compulsory in relation to their FSB regulated group

activities, but voluntary in relation to their retail transactional banking activities.

Details of the overall numbers and categories of baseline participants are set out in Table 1

while Graph 2 shows the distribution of participants per industry sector.


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Table 1: Baseline study participation

Overall participation:

Total number of organisations13 85

Total number of submitted questionnaires14 215

Total number of legal entities 15 188

Submitted questionnaires per sector:

Long-term insurers 32

Short-term insurers 21

Insurance binder holders 8

FAIS Category I FSP’s - part of product supplier group

34

FAIS Category I FSP’s - not part of product supplier group

17

CIS management companies 18

FAIS Category II and IIA FSP’s (investment managers & hedge fund managers)

31

FAIS Category III FSP’s (administrative FSP’s / LISP’s) 13

FAIS Category IV FSP’s (funeral benefit administrators)

5

Retirement fund benefit administrators 22

Retirement funds (trustees) 10

Banks

4

13 In most, but not all cases, these are groups of companies. Note however that, although some

groups comprise multiple FSB licensed entities or activities, they were not necessarily asked to participate in all capacities. For example, some insurers who are also FAIS Category I FSP’s were requested to respond in both capacities, whereas others were only requested to participate in one capacity. Selections were made with a view to ensuring a representative spread of business models. 14

The number of questionnaires is higher than the number of participating groups, because many participating groups comprise more than one FSB license holding entity – for example groups of companies comprising banking, long-term insurance, short-term insurance and / or FAIS licensed entities. 15

The number of licensed entities is slightly smaller than the number of questionnaires, because in some cases the same entity holds more than one FSB license – for example where the same is both an insurer and a pension fund administrator, and was asked to submit questionnaires in both capacities.


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Graph 2: Distribution of baseline participants per industry sector

The rating method – a “0 to 4” rating scale

Each spreadsheet of the self-assessment questionnaire requires the firm concerned to rate

itself on the extent to which it carries out a number of business processes or activities which

could be supportive of the TCF Outcome concerned. Participants were required to insert a

rating – on a scale of 0 to 4 – for each question. The rating methodology is aimed at

assessing the extent to which a participant applies the action or process concerned in their

business.

In order to emphasise the importance of firms ensuring that their organisational culture and

governance frameworks support fair customer treatment, TCF Outcome 1 has a double

weighting.

The rating method is described here in detail to assist readers of this report in interpreting

the findings:

Rating of 0: “This action or process is not applicable to our business.”

This rating should only have been used where the action would not be relevant to the firm’s

business model at all. An example would be where a direct insurer, whose business model is

to offer policies on a no-advice “execution only” basis, is asked a question regarding what

product training it provides to financial advisers who give advice on its products. Where a “0”

rating was selected for a specific question, that question was excluded from the participant’s

overall self-assessment rating.

Rating of 1: “No, we do not apply this action or process in our business.”

This rating is applicable where the action or process could be relevant to the business, but

the firm does not apply it. This could be the case, for example, where a firm intends to apply

it in the future but has not yet implemented it, or where the participant decided that they do

Long-Term Insurer

Short-term Insurer

CIS Management Company

Retirement Fund Benefit Administrator

Retirement fund (trustees)

FAIS Category 1 FSP - Part of Product Supplier…

FAIS Category 1 FSP - Not Part of Product…

FAIS Category II and IIA FSP

FAIS Category III FSP - LISP

FAIS Category IV FSP

Insurance Binder Holder

Bank

0 5 10 15 20 25 30 35 40

Number of Participants

Distribution of Participants per Category


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15

not wish to apply it – for example because they believe they have adequate alternative

controls in place or they do not believe it is necessary. Where a “1” rating is selected, the

self-assessment tool alerts the firm that it should review how it is mitigating the TCF risks

associated with this outcome.

Rating of 2: “We do apply this action or process in our business, but only on an

informal or implicit basis.”

This could be the case, for example, where a firm intends to apply the action or process in a

more structured way in future but has not yet reached that stage of TCF implementation, or

where it believes that the extent to which it applies the action or process is adequate for its

TCF delivery purposes. Where a “2” rating is selected, the self-assessment tool alerts the

firm that absence of structured processes and controls could compromise its ability to

demonstrate TCF delivery.

Rating of 3: “We apply this action or process consistently within our business, but we

do not have thorough controls and / or management information to monitor it on an

ongoing basis.”

Selecting this rating indicates that a firm is still in the process of enhancing its TCF controls,

or that it believes its current controls are adequate. Where a “3” rating is selected, the self-

assessment tool alerts the firm that its progress regarding TCF delivery should be

demonstrated through controls and management information.

Rating of 4: “Yes, this action or process is fully embedded in our business and we

have thorough, explicit controls and / or management information to monitor it on an

on-going basis.”

If a “4” rating is selected, the firm is alerted that it should be able, if asked, to provide

examples of the consistent controls or management information concerned.

Analysis and follow-up

Baseline participants were required to complete all parts of the self-assessment and submit

their responses to the FSB. Participants were not required to submit any supporting

documentation or evidence with their submission of the completed baseline study document,

except where they answered a question as “0” (not applicable). In those cases, the

participants were asked to submit an explanation of why they believe the action or process

concerned is not relevant or appropriate to their business.

After reviewing and collating the submissions, the FSB selected a sample of twenty-five

participating groups, in respect of 44 different licensed entities, for follow-up. The purpose of

the follow-up process was not to challenge individual responses, but to carry out a high level

assessment of the consistency of the self-ratings provided by different baseline participants.

Participants selected for follow-up were requested to substantiate their answers to selected

questions where they gave themselves a rating of “3” or “4” or where they answered “Yes” to

some of the additional risk management related questions.

Please note that the responses received to the follow-up questions were not used to change

the entity’s self-assessed rating for purposes of this report even where, on reviewing the


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responses, the FSB felt that the rating provided by the firm may have either overstated or

under-stated the firm’s stage of implementation of the process concerned. This approach

was adopted in view of the fact that the baseline study is based on the participants’ self-

assessed views of their TCF readiness.

2.3 Nature and structure of this feedback report

This report is structured to provide feedback in relation to each of the industry sectors that

participated in the baseline study. Chapter 3 of the report, in sections 3.1 to 3.12, discussed

the baseline study findings in relation to each such sector in turn.

The report intentionally does not devote much content to overarching, cross-sectoral

findings. The differences between the broad range of business models, products, services

and customer groups covered by the report entail different TCF focus areas and different

sources of risk to fair customer treatment. Other than a few summary tables in this Chapter

and a few specific observations made in the “FSB observation” paragraphs, it was generally

not considered useful to try to draw overarching conclusions or draw comparisons between

industry sectors. Chapter 4 does however include a “heat map” summarising the overall

average TCF ratings per sector and per TCF Outcome, for those who may be interested in

this very general perspective. Some high level observations arising from this heat map are

briefly set out in Chapter 4.

Each sector-specific discussion is structured as follows:

Ratings

This section summarises the overall aggregated ratings of the participants from the relevant

sector together with a graph breaking the ratings down per TCF Outcome, indicating relative

self-assessed success in delivering each TCF Outcome.

“Not applicable” scores

These paragraphs summarise some of the more prevalent or noteworthy explanations

provided by baseline participants of why they believed specific questions were not applicable

to their business models. This information is useful to highlight implications of the TCF

framework for specific business models, as well as to point out differences in interpretation

of TCF requirements by different firms.

FSB observations

Each sector specific discussion concludes with a few high-level observations regarding the

findings for that sector, as summarised in the preceding paragraphs.

Firms participating in the baseline study were assured that the confidentiality of their ratings

and other information would be maintained. As a result, information provided in this report is

at a high level. No firms are mentioned specifically, although occasionally responses are

quoted verbatim - although not attributed - where they serve to illustrate a particular

approach or interpretation.


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Graph 3 shows the distribution of TCF ratings, indicating the number of participants in each

industry sector who gave themselves an overall average TCF rating of 1 to 2 (scores ranging

from 1 up to and including 2); 2 to 3 (scores above 2, up to and including 3); or 3 to 4 (scores

above 3, up to and including 4), as the case may be. Ratings of “0” or “not applicable” are

not reflected on this graph.

Graph 4 presents the distribution of TCF ratings from a different perspective, indicating the

percentage of participants in each industry sector who gave themselves an overall average

TCF rating of 1 to 2, 2 to 3, or 3 to 4, as the case may be. Again, ratings of “0” or “not

applicable” are not reflected on this Table.

Graph 3: Distribution of overall TCF ratings per industry sector: Number of participants

3

3

1

4

0

2

0

0

3

1

0

0

24

14

14

16

8

25

7

22

9

1

6

4

5

4

3

2

2

7

10

9

1

3

2

0

0 5 10 15 20 25 30 35 40

Long-Term Insurer

Short-term Insurer










Bank

Number of Participants

Overall Rating Distribution per Category

1-2 2-3 3-4


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Graph 4: Distribution of overall TCF ratings per industry sector: Percentage of participants

The Annexures to the report set out the following:

Annexure A: The six TCF Outcomes and TCF culture framework

The full text of the TCF Outcomes and culture framework are provided for reference.

Readers should remember that the brief descriptors of the Outcomes as reflected in a some

of the graphs on this report - for example “Outcome 3: Clear appropriate information” – are

merely abbreviations, and that the full content of each Outcome must be considered when

assessing baseline data.

Annexure B: Follow-up information provided

This Annexure summarises some of the noteworthy inputs provided by those baseline

participants who were approached to provide follow-up information in relation to their initial

responses to certain specific baseline questions.

9%

14%

6%

18%

0%

6%

0%

0%

23%

20%

0%

0%

75%

67%

78%

73%

80%

74%

41%

71%

69%

20%

75%

100%

16%

19%

17%

9%

20%

21%

59%

29%

8%

60%

25%

0%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Long-Term Insurer

Short-term Insurer










Bank

% of Participants

Overall Rating Distribution per Category

1-2 2-3 3-4


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3. BASELINE STUDY FINDINGS PER INDUSTRY SECTOR

3.1 Long-term insurers

Ratings

The overall average TCF readiness rating for long-term insurers is 65%. This ranges

between 57% for Outcome 1 (Culture and Governance) and 74% for Outcome 6 (Claims,

Complaints and Product Changes).

Turning to the sub-components of each TCF Outcome, the sector as a whole rated itself

highest on the fairness of its complaints handling processes and the ease of changing

products or providers. The fairness of claims handling processes and the quality of customer

information also attracted high ratings.

Long-term insurers rated themselves lowest on the extent to which reward, remuneration

and recognition are linked to TCF objectives. The development of TCF related management

information also attracted a relatively low rating, as did the alignment of staff performance

management with TCF deliverables.

Graph 5.1 sets out the average TCF rating per TCF Outcome for the sector as a whole,

reflected in brackets after each Outcome. The graph also shows the spread of ratings across

participants, indicating the percentage of participants that rated the Outcome as 1 to 2

(scores ranging from 1 up to and including 2); 2 to 3 (scores above 2, up to and including 3);

or 3 to 4 (scores above 3, up to and including 4), as the case may be. Ratings of “0” or “not

applicable” are not reflected on this graph.

20

Graph 5.1: Ratings per TCF Outcome (Long-term insurers)

21

The self-assessment spreadsheet for each of TCF Outcomes 2 to 6 also includes two

additional questions probing the risk management frameworks and evidence of TCF

improvements of the participating firm. The two additional questions – requiring a “YES / NO”

response - are:

Additional question 1: We have identified specific risks in the business that could

impact on our ability to deliver this TCF Outcome, and we are actively managing

these risks as part of our risk management framework.

Additional question 2: We are able to provide concrete examples, supported by

management information, of improvement in the extent to which we are delivering

this TCF Outcome to our customers.

Graph 5.2 shows the split between “Yes” and “No” answers to these questions by

participants in the sector concerned.

Graph 5.2: Responses to additional risk and TCF delivery questions per TCF Outcome (Long-term

insurers)


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“Not applicable” responses

Graph 5.3 shows the percentage of self-assessment questions which baseline participants in

the sector rated as “0” or “not applicable.” The table also indicates the distribution of these

“not applicable” answers between the six TCF Outcomes.

Graph 5.3: “Not applicable” responses (Long-term insurers)

The extent to which firms in the sector concerned considered questions not to be applicable

to them should be borne in mind when reviewing the sector’s overall rating for the Outcome

concerned and before attempting to make comparisons between sectors. Note that “0” or

“not applicable” answers were excluded from a firm’s TCF ratings and therefore from the

average ratings for the sector – average ratings only take into account ratings for those

questions that were given a rating from “1” to “4”.

This section summarises some of the more prevalent or noteworthy explanations provided

by baseline participants in this sector of why they believed specific questions were not

applicable to their business models, with an emphasis on the TCF outcomes which attracted

the greater proportion of “not applicable” ratings in the sector. This information serves to

highlight implications of the TCF framework for specific business models, as well as to point

out differences in interpretation of TCF requirements by different firms.

“Not applicable” responses for Outcome 1 (Culture & Governance)

Almost no such responses were received for this Outcome from long-term insurers.

“Not applicable” responses for Outcome 2 (Products & Services)


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Relatively few “not applicable” responses were received for this Outcome. Those that were

received were mainly for questions relating to bundled and add-on services and loyalty

programmes (questions 2.6 to 2.8), where some insurers indicated that they do not offer

such features.

“Not applicable” responses for Outcome 3 (Disclosure)

Almost no such responses were received for this Outcome from long-term insurers.

“Not applicable” responses for Outcome 4 (Suitable advice)

“Not applicable” responses for various questions under this Outcome were mainly from

insurers using direct marketing models, where questions relating to relationships with FSP’s

and their representatives did not apply. Some direct insurers pointed out that specific training

is provided to direct sales staff to ensure that advice is not provided.

A small number of insurers operating in the niche “linked policy” market indicated that the

question relating to intermediary remuneration (question 4.11) was not applicable to them as

intermediaries are remunerated solely by way of fees negotiated directly with customers.

“Not applicable” responses for Outcome 5 (Performance & Service)

Relevant responses related mainly to questions concerning the use of third party service

providers as part of the product value chain (questions 5.11 to 5.15), where a number of

insurers indicated that they did not do this. In some instances however it appeared that

these questions may have been interpreted as applying only to the offering of third party

products.

One insurer interpreted questions relating to performance expectations as “not applicable”

because it offers only pure risk products with guaranteed benefits.

“Not applicable” responses for Outcome 6 (Claims, Complaints, Changes)

A variety of “not applicable” responses were received for questions under this Outcome.

Insurers offering only investment products and not risk products were instructed to rate

questions around claims repudiations (questions 6.15 and 6.16) as “not applicable”.

However, one of these insurers also felt that questions relating to claims / disbursements

more generally (questions 6.8 to 6.14) were also not applicable to it.

A few insurers indicated that questions relating to switching providers, in particular question

6.7 relating to advising customers of potential risks of switching, were not their responsibility

but that of the relevant financial adviser.

One insurer expressed a view that question 6.15, referring to benchmarking claims

repudiation experience against competitors, was not applicable as the relevant information is

not available and different approaches adopted by insurers in relation to measuring

repudiations would in any event make comparisons or benchmarking difficult.


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FSB observations

As elaborated on in Chapter 4, the low average rating provided by long-term insurers in

relation to TCF Outcome 1 is consistent with the position of all industry sectors. The long-

term industry has rated itself lowest of all participating sectors on the extent to which reward,

remuneration and incentives are aligned to TCF outcomes, with two thirds of all participating

insurers rating themselves between “1 and 2” for this component. The rating in relation to

development of TCF management information, although low on average, is split fairly evenly

between ratings of “1 to 2” and “2 to 3”.

The high average ratings in respect of service related factors such as disclosure, complaints

handling and claims handling are also consistent with broader industry views, although with

a fairly wide spread of ratings between participants. The high average rating for ease of

switching providers is noteworthy, particularly in view of the FSB’s ongoing concerns that

early termination charges on insurance savings policies continue to pose an unfair barrier to

access and transferability – an area that is subject to ongoing regulatory focus16. It should

be noted however that, despite the high average rating for this element, almost as many

insurers gave themselves a rating of “1 to 2” as those who rated themselves “3 to 4”. It

should also be noted that the specific questions in the self-assessment tool regarding

switching providers are focused more on more on administration of these transactions than

on their substantive fairness. Addressing the risks of early termination is covered more

under Outcome 5 in relation to products meeting expectations, where long-term insurers

submitted somewhat more modest, but still relatively high ratings.

Where “not applicable” responses are concerned, we observe that such responses for

Outcome 4 (relating to suitable advice) arose mainly from insurers operating direct

marketing, non-advice distribution models. This rating is of course understandable, although

direct insurers should bear in mind that non-intermediated, non-advice models require a

proportionally greater focus on the other TCF Outcomes such as fair product design,

disclosure and claims handling, as there is no adviser in the frame to help ensure fair

treatment in these respects.

Long-term insurers are also reminded that Outcome 5 (ensuring that products perform as

customers have been led to expect) does not apply only to investment products, but includes

ensuring that pure risk products provide benefits in line with reasonable customer

expectations.

A few “not applicable” responses were noted in regard to informing customers of risks of

switching products or providers, apparently on the understanding that this was the

responsibility of the financial adviser, not the insurer. The FSB disagrees with this view, and

expects product suppliers and advisers (where applicable) to both play a role in ensuring fair

outcomes in this regard.

16 The FSB’s Insurance department has recently issued a Directive to address unfair practices in

relation to multiple causal event charges, and the need for further reduction of the impact of termination charges will be taken into account in the retail distribution review currently underway.


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3.2 Short-term insurers

Ratings

The overall average TCF readiness rating for short-term insurers is 65%. This ranges

between 56% for Outcome 1 (Culture and Governance) and 75% for both Outcome 3 (Clear

and appropriate information) and Outcome 6 (Claims, Complaints and Product Changes).


highest on the fairness of its claims handling processes, closely followed by the ease of

changing products or providers and the quality of customer information.

Short-term insurers rated themselves lowest on the extent to which staff performance

management is aligned with TCF deliverables. The extent to which reward, remuneration

and recognition are linked to TCF objectives also attracted a relatively low rating.







26

Graph 6.1: Ratings per TCF Outcome (Short-term insurers)

27




response - are:









Graph 6.2: Responses to additional risk and TCF delivery questions per TCF Outcome (Short-term

insurers)


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Graph 6.3: “Not applicable” responses (Short-term insurers)













Not applicable” responses for Outcome 1 (Culture & Governance)

Almost no such responses were received for this Outcome from short-term insurers.


Very few “not applicable” responses were received for this Outcome.


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One insurer indicated that a question regarding evaluating the customer group’s

understanding of its products and services (question 2.9) was not applicable because its

products are sold only through independent FSP’s.


Almost no such responses were received for this Outcome from short-term insurers.


Relevant responses to questions under this Outcome were based mainly on the fact that the

insurers concerned operated direct distribution models, where actions relating to

relationships with FSP’s and their representatives did not apply.


Very few “not applicable” responses were received for this Outcome. Those that were

received were not fully motivated.


“Not applicable” responses to questions relating to switches to other providers (questions 6.6

and 6.7) were received mainly from direct insurers who felt that the nature of their business

model is such that they do not play a role in relation to such switches.

One insurer expressed the view that questions relating to informing customers of changes

that could be made to their products due to changed circumstances (questions 6.1 and 6.2)

were not applicable to it because it markets its products only through independent FSP’s.

FSB observations

As elaborated on in Chapter 4, the low average rating provided by short-term insurers in

relation to TCF Outcome 1 is consistent with the position of all industry sectors. Short-term

insurers generally rated themselves between 50% and 59% for all elements of this Outcome,

with only the fairness of decision making practices being rated above 60%. Notably, a high

67% of all participating insurers rated themselves at only between “1 and 2” on the extent to

which TCF objectives form part of their strategic planning.

The high average ratings in respect of service related factors such as disclosure, complaints

handling and claims handling are also consistent with broader industry views. 50 % or more

participating short-term insurers rated themselves between “3 and 4” for Outcome 3 (quality

of disclosure), for Outcome 6 as a whole, and for elements relating to complaints handling,

switching products and providers and claims handling. The high rating for claims handling is

to be expected, with claims being described as the insurer’s “shop window”. Insurers are

however reminded that to ensure fairness of the claims process they should specifically

focus on qualitative measures (such as the substantive fairness of claims decisions and the

quality of communication around such decisions), over and above the speed and efficiency

of claims handling processes.


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Where “not applicable” responses are concerned, we observe that such responses for

Outcome 4 (relating to suitable advice) arose mainly from insurers operating direct

marketing, non-advice distribution models. This rating is of course understandable, although

direct insurers should bear in mind that non-intermediated, non-advice models require a

proportionally greater focus on the other TCF Outcomes such as fair product design,

disclosure and claims handling, as there is no adviser in the frame to help ensure fair

treatment in these respects.


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3.3 Insurance binder holders

Ratings

The overall average TCF readiness rating for insurance binder holders is 67%. This ranges

between 54% for Outcome 1 (Culture and Governance) and a high 80% for Outcome 3

(Clear and appropriate information).


highest on the fairness of its claims handling processes and the ease of changing products

or providers, closely followed by the quality of customer information.

Binder holders rated themselves lowest on the development of TCF related management

information. Governance and control frameworks relating to TCF also attracted a relatively

low rating.







32

Graph 7.1: Ratings per TCF Outcome (Insurance binder holders)

33




response - are:









Graph 7.2: Responses to additional risk and TCF delivery questions per TCF Outcome (Insurance

binder holders)


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Graph 7.3: “Not applicable” responses (Insurance binder holders)







The binder holders participating in the baseline study (a sample of only eight) provided only

general comments regarding non-applicability of the self-assessment questions, relating

mainly to the nature of their business model, which in a number of cases precludes direct

interaction with customers.

FSB observations

As elaborated on in Chapter 4, the low average rating provided by binder holders in relation

to TCF Outcome 1 is, again, consistent with the position of the financial sector as a whole.

Binder holders rated themselves particularly poorly in relation to TCF governance and

controls and TCF related management information (MI), with 75% of an admittedly narrow

sample rating themselves at “1 to 2” for both of these elements. It is likely that the concerns

relating to MI in this sector may have been exacerbated by challenges regarding data

sharing systems as required by the insurance binder regulations. Although progress will


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35

have been made in addressing these challenges since the baseline submissions, the FSB is

aware that risks remain and will be monitoring this issue closely.

With the exception of Outcome 1 however, binder holders generally expressed a high

degree of confidence in their TCF readiness, with all other Outcomes attracting average

ratings of above 70%. As shown on Graph 7.1 however, for a number of sub-elements there

was a relatively even spread between participants rating themselves at “2 to 3” and those

rating themselves at “3 to 4”. Given the small sample size, it is clear that one or two binder

holders submitted particularly high ratings for some elements.

In the case of claims handling, 75% of participants provided a rating of between “3 and 4”.

As for short-term insurers (the market in which almost all binder holders currently operate)

this high rating is to be expected, given the core part claims handling plays in the service

model of most participants. However, as for the insurers, binder holders are urged to bear in

mind that fair claims processes require a focus on qualitative measures (such as the

substantive fairness of claims decisions and the quality of communication around such

decisions), over and above the speed and efficiency of claims handling processes.

In assessing average ratings for this sector, the extent of “not applicable” submissions

should also be noted.


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3.4 FAIS Category I FSP’s (Part of product supplier group)

Ratings

The overall average TCF readiness rating for this category of FSP’s is 68%. This ranges

between 60% for Outcome 1 (Culture and Governance) and 77% for Outcome 4 (Customer

advice).


highest on the fairness of its claims handling processes and the ease of changing products,

closely followed by the quality of customer advice.

These FSP’s rated themselves lowest on the extent to which reward, remuneration and

recognition and staff performance management are linked to TCF objectives and

deliverables.







37

Graph 8.1: Ratings per TCF Outcome (FAIS Cat 1 FSP’s – part of product supplier group

38




response - are:









Graph 8.2: Responses to additional risk and TCF delivery questions per TCF Outcome (FAIS Cat 1

FSP’s – part of product supplier group)


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Graph 8.3: “Not applicable” responses (FAIS Cat I FSP’s – part of product supplier group)














No such responses were received for this Outcome from FSP’s in this category.



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One FSP suggested that questions relating to information as to the suitable target market for

products distributed (2.2 to 2.3) were not entirely applicable as the FSP’s representatives do

not provide advice.

Another FSP felt that a number of the Outcome 2 questions were not applicable to its

business model as there is “no separation between product supplier and distribution” in its

group.

A few FSP’s rated questions in respect of bundled or add-on products or customer

incentives (questions 2.6 to 2.8) as “not applicable” as these were not offered by the FSP.

However, one FSP indicated that although such products are offered, it does not have

controls in place to assess their suitability – but that the question was not applicable as the

products are only sold by authorised representatives.

One FSP expressed the view that question 2.9, asking whether the firm has measures in

place to evaluate the customer groups’ financial understanding of products or services

offered or provided to them, was not applicable as it is an unreasonable question. The FSP

indicated that customer documentation had however gone through a plain language process

to ensure it was appropriate for the target market.


Almost no such responses were received for this Outcome from this category of FSP’s.

One FSP rated question 3.4, dealing with controls to prevent inaccurate information being

provided by third parties, as “not applicable” because in its view no information about its

products or services is provided by third parties.


Some FSP’s indicated that question 4.9, relating to providing product suppliers and other

third parties with feedback on aspects of their products or services which inhibit the FSP’s

ability to provide suitable advice or deliver other TCF outcomes to customers, was not

applicable to them.

One FSP felt that question 4.11, relating to using TCF principles and outcomes when

determining incentives and remuneration was not applicable to it as its representatives are

remunerated solely on a fixed salary basis. This FSP did however advise that its

representatives are indeed incentivised for the sale of other products or services bundled

with the financial product.

In response to question 4.13, referring to controls to identify and act on instances or

representatives providing advice where they are not authorised to do so, one FSP rated the

question as “not applicable” due to the fact that it can only identify such cases after the event

has occurred.



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A number of the “not applicable” responses for this Outcome related to a credit insurance

“group scheme” product design. The FSP felt that questions relating to analysis of product

retention, portfolio switching and early termination (question 5.2) and to alerting customers to

risks of non-action (question 5.4) are not applicable to the product structure. The FSP

expressed the view that its customers “don’t need to review insurance cover needs” as the

cover is always linked to the loan and factors such as investment goals, risk profiles or

beneficiary nominations do not arise.

This FSP also rated questions in respect of monitoring treatment standards of third parties in

the value chain (questions 5.13 & 5.14) as “not applicable” because the business model

entails that the FSP itself is the policyholder and no contract exists between the third party

product supplier (insurer) and the customers concerned.


A number of the participating FSP’s regarded some or all of the questions relating to claims

handling (questions 6.8 to 6.16) as “not applicable”, indicating that as intermediaries they did

not deal with claims or disbursements but referred these to the product supplier.

An FSP operating in the credit life market rated most of the questions for this Outcome as

“not applicable”, explaining that no changes may be made to the simple product structure

concerned (questions 6.1 to 6.5) and that switching processes (question 6.6 and 6.7) are not

required because no other policies in the market meet the requirements of the credit provider

concerned. The FSP also expressed the view that taking an insurer’s claims handling and

repudiation practices or its complaints handling practices into account before recommending

that insurer to customers (question 6.15, 6.16 and 6.30) was not relevant as the FSP did not

in fact recommend the insurer concerned.

FSB observations

As for all other sectors, this group of Category I FSP’s rated Outcome 1 as its lowest scoring

Outcome, as further discussed in Chapter 4. As for most sectors, the linkage between

reward, remuneration and incentives and TCF Outcomes attracted a low rating. In the case

of this sector, it is unclear from the responses submitted to what extent the fact that

commission forms a major part of remuneration for most part participants, played a part in

this rating.

A general observation on this sector’s submission is that, in a number of cases, the

responses submitted tended to mirror those submitted in respect of other parts of the group

concerned, with specific motivations (for “not applicable” ratings and the “additional

questions”) not necessarily linked to the respondent’s role as an FSP.

Understandably, the participating FSP’s rated themselves highly in relation to Outcome 4

(Advice), albeit with a fairly even split between those rating themselves at “2 to 3” and at “3

to 4”. A few of the “not applicable” responses summarised for specific questions under this

Outcome, although isolated, deserve comment. One response indicated that using TCF

principles to determine intermediary remuneration were not applicable as its representatives

earned fixed salaries, but did point out that its representatives are incentivised in relation to

ancillary “bundled” products. The FSB would like to emphasise that, in all business models


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entailing such bundling of products or services, firms are expected to consider the delivery of

TCF Outcomes in relation to the full value proposition. Another FSP regarded questions

regarding identifying instances of unauthorised advice by representatives as “not applicable”

on the basis that such instances can only be identified reactively. The FSB urges firms to

consider developing appropriate controls to enable them to pro-actively manage this risk,

over and above any risk mitigation actions they may take after such an event occurs.

The FSB does not agree with the view, expressed in a few “not applicable” answers, that

FSP’s do not have a role to play in relation to claims handling. Although we accept that this

response was based on the particular business model concerned, we remind financial

advisers that they should consider and communicate to their customers what levels of

support they can expect at claim stage, where applicable.

Where some of the “not applicable” responses relate to specific characteristics of credit

insurance products and their distribution are concerned, we recommend that those

interested in this market consider these in light of the discussion document on consumer

credit insurance market practices that is due for publication in the near future. Please also

refer to the “FSB Observations” discussion under section 3.5 below, for a comparison

between the overall ratings of Category I FSP’s who form part of a product supplier group,

and those who do not.


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3.5 FAIS Category I FSP’s (Not part of product supplier

group)

Ratings

The overall average TCF readiness rating for this category of FSP’s is 76% - the highest

rating for all sectors. This ranges between 67% for Outcome 1 (Culture and Governance)

and a confident 87% for Outcome 4 (Customer advice).


highest on the quality and suitability of customer advice (there are no sub-components for

this Outcome) followed by the fairness of claims handling.

These FSP’s rated themselves lowest on the development of TCF related management

information, with the linkage between reward, remuneration and recognition and TCF

deliverables and TCF governance and control frameworks also attracting relatively low

scores.







44

Graph 9.1: Ratings per TCF Outcome (FAIS Cat 1 FSP’s – not part of product supplier group.

45




response - are:









Graph 9.2: Responses to additional risk and TCF delivery questions per TCF Outcome (FAIS Cat 1

FSP’s – not part of product supplier group)


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Graph 9.3: “Not applicable” responses (FAIS Cat I FSP’s – not part of product supplier group)














The relatively high proportion of “not applicable” responses for this Outcome from the FSP’s

concerned is mainly attributable to them being small firms (in one instance a sole proprietor),

where a number of the governance structures contemplated in these questions (such as a

board, layers of management, relatively sophisticated human resources structures, etc.) do

not exist. The sole proprietor also understandably rated a number of questions under the


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remaining Outcome as “not applicable” where they refer to controls in respect of an FSP’s

representatives.

One FSP, describing itself as an “outsourced contact centre”, felt that a number of the

questions for this Outcome (and various questions under the remaining Outcomes) were not

applicable to it as its relationship with the customer ends as soon as a product sale is

concluded, with the product supplier (the contact centre’s client) taking responsibility for

customer outcomes thereafter. The FSP expressed the view that, because of this business

model, it “does not have retail customers”.

One FSP felt that a number of questions for this Outcome were not applicable because TCF

objectives are already included in its FAIS policy and procedures and hence do not require

separate ratification by the firm’s governance structures.


Very few relevant responses were received for this Outcome.

The “outsourced contact centre” referred to above regarded all questions relating to product

and service suitability as “not applicable” as it regards these aspects as the responsibility of

the product supplier concerned, on whose instructions it acts.


Almost no “not applicable” responses were submitted for this Outcome. Again, the

“outsourced contact centre” regarded disclosure related questions as the product supplier’s

responsibility, not its own.




Very few responses were submitted for this Outcome. The “outsourced contact centre” rated

almost all questions for this Outcome as “not applicable”, indicating that tracking product

performance is the product supplier’s responsibility, not its own.

Not applicable” responses for Outcome 6 (Claims, Complaints, Changes)

A number of the participating FSP’s regarded some or all of the questions relating to claims

handling (questions 6.8 to 6.16) as “not applicable”, indicating that as intermediaries they did

not deal with claims or disbursements but referred these to the product supplier. Some of

them pointed however that they do challenge the product supplier’s claims decisions where

they consider this necessary.

FSB observations

Category I FSP’s not forming part of a product supplier group gave themselves the highest

average overall TCF rating of all sectors in the baseline study. Although the ratings they

submitted for most Outcomes was high, the high relative overall score is largely attributable


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to the fact that these FSP’s scored themselves substantially higher (at 67% on average) for

Outcome 1 than other sectors. This in turn is due to the fact that this sample comprised a

higher proportion of small to medium sized businesses than most other sectors. As a result,

a number of the specific self-assessment actions under Outcome 1 were rated “not

applicable” – particularly those relevant to formal governance structures. Notably, elements

relating to linking reward and performance management to TCF were also rated significantly

higher than for most other sectors, with half of all participants providing ratings of “3 to 4” in

relation to performance management and over a third rating their reward structures at “3 to

4” too.

Over and above Outcome 1 however, these FSP’s generally rated themselves higher on

average for most components than their counterparts who form part of a product supplier

group, with the spread of ratings between participants also reflecting a higher proportion of

“3 to 4” ratings. Interestingly, in the case of their key deliverable, advice, 75% of FSP’s

outside product supplier groups rated themselves between “3 and 4”, as compared to only

44% of product supplier linked FSP’s who gave themselves such a rating.

Where “not applicable” ratings are concerned, as mentioned above a number of these were

due to the participants being relatively small enterprises without the formal governance

structures contemplated in some of the questions.

In response to some “not applicable” responses, financial advisers are reminded that,

although compliance with the spirit and rules of the FAIS framework will go a long way in

ensuring that they deliver TCF Outcomes, they should nevertheless carefully consider the

relevance of a number of the questions in the self-assessment tool that go beyond technical

FAIS obligations. In particular, they should consider their relationship with product suppliers

and the extent to which they demand TCF delivery from product suppliers as a prerequisite

for recommending a supplier’s products to their customers.

Where questions were considered not applicable because the action concerned was seen as

the product supplier’s responsibility, the FSB must emphasise that TCF delivery is a shared

responsibility between product supplier’s and intermediaries, with neither of them able to

abdicate responsibility for customer outcomes to the other. Even where an FSP does not

provide advice but renders a pure intermediary service on behalf of a product supplier, it is

expected to take TCF standards into account and determine how best it can ensure that its

role in the value chain contributes to fair customer outcomes.


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3.6. Collective investment scheme managers

Ratings

The overall average TCF readiness rating for CIS managers is 66%. This ranges between

58% for Outcome 1 (Culture and Governance) and 78% for Outcome 3 (Clear and

appropriate information).


highest on the quality of customer information (there are no sub-components for this

Outcome) followed by the ease of changing products and the fairness of disbursement

practices.

CIS management companies rated themselves lowest on the linkage between reward,

remuneration and recognition and TCF objectives. The development of TCF related

management information also attracted a relatively low score.







50

Graph 10.1: Ratings per TCF Outcome (CIS Management Companies)

51




response - are:









Graph 10.2: Responses to additional risk and TCF delivery questions per TCF Outcome (CIS

Management Companies)


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Graph 10.3 shows the percentage of self-assessment questions which baseline participants

in the sector rated as “0” or “not applicable.” The table also indicates the distribution of

these “not applicable” answers between the six TCF Outcomes.

Graph 10.3: “Not applicable” responses (CIS Management Companies)














CIS managers rated almost no questions as “not applicable” for this Outcome.



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Most “not applicable” ratings for this Outcome were in respect of questions 2.6 to 2.8, where

the participants indicated that they do not offer bundled, add-on or incentive benefits to their

customers.


Almost no relevant responses were received for this Outcome.


Very few relevant responses were received for this Outcome. Those that were submitted

related to a question regarding TCF criteria for intermediary remuneration, which some CIS

managers regarded as not applicable because intermediaries are remunerated by fees

negotiated directly with the customer.


Again, few relevant responses were received for this Outcome.

Those that were submitted related to questions regarding alerting customers to the risk of

non-action on their part (question 5.4) and to testing service standards against customer

expectations (question 5.6). One CIS manager felt that neither of these questions are

applicable to it as it “is a product provider and does not give advice”.


A variety of “not applicable” responses were provided for this Outcome.

Some participants rated questions on communicating with customers on product changes in

the event of changes in their circumstances (questions 6.1 and 6.2) as “not applicable”,

arguing that this is the financial adviser’s responsibility. Others argued that this was not

applicable to their institutional target market.

As instructed, CIS managers rated questions relating to repudiation of insurance risk claims

(questions 6.15 and 6.16) as “not applicable”. However, some participants also rated

broader claims / disbursement related questions (questions 6.8 to 6.14) as such, regarding

these questions too as only applying to insurance risk products. In particular, one participant

pointed out that the consideration of a customer’s reasonable benefit expectations before

deciding to decline a disbursement request (question 6.13) does not arise in practice, as

such a decision would only arise in exceptional circumstances.

Some “not applicable” ratings were also applied to questions relating to switching providers

(questions 6.6 and 6.7), explaining that as product suppliers they do not deal directly with

customers in relation to such switches. One participant added that question 6.7, relating to

informing customers of the potential risk of switching, is not applicable to the CIS manager

ad it is “the function of the financial adviser”.


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FSB observations

As elaborated on in Chapter 4, the low average rating provided by CIS managers in relation

to TCF Outcome 1 is consistent with the position of all industry sectors. In particular, a high

83% of participants rated themselves at “1 to 2” on the extent to which reward, remuneration

and incentives in their firms take TCF objectives into account.

In line with the trend for other sectors, the CIS sector rated itself considerably higher for the

remaining Outcomes. Disclosure quality in particular attracted the sector’s highest average

Outcome score, at 78%, with more than half the participants rating their disclosure standards

at “3 to 4”. This is consistent with the CIS industry’s general view that it sets itself high

standards regarding disclosure and transparency. Disclosure standards for the sector are

nonetheless in the process of being strengthened through draft CIS advertising and

marketing rules, currently being consulted on between the FSB and stakeholders.

A selection of “not applicable” responses in relation to Outcomes 5 and 6 were based on the

view that the CIS manager does not provide advice and that the actions concerned are the

responsibility of the customer’s financial adviser. The FSB would like to point out that, even

where a product supplier does not provide advice, it should nevertheless review the support

it can provide to customers in ensuring fair outcomes particularly, in the case of players in

the investment industry, in regard to the role the firm can play in managing customers’

reasonable investment return expectations.

Generally, CIS managers’ TCF ratings are largely consistent with those submitted by other

investment sector players (investment managers and administrative FSP’s).


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3.7 FAIS Category II and IIA FSP's (Investment managers

and hedge fund investment managers)

Ratings

The overall average TCF readiness rating for investment managers is 68%. This ranges

between 59% for Outcome 1 (Culture and Governance) and 82% for Outcome 3 (Clear and




Outcome) followed by the ease of changing products and providers, the fairness of

disbursement practices and the extent to which products meet customer performance

expectations.

CIS management companies rated themselves lowest on the linkage between reward,

remuneration and recognition and TCF objectives.







56

Graph 11.1: Ratings per TCF Outcome (FAIS Cat II and IIA FSP’s)

57




response - are:









Graph 11.2: Responses to additional risk and TCF delivery questions per TCF Outcome (FAIS Cat

II and IIA FSP’s)


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Graph 11.3: “Not applicable” responses (FAIS Cat II and IIA FSP’s)














In general, the majority of “not applicable” responses from investment managers, for all six

TCF Outcomes, related to the nature of the investment management business model, with

participants raising the argument that many of the TCF related behaviours set out in the self-

assessment tool are not applicable to them as they do not interact directly with retail

customers. These arguments were made most strongly in relation to investment mandates


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from institutional and corporate clients, but also some cases in relation to mandates from

high net worth individuals or so-called “sophisticated” clients.

In some cases, questions were rated “not applicable” with the participant stating that they

require more information in order to decide whether the question is applicable to them.

There were however few “not applicable” responses for Outcome 1. One institutional

investment manager advised that questions relating to revision of reward and performance

practices in line with TCF (questions 1.22 & 1.23) were not applicable to it as it does not

provide advice to retail clients. Accordingly this investment manager explained that its “most

important imperative is to achieve investment performance” and that it therefore intended to

continue using investment performance as the basis for performance and reward measures.


One investment manager felt that much of Outcome 2 was not applicable as the firm does

not “design products” for the retail market but manages investors’ assets in accordance with

defined mandates.

A few participants rated questions relating to bundled or add-on products and customer

incentives (questions 2.6 to 2.8) as “not applicable” as they do not offer such features. One

participant argued that controls to assess suitability of such features (question 2.7) were not

necessary as products are sold only by authorised representatives.

One investment manager considered the question relating to having measures in place to

evaluate the customer groups’ financial understanding of products or services as an

“unreasonable question”, but did point out that product documentation had been put through

a plain language exercise to ensure their suitability for the target market.


Very few relevant responses were received for this Outcome. One response rated questions

regarding responsibility for information on the firm’s products provided by third parties, and

for information provided by the firm on third parties’ products (questions 3.4 and 3.5), as “not

applicable” because there are no third parties in its business model.


A relatively high proportion of “not applicable” responses were received for this Outcome.

Most of these were based on the argument that the investment managers concerned do not

provide advice. A number of “not applicable” responses were also provided by participants

who explained that they do not use (or remunerate) intermediaries.


One response regarded a set of questions relating to managing customers’ benefit

expectations (questions 5.1 to 5.4) as “not applicable” to it because it only manages assets

of institutional clients. This participant also argued that it does not “provide products with

benefits”.


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Some “not applicable” responses were also received for some or all of the set of questions

relating to fair treatment controls over third parties in the value chain (questions 5.11 – 5.15).

One investment manager participant supported its “not applicable” rating for these questions

as follows: “We have agreements in place with our direct client (the pension fund or

multimanager). These are mandates, as per the requirements of FAIS. As we do not provide

advice, and we do not have knowledge of the pension fund’s assets and liabilities or the

pension fund benefits they need to provide, this is not applicable to us.”


A relatively high proportion of varied “not applicable” responses were received for this

Outcome, with almost all questions attracting at least one “not applicable” response. Again,

a number of specific responses are based on the position that the questions concerned

apply only to firms interacting directly with retail customers. More particularly:

Questions relating to informing customers of possible product changes in the light of

changed circumstances (questions 6.1 to 6.5) and standards around processing such

changes were rated as “not applicable” because investment managers felt that they do not

have a direct relationship with the customer and that it is the financial adviser’s role to take

such action. Some argued that their products are “niche” and designed to meet specific

needs, so that the need for the types of changes envisaged does not arise.

Questions relating to switches between providers (questions 6.6 and 6.7) were also rated

“not applicable” as such switches were only regarded as relevant to entities interacting

directly with retail customers. In particular, it was argued by some that the investment

manager has no responsibility for alerting a customer to the risks of such a switch (question

6.7).

Participants were instructed to rate risk insurance claims related questions (questions 6.15

and 6.16) as “not applicable”. Investment managers also rated a number of other questions

regarding claims and disbursements (questions 6.8 to 6.14) as “not applicable” as their

business model does not entail actual processing of disbursements.

For complaints handling questions, a few investment managers rated the question regarding

benchmarking complaints handling against competitors question 20) as “not applicable”.

Some “not applicable” ratings were also provided in respect of analysing complaints to

identify risks of mis-selling (question 29) and in relation to considering complaints practices

of other parties before deciding to do business with them (question 30).

FSB observations

Generally, investment managers’ TCF ratings are largely consistent with those submitted by

other investment sector players (CIS managers and administrative FSP’s). Low Outcome 1

ratings are consistent with the view of all sectors, as discussed in Chapter 4, with the three

investment sectors all submitting ratings below 50% for the alignment of reward,

remuneration and incentives with TCF objectives. Again in line with other investment

players, disclosure quality was rated particularly highly (an average score of 82%, with more


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than half the participants rating themselves at “3 to 4”), as were various elements of TCF

Outcome 6.

Close to 16% of all answers to the baseline questionnaire were however considered “not

applicable” by investment managers, largely based on the nature of their institutional

customer base. Various “not applicable” answers were justified with reference to the lack of

direct interaction between the investment manager and the end customer and the fact that

the investment manager does not provide advice to retail customers. One participant argued

that questions related to aligning reward structures with TCF objectives were not applicable

to it, as it does not provide advice to retail customers and that investment performance

should be the main determinant for reward. The FSB would like to point out that aligning

reward with investment performance is not inconsistent with TCF objectives, on the

understanding that the incentives are designed to reward investment performance that is

consistent with the customer’s reasonable benefit expectations, as required for Outcome 5.

As a general response to the various “not applicable” responses that were based on the

above reasoning, firms are reminded of the view the FSB has explained in the Roadmap and

other material, that even so-called “wholesale” business models are expected to consider

the impact that their activities have on end customers, and take appropriate action to support

TCF Outcomes. In particular, we would expect investment managers who provide services

to institutional investors such as insurers and pension funds, to be cognisant of the fact that

ordinary customers are typically the end beneficiary of their services. We encourage

investment managers to consider guidance material recently issued by the FSB’s FAIS

department in this regard17.

17 Available on the FSB’s website www.fsb.co.za under the FAIS department links.



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3.8 FAIS Category III FSP's (Administrative FSP's / LISP's)

Ratings

The overall average TCF readiness rating for administrative FSP’s is 58%. This ranges

between 50% for Outcome 1 (Culture and Governance) and 71% for Outcome 3 (Clear and




Outcome) and the ease of switching products and providers.

Administrative FSP’s rated themselves lowest on the linkage between reward, remuneration

and recognition and TCF objectives. TCF related governance and control frameworks and

the development of TCF management information also attracted relatively low scores.







63

Graph 12.1: Ratings per TCF Outcome (FAIS Cat III FSP’s)

64




response - are:










III FSP’s)


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Graph 12.3: “Not applicable” responses (FAIS Cat III FSP’s)














Almost no “not applicable” responses were provided for this Outcome. One response

indicated that a question regarding TCF training for staff (question 1.19) is not applicable as

“TCF principles are currently not a requirement”.



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Relevant responses for this Outcome applied mainly where the FSP concerned does not

offer bundled or add-on products or services or customer incentives (rendering questions 2.6

to 2.8 inapplicable) or where the FSP does not make use of intermediaries in its business

model and therefore rated a question referring to intermediary relationships (question 2.3) as

“not applicable”.

“Not applicable” responses for a number of questions regarding assessing product suitability

or product risks were also provided, based on the argument that the firms do not provide

advice or interact directly with customers, but act purely as an outsourced provider of

administration services to third parties. The responsibility for product design and suitability,

so the argument goes, is therefore that of the third parties concerned.

In particular, these FSP’s argued that tracking sales to determine whether products are sold

to the identified customer groups (question 2.12) is something they are not in a position to

do.

Not applicable” responses for Outcome 3 (Disclosure)



One administrative FSP rated all questions for this Outcome as “not applicable”, indicating

that it does not create its own products and does not provide any advice to customers.

A “not applicable” response received for question 4.1, which asks whether the firm, as part of

its product design and approval process, determines whether advice is essential in selling or

marketing the product, and structures its distribution arrangements accordingly, was based

on the fact that the FSP does not provide advice.

A few relevant responses to question 4.11, relating to TCF criteria for sales remuneration,

were rated “not applicable” in view of the fact that advice fees are independently negotiated

between the customer and the intermediary.


Although relatively few “not applicable” responses were received for this Outcome, relevant

responses were again based on the position that the administrative FSP acts in a purely

administrative capacity on behalf of third parties and does not have a direct relationship with

customers. Questions relating to analysing customer behaviour to assess risks of products

not delivering on expectations (question 5.2) and relating to alerting customers to risks of

actions or non-actions on their part (questions 5.3 and 5.4) were rated “not applicable” on

this basis. The administrative FSP’s in these case felt that such actions were the

responsibility of the third parties concerned. In some cases, the administrative FSP also

pointed out that they do not have access to the data necessary to carry out such actions.


A relatively high proportion of “not applicable responses were received for this Outcome,

again mainly based on the nature of the administrative FSP business model.


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Questions relating to informing customers of possible product changes in the event of

changes in their circumstances (questions 6.1 and 6.2), were rated “not applicable” by

administrative FSP’s that argued that this is the responsibility of the financial adviser and, in

some cases, is not relevant for institutional investors. One FSP argued that its business

model “precludes” it from being aware of changes in customer needs or from informing them

of options in the event of such a change.

Advising customers of risks associated with switching providers (question 6.7) was also

viewed by some as the responsibility of the adviser.

Relevant responses to the question on analysing complaints to determine any mis-selling

risks (question 6.29) were based on the view that the administrative FSP does not deal

directly with customer complaints and is not in a position to assess the cause of complaints.

FSB observations

Generally, administrative FSPs’ TCF ratings are largely consistent with those submitted by

other investment sector players (CIS managers and investment managers). This sector has

however given itself particularly low ratings for Outcome 1, with over 60% of all participants

rating this Outcome as a whole between “1 and 2”. In addition to a low score for alignment

of rewards to TCF objectives, administrative FSP’s recorded notably low ratings for TCF

related governance and controls and management information. This was the main

contributor to administrative FSP’s having the lowest overall TCF rating of all sectors

participating in the baseline study.

Although Outcomes 2 to 6 were rated more confidently than Outcome 1, the spread of

scores reveals a relatively high component of “I to 2” ratings for all elements as compared to

the other investment sectors, with the exception of disclosure quality which is rated highly.

The element with the highest proportion of “3 to 4” ratings is ease of switching providers,

which stands to reason in view of the LISP platform value proposition.

Most “not applicable” responses for this sector were based on the argument that the

administrative FSP fulfils a purely administrative service and therefore has no responsibility

for a number of actual customer outcomes (other than those directly related to administrative

efficiency). These participants argued that their “customers” are the third parties placing

products on their platforms, and that it is those parties’ responsibility to ensure fair Outcomes

for the customers concerned. Similarly to our observations under section 3.7 above

regarding investment managers, the FSB urges administrative FSP’s to consider the impact

that their activities have on end customers, and take appropriate action to support TCF

Outcomes. The charging structures for platform services, in particular, and any resultant

potential conflicts of interest, should be carefully considered. In this regard, we note that half

of the participants rated TCF delivery in relation to outsourced parts of the value chain at

only “1 to 2”, with a relatively low average score for this element of 59%.


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3.9 FAIS Category IV FSP's (Funeral benefit administrators)

Ratings

The overall average TCF readiness rating for funeral benefit administrators is 71%. This

ranges between 63% for Outcome 1 (Culture and Governance) and a high 82% for Outcome

2 (Products and Services).


highest on the ease of switching product providers, followed by the extent to which its

products and services are designed to meet target market needs (there are no sub-

components for this Outcome).

Funeral benefit administrators rated themselves lowest on the leadership culture dimension,

closely followed by the linkage between staff performance management and TCF

deliverables.







69

Graph 13.1: Ratings per TCF Outcome (FAIS Cat IV FSP’s)

70




response - are:










IV FSP’s)


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71





Graph 13.3: “Not applicable” responses (FAIS Cat IV FSP’s)














Very few relevant responses were received for this Outcome. One response indicated that

some questions were “not applicable” because TCF principles are currently not a

requirement.


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The very few relevant responses for this Outcome were mainly based on the fact that the

FSP does not offer bundled or add-on benefits or customer incentives (questions 2.6 to 2.8).


The very few relevant responses for this Outcome were from firms whose business model

does not entail the use of third parties in selling their products, and / or does not entail

making any sales on behalf of third parties (rendering questions 3.4 and 3.5 irrelevant to

these firms).

Not applicable” responses for Outcome 4 (Suitable advice)

Outcome 4 attracted a relatively high proportion of “not applicable” responses, for a broad

range of questions. These responses were mainly due to the FSP stating that it does not

provide advice, but only “factual information” and / or that it does not make use of FSP’s to

distribute products.


The few “not applicable” ratings for this Outcome were not fully motivated.


Although a relatively high proportion of “not applicable” responses were received for this

Outcome, they were not fully motivated.

Some responses related to the fact that the FSP does not handle claims or disbursements

(questions 6.8 to 6.14). One FSP stated that questions relating to providing customers with

information on product changes due to changes in their personal circumstances (questions

6.1 and 6.2) are not applicable because “customers do not complete a needs or affordability

analysis” when taking up its products.

FSB observations

Funeral benefit administrators gave themselves the second highest overall TCF rating of all

sectors participating in the baseline study, second to Category I FSP’s outside of product

supplier groups. It should be noted however that the sample of participants from the sector

was very small (only 5).

In view of the small sample size, we only make limited observations on finding for this

category. As for other sectors, ratings for Outcome 1 were lower than for other Outcomes.

Close to 16% of all questions in the baseline study were rated “not applicable”, for reasons

summarised above.


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3.10 Retirement fund benefit administrators

Ratings

The overall average TCF readiness rating for retirement fund benefit administrators is 62%.

This ranges between 54% for Outcome 1 (Culture and Governance) and 72% for Outcome 3

(Clear and appropriate information).



Outcome), closely followed by the fairness of complaints handling processes, the ease of

switching products and providers and the quality of claims handling.

Retirement fund benefit administrators rated themselves lowest on the extent to which

reward, remuneration and recognition are linked to TCF objectives.







74

Graph 14.1: Ratings per TCF Outcome (Retirement Fund Benefit Administrators)

75




response - are:









Graph 14.2: Responses to additional risk and TCF delivery questions per TCF Outcome

(Retirement Fund Benefit Administrators)


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Graph 14.3: “Not applicable” responses (Retirement Fund Benefit Administrators)














No relevant responses were received for this Outcome.


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Although various explanations for “not applicable” responses were received for this

Outcome, most of them related to the fact that the administrators concerned regard

themselves as not having a relationship with the retirement fund members concerned, and

generally see the responsibility for fair treatment of members as being placed on the fund

itself (through the trustees), on the product suppliers developing the underlying products

(where applicable), and / or on the intermediary.

The following responses are quoted to illustrate this position:

“The FSP is not a product supplier and does not offer products as art of its business.”

(Response to question 2.1).

“The Boards of Trustees, not us, decide which product or service providers to utilise

and therefor this statement is not applicable.” (Response to question 2.1)

“Our staff and representatives do not distribute products and therefore do not need to

know about suitability.” (Response to question 2.3).

“The products of 3rd party companies and the promotional material for these

products are the primary responsibility of our 3rd party clients. (Response to question

2.5)

“Because our business model does not include contact with the end customer or

intermediary, we are not in a position to assess the fair treatment of customers in

respect of loyalty programmes, bonuses or discounts, including mitigating any conflict

of interest risks. Our business model is also the reason why we are unable to

evaluate the financial understanding of customers of the products or services”.

(Response to questions 2.6 to 2.9).

“Our product is the administration service we provide and as such do not need to

evaluate a customer’s financial understanding of the product”. (Response to question

2.9).

“The consultation process involved in the sale removes the potential for the wrong

product to be sold to the wrong customer - therefore the tracking of sales data for this

purpose is not applicable.” (Response to question 2.12)

“We do not track product sales of 3rd party clients and are therefore not in a position

to determine if products were sold to identified customer groups.” (Response to

questions 2.12 and 2.13).


Almost no relevant responses were received for this Outcome.


Some retirement fund benefit administrators considered all or considerable number of the

questions for this Outcome as “not applicable” to them. Their views were mainly based on

the argument that their role does not entail the provision of advice and is purely

administrative in nature and that the board of trustees would appoint its own financial adviser

if required.



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Again, “not applicable” responses – constituting a relatively high proportion - for this

Outcome were typically based on the fact that the administrators concerned do not see the

responsibility for meeting customer benefit expectations as resting on them. The following

quoted responses illustrate this view:

“We do not have sight of data from which to analyse the behaviour of customers to

determine whether there is a risk that products or services are not meeting

expectations of customers.” (Response to question 5.2).

In the business model, it is the responsibility of our 3rd party clients to alert

customers of risks of a particular action or non-action on their part. We do not interact

directly with end customers or intermediaries (Response to questions 5.3 and 5.4).

“The FSP is not a product supplier.” (Response provided to motivate a “not

applicable” rating for the whole of Outcome 5).


The motivations for the relatively high proportion of “not applicable” responses for this

Outcome are again best illustrated by quoting some responses verbatim. One administrator

rated the entire Outcome 6 as “not applicable” on the basis that “the FSP is not a product

supplier”.

Responses to questions relating to providing information on possible product changes in the

event of changed circumstances, the risks of such changes and service standards for

product changes and switching product providers, included the following (Questions 6.1 to

6.7):

“We do not give advice and therefore this kind of service is not within the ambit of our

duties and obligations.”

“If the product in this question relates to the administration services we provide, then

we believe that these questions do not apply to our business since our services are

contained in an agreement concluded with the trustees.”

“This role applies to the financial advisors, we do not offer such service, this does not

apply to the institutional customer business model.”

“Our role precludes us from an awareness of a change in a customer’s needs or

circumstances or to inform them of options in the event of a change in their needs or

circumstances.”

“Requests for product changes to other parties in the value chain are not made by

the administrator. These requests are done directly by the fund to that product

provider for example the insurer. The insurer will then liaise directly with the fund or

financial adviser.”

“We do not have any contact with the customers of our 3rd party clients and cannot

therefor inform them of the risk of switching providers”.


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“Not applicable” responses to questions concerning fairness of complaints handling

processes (questions 6.17 to 6.30) included the following:

We do not benchmark complaint with competitors as most of the information is not

readily available. In fact we believe that benchmarking the complaints will not add

any value to our business.

We do not deal directly with customer complaints and is not in a position to assess

whether complaints reveal the miss-selling of products.

We do not recommend products to our customers. This is done by the independent

financial advisor appointed by the Board of Trustees.

In addition, a few “not applicable” responses to the claims handling questions (questions 6.8

to 6.16) were due to the fact that the administrators concerned do not make claims

repudiation decisions. One administrator argued that benchmarking claims repudiation

experience against competitors (question 6.15) would not be feasible due to lack of available

data and differences in approach between firms.

Some administrators also explained that they do not directly handle requests for transfers to

other providers, so that questions 6.6 and 6.7 are not applicable to them.

FSB observations

Retirement fund benefit administrators have submitted the second lowest overall average

TCF rating of all baseline sectors, at only 62%, after administrative FSP’s. Notably, the

sector’s rating for Outcome 1 is also one of the lowest across all sectors, with half of all

participants rating this Outcome at “1 to 2”.

The motivations for “not applicable” responses from this sector are particularly noteworthy.

As they have been quoted at some length in the paragraphs above, we will not comment on

them in detail here other than to note that they clearly illustrate a lack of clarity regarding

allocation of TCF responsibility across the retirement fund value chain. Particularly when

read together with the “not applicable” responses from retirement fund trustees, summarised

in section 3.11 below, it becomes apparent that administrators, trustees, product suppliers

and others in the value chain have inconsistent views on their respective responsibilities

toward the end member.

It is also unclear from some of the responses whether the participant was indeed responding

in its capacity as retirement fund benefit administrator, or as the supplier of the underlying

product concerned (typically a long-term insurer).


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3.11 Retirement funds (Trustees)

Ratings

The overall average TCF readiness rating for retirement funds, as indicated by their trustees,

is 68%. This ranges between 62% for Outcome 1 (Culture and Governance) and 77% for

Outcome 3 (Clear and appropriate information).


highest on the ease of switching product providers.

Retirement funds rated themselves lowest on the extent to which reward, remuneration and

recognition are linked to TCF objectives. The development of TCF related management

information also attracted a relatively low score.







81

Graph 15.1: Ratings per TCF Outcome (Retirement funds – trustees)

82




response - are:









Graph 15.2: Responses to additional risk and TCF delivery questions per TCF Outcome

(Retirement funds – trustees)


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Graph 15.3: “Not applicable” responses (Retirement funds – trustees)














Although relatively few “not applicable” responses were received for this Outcome, some

relevant responses were based on the wording of various specific questions in regard to

leadership structures (questions 1.2 to 1.7), which funds interpreted as applying to the

business of a company rather than a fund.


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Some funds pointed out that questions relating to staff matters (notably questions 1.17 to

1.23 and question 1.27, relating to performance management, reward and training) are not

applicable as the funds concerned do not employ staff.

One fund expressed the view that the question regarding making TCF progress publicly

available (question 1.29) should not apply as it would be inappropriate for a fund to make

such information “publicly” available. The fund did however state that a fund should report to

its members on TCF related issues.


A relatively high proportion of “not applicable” responses were received for this Outcome.

A number of questions relating to product design and suitability were rated as such because

they were viewed as “not applicable to the funds and more applicable to the product

provider”. A few private retirement funds regarded some of these questions as not applying

only to retail retirement products.

A few specific responses regarding ensuring fairness in relation to add-on or bundled

products and customer incentives (questions 2.6 to 2.8) were rated “not applicable” as the

fund does not itself provide such benefits.


Almost no relevant responses were received for this Outcome. One fund – an umbrella fund

– expressed the view that requiring funds to test product information for clarity with members

before issuing it would be “impractical”. The fund did however agree that ensuring

communication is in simple language and conducting surveys to test understanding after

communications have been issued, was appropriate.


Relevant responses for a number of questions under this Outcome were based on two main

arguments: That the fund does not provide advice to its members, but only factual

information, and that the questions concerned relate to the agreements between the product

provider and the financial adviser, not to the fund.


One private fund rated the question on informing members of risks of non-action on their part

(question 5.4) as “not applicable”, regarding the question as applying more to retail

members, although it did confirm that it explains to members that the trustees are not bound

by beneficiary nominations.

One fund regarded the question relating to management information on meeting customer

benefit expectations (question 5.9) as “very wide”. The fund argued that, for umbrella funds,

it is normally the administrator who will survey members with regards to services standards

and that, if members are dissatisfied with service standards or products, individual

complaints are addressed and taken into account in improving the service model or product

– again though this is done by the administrator.


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One self-administered private fund pointed out that the various questions relating to

outsourcing (questions 5.11 to 5.15) were not applicable to it.


Varied explanations were received for the relatively high proportion of “not applicable”

responses for this Outcome. In most instances, these were based on the trustees’ view of

their own responsibilities as compared to those of the product supplier, the administrator or

the financial adviser. Arguments raised are best illustrated by quoting a selection of

responses verbatim:

“The request for a change in the product, for example, a benefit improvement is more

applicable to the product provider and not to the fund”. (Response to questions 6.4

and 6.5).

“We do not believe that it is the Board’s responsibility to advise the employer or

members of any risks of switching to another product provider. This is the

responsibility of the intermediary”. (Response to question 6.7).

“The claims process is the responsibility of the administrator who communicates the

process and service standards to members. The responsibility of the Board is limited

to ensuring that the service standards in terms of the SLA between the administrator

and the fund are being adhered to”. (Response to questions 6.8 to 6.16).

“Claims repudiation does not apply to the services we offer.” (Response to question

6.12, 6.13 and 6.15).

“Risk benefits are at a group level and claims are only repudiated where relevant

details have not been disclosed and or late submission or required information”.


“We do not believe that from a fund perspective it is necessary to determine the

satisfaction level of a member once the fund has responded to a complaint. We find

that in many instances members do not understand how their benefits are structured

and even though the fund may resolve the complaint satisfactorily, a member may

still feel prejudiced but has in fact been treated fairly. In such a case, a member may

then request more information which is provided by the fund and the member also

has the option to then escalate the query to the Pension Fund Adjudicator”.


“We do not believe that it is the Board’s responsibility to monitor miss-selling by an

intermediary. This relationship is a contractual one between the employer/member

and the intermediary”. (Response to question 6.29).

One fund also expressed the view that it would be impractical to benchmark complaints

against competitors (question 20) as the information is not made readily available.

FSB observations

Although the Outcome 1 rating from retirement fund trustees is somewhat more positive than

some (not all) other sectors, the rating for the Outcome as a whole remains low in

comparison to that for other Outcomes, with an average rating of 62%. The spread of

ratings between “1 and 2”, “2 and 3” and “3 and 4” respectively for this Outcome, is almost

even. Although the low Outcome 1 average rating is consistent with other sectors, it is

notable in the case of trustees, where their fiduciary role could arguably lead one to expect a


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relatively higher degree of confidence that the fund’s culture and governance model is well

aligned to fair customer outcomes. In this regard we note that the elements of decision

making and leadership do attract reasonably high scores. The development of TCF aligned

management informing however rates poorly, with 60% of boards of trustees rating this at

only “1 to 2”, which is concerning.

Where “not applicable” ratings are concerned, the observations made under section 3.10 in

relation to retirement fund benefit administrators regarding the lack of clarity for TCF

responsibility across the value chain, apply equally here. A number of the motivations for

“not applicable” answers illustrate that the trustees concerned apparently regard some

elements of TCF delivery as the responsibility of the administrator, product supplier or

financial adviser – not theirs. Particularly when read with corresponding claims of non-

accountability by administrators, there appears to be potential risk that that customer

outcomes may not enjoy the necessary priority across the value chain.

It also appears that a number of responses – particularly to the motivations provided in the

follow-up responses summarised in Annexure B – although submitted by fund trustees were

in fact produced by the administrator and / or product supplier concerned.


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3.12 Banks

Ratings

The overall average TCF readiness rating for banks is 67%. This ranges between 71% for

Outcome 1 (Culture and Governance) and 77% for Outcome 2 (Products and services).


highest on the extent to which its products and services are designed to meet target market

needs (there are no sub-components for this Outcome), closely followed by the quality of

customer information, the quality of customer advice and the extent to which products

perform in line with customers’ expectations.

Banks rated themselves lowest on the extent to which reward, remuneration and recognition

are linked to TCF objectives, with the linkage between staff performance management and

TCF deliverables and the ease of switching product providers also attracting relatively low

scores.







88

s

Graph 16.1: Ratings per TCF Outcome (Banks)

89




response - are:









Graph 16.2: Responses to additional risk and TCF delivery questions per TCF Outcome (Banks)


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Graph 16.3: “Not applicable” responses (Banks)







The banks participating in the baseline study (a sample of only four, who participated

voluntarily) provided only general comments regarding non-applicability of the self-

assessment questions.

FSB observations

In view of the small sample of participants from this sector (four banks), observations will be

kept to a minimum.

The trend apparent for all other sectors, whereby Outcome 1 attracts the lowest average

rating, persists for the banking sector, as further discussed in Chapter 4. The banks’ rating

for this Outcome is however relatively higher than that for other product supplier categories

such as insurers and CIS managers (noting though that the far smaller sample makes


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comparisons of questionable value). As for a number of other sectors, the alignment of

reward, remuneration and incentives with TCF objectives is the lowest rated element.

Unlike other sectors, which generally rated themselves highly in relation to ease of switching

between providers, the banking sector gives itself a relatively low average rating for this

element.


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4.OVERALL TCF READINESS: CONCLUDING OBSERVATIONS

Since the publication of the TCF self-assessment pilot feedback report in August 2012 and

the final version of the self-assessment tool, the FSB has noted a significant increase in

general industry awareness and activity levels around the TCF initiative. When the FSB

published its feedback report on the pilot study, we were concerned that some pilot study

participants – and the financial sector as a whole - may have under-estimated the demands

of fully embedding TCF in their organisations. Many firms expressed confidence that TCF

was already firmly embedded in their culture, and that demonstrating full TCF adherence

would only require them to “tweak” certain processes and controls.

Since then, our engagements with most firms increasingly reveal a more considered

approach to TCF implementation, with many firms having carried out analyses of their

products and practices to identify TCF gaps and risks, and putting structured programs in

place to address these. Understandably, larger firms with more extensive resources and

infrastructure have typically been in a position to embark on the most comprehensive TCF

implementation plans. Arguably this is fitting, as it is these large firms that typically have the

most work to do in ensuring that consistent TCF standards and controls are in place across

their organisations, which often span multiple business models and product lines. The FSB

has however also seen encouraging signs that a growing number of small and medium sized

organisations and some specialist, niche operators are also focussing on TCF and taking

active steps to understand what it means for their businesses. Industry associations have

also provided valuable support in promoting TCF awareness among their membership and

engaging with the FSB to raise concerns and obtain guidance on TCF implementation

challenges in their sectors.

As explained in Chapter 2, this report does not focus on overarching, cross-sectoral findings

from the baseline study, due to the substantial differences between the business models,

products, services and customer groups covered and their divergent TCF implications.

Graph 17 below does however provide a very general illustration, in “heat map” format, of

the overall average TCF ratings (expressed as a percentage) per sector and per TCF

Outcome.

The following high level observations can be drawn from this heat map:

TCF Outcome 1, requiring firms to embed TCF in their culture and governance

models, appears to pose the greatest challenge to the financial sector as a whole.

All industry sectors gave Outcome 1 their lowest rating. This is in part due to the

design of the self-assessment questionnaire, which contemplates a range of

relatively specific governance controls and also attaches a double weighting to

Outcome 1 responses. The questionnaire therefore intentionally sets a high hurdle

for a high rating on this Outcome, in order to emphasise to firms that they should pay

particular attention to culture and governance matters to enable meaningful TCF

success on the other Outcomes.


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Within Outcome 1, the sub-component relating to TCF aligned reward systems

shows the lowest levels of implementation. Where the reward components are

concerned, firms are reminded of the TCF culture framework, which stipulates that

remuneration, incentive and reward policies need to take cognisance of fair customer

outcomes and entail consequences for TCF successes and failures. Incentivising

other essential business goals such as profit and sales volumes must be reasonably

balanced against encouraging TCF. Firms are also reminded that, in order to ensure

the firm’s decision makers are adequately focused on customer interests, TCF

aligned incentives and disincentives should not be limited to the level of customer

facing operational staff but should also apply at all appropriate leadership levels.

Overall ratings for Outcome 1 also suggest that the development of TCF related

management information is posing challenges. As the FSB has previously

communicated, it is important to adopt an outcomes based approach to TCF

management information. Firms should be identifying indicators that will help the firm

measure the quality of its business processes from the point of view of the

customer’s experience, and not only from the point of view of the firm’s own

productivity, efficiency and profitability targets. As the FSB has highlighted

consistently, customer “satisfaction scores”, in isolation, are not complete indicators

of the quality of customer outcomes. Where feasible, both “lead” and “lag” TCF

indicators should be considered. It may also be helpful for firms to review existing

measurements to see how they can be used or analysed for TCF measurement

purposes. Firms are also reminded that TCF management information need not

necessarily take the form of quantitative data. Clear qualitative and narrative

information providing insight into the firm’s TCF delivery is equally relevant and

helpful.

After Outcome 1, the next lowest scored Outcome, on average, is Outcome 2, which

requires firms to ensure that their products and services are appropriately designed

for identified target markets. Ratings for this Outcome do however vary substantially

between industry sectors, with administrative FSP’s, insurers and retirement fund

administrators apparently finding this Outcome most problematic. Funeral benefit

administrators, insurance binder holders, banks and Category I FSP’s provided more

positive ratings. However, it is necessary to consider these ratings in the light of the

“not applicable” ratings provided by participants from the sectors concerned, as

discussed earlier in this report, before drawing comparisons between sectors.

Scores in respect of Outcome 4, relating to suitable advice, are also mixed but

relatively high on average. Understandably, Category I FSP’s (primarily financial

advisers) rate themselves highly on this Outcome. Again, however, other relatively

high ratings should be considered in light of the “not applicable” responses.

The industry as a whole expresses a far higher degree of confidence in its success in

respect of the more operational, customer service related self-assessment questions

under Outcomes 3, 5 and 6. Particularly high ratings were submitted for Outcome 3,

in relation to the quality of disclosure, and for sub-components under Outcome 6

relating to product flexibility and claims handling practices. This is consistent with the

FSB’s general observation in its engagement with firms that much effort around TCF


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implementation has gone into customer service process improvements. In the

insurance related sectors (insurers, binder holders and other insurance

intermediaries), the focus on claims handling – which is regarded as the industry’s

“shop window” – stands to reason. A strong focus on customer service improvement

is commendable, although firms are reminded that the focus should be on

demonstrable improvement of actual qualitative customer experience, over and

above improvements in the speed and efficiency of operations. Firms should also

bear in mind that Outcome 1 requires a focus on the implications of TCF for all the

organisation’s strategic goals, and not only on specific strategies related to customer

service improvements.

An exception to the generally high ratings for customer facing processes is the more

modest rating, by some sectors, in relation to customer treatment standards where

third party service providers form part of the value chain. Again, this is consistent

with the FSB’s own observations that improvement is necessary in relation to the

impact of outsourcing on customer outcomes and the level of oversight over

outsourced functions. In the insurance sector, improvements are being driven by the

FSB through monitoring and enforcement of binder regulations and a directive on

outsourcing.

The FSB must point out that, despite the high self-assessed ratings for quality of

disclosure, claims handling, complaints handling and product and provider switching,

these remain areas of significant concern for us. These high ratings must therefore

not be interpreted as an indication that these elements warrant less attention. On the

contrary, specific regulatory projects are underway to ensure improved standards for

product disclosure, advertising and marketing, and complaints management. The

Insurance department of the FSB is also planning a review of insurance claims

handling practices. Where ease of switching between products and providers is

concerned, early termination charges on insurance savings products remain a key

concern and focus area.


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Graph 17: Overall TCF ratings heat map

TCF Outcomes Sectors

L-T

Insu

rers

S-T

Insu

rers

Bin

der

ho

lder

s

Cat

I FS

P (

gro

up

)

Cat

I FS

P (

no

n g

rou

p)

CIS

Man

ager

s

Cat

II &

IIA

FSP

Cat

III F

SP

Cat

IV F

SP

Re

t fu

nd

ad

min

Re

t fu

nd

tru

ste

es

Ban

ks

OVERALL TCF RATING

Outcome 1 (Culture & Governance)

Strategy

Governance_Controls

Decision_Making

Leadership

MI

Performance_Management

Reward

Outcome 2 (Products & Services)

Outcome 3 (Disclosure)

Outcome 4 (Suitable advice)

Outcome 5 (Performance & Service)

Product_Performance_Expectations

Third_Parties

Outcome 6 (Claims, complaints, changes)

Complaints_Handling

Changing_Products

Switching_Providers

Claims_Disbursement_Handling Key to TCF average ratings:

Below 50% 65% to 69%

50% to 54% 70% to 74%

55% to 59% 75% to 79%

60% to 64% 80% and above


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ANNEXURE A:

The six TCF Outcomes and TCF culture framework

The full text of the TCF Outcomes and culture framework, as set out in the TCF Roadmap,

are provided here for reference. The brief descriptors of the Outcomes as reflected in some

of the graphs in this report - for example “Outcome 3: Clear appropriate information” – are

merely abbreviations, and the full content of each Outcome must be considered when

assessing baseline data.

The six TCF fairness outcomes

Outcome 1: Customers are confident that they are dealing with firms where the fair treatment

of customers is central to the firm culture.

Outcome 2: Products and services marketed and sold in the retail market are designed to

meet the needs of identified customer groups and are targeted accordingly.

Outcome 3: Customers are given clear information and are kept appropriately informed

before, during and after the time of contracting.

Outcome 4: Where customers receive advice, the advice is suitable and takes account of

their circumstances.

Outcome 5: Customers are provided with products that perform as firms have led them to

expect, and the associated service is both of an acceptable standard and what they have

been led to expect.

Outcome 6: Customers do not face unreasonable post-sale barriers to change product,

switch provider, submit a claim or make a complaint.

TCF culture framework

To ensure the behaviours and attitudes necessary for TCF, firms will be expected to build a TCF approach into the following organisational structures and processes:

Leadership: The Board, senior and middle management need to provide direction and

monitor the delivery of TCF behaviours and outcomes. TCF must be “owned” by the most

senior management structures within the organisation, which will be held to account to

ensure the delivery of TCF outcomes at all levels. The importance of TCF must not only be

understood, it must also be implemented in all business areas and this requires meaningful

“top down” direction.

Strategy: The TCF aims should not merely be part of a firm’s stated vision and values. They

also need to be carried through to implementation as part of the firm’s broader business

strategy. The TCF approach should be built into any strategic and business plans (or


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changes in plans) developed by senior management and should form an essential

component of any strategic planning processes.

Decision-making: Decision-making protocols should ensure that decisions are tested for

customer impact. All decisions that impact on customers should be subject to the challenge

implicit in the TCF strategy of the company. For staff to feel they can evaluate and challenge

decisions from the TCF perspective - without repercussion - it may be necessary to set

processes in place or to create a conducive environment.

Governance and controls: The governance structures and control mechanisms within firms

will need to be designed to create disciplines around TCF. For example, governance

processes around product approval, distribution models, service standard setting, claims

reviews and complaint escalations would all need to cater for TCF considerations. It will also

be necessary to develop appropriate management information and measurement systems to

ensure that the success of a firm’s TCF strategy can be measured and that TCF risks can be

identified. Governance and control mechanisms will also need to be in place to ensure the

firm’s compliance with the explicit rules-based components of the TCF regulatory framework

and to deliver any reports that may be required by the FSB.

Performance management: The recruitment of appropriate staff and representatives, trained

to deliver appropriate TCF outcomes, is necessary. TCF deliverables should form part of

staff performance contracts where appropriate and performance should be evaluated in

terms of TCF competence and expectations. This should not apply only at the level of

customer-facing staff, but also at middle and senior management levels to ensure that both

staff and management are appropriately held to account for TCF successes and failures.

Reward: Remuneration, incentive and reward policies need to take cognisance of fair

customer outcomes and entail consequences for TCF successes and failures. Incentivising

other essential business goals such as profit and sales volumes must be reasonably

balanced against encouraging TCF. Reward practices may therefore need to be reviewed to

ensure that conflicts of interest are avoided and unreasonable risk-taking at the expense of

customer protection is not incentivised.


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ANNEXURE B: Follow-up information provided

After reviewing and collating the initial baseline submissions, the FSB selected a sample of

participants for follow-up, to carry out a high level assessment of the consistency of the self-

ratings provided. Participants selected for follow-up were requested to substantiate their

answers to selected questions where they gave themselves a rating of “3” or “4” or where

they answered “Yes” to some of the additional risk management and TCF progress related

questions.

This Annexure summarises some of the noteworthy inputs provided by those baseline

participants who were approached to provide follow-up information in relation to their initial

responses to certain specific baseline questions. As explained in Chapter 2, the follow-up

responses were not used to adjust any participant’s rating, but are summarised for

information purposes. Note that the level of detail provided – which often included separate

supporting documentation - has been significantly reduced and explanations have been

paraphrased to protect the participants’ confidentiality.

In these paragraphs, the FSB does not express a view on whether or not we agree that the

motivations provided adequately support the specific ratings submitted. The motivations are

merely summarised to provide readers with insight into the rating approach used by the

participants. In cases where more than one response is summarised for the same question –

sometimes with the same and sometimes with different ratings – the differences in response

illustrate the different interpretations of the questions or ratings concerned that participants

applied.

The follow-up responses are set out per category of baseline participant. For each category,

a selection of the specific questions selected for follow-up for selected TCF Outcomes, and a

summary of selected responses is shown. Note that not all follow-up questions and not all

responses are summarised. Also note that, in cases where a participant completed the

baseline study in more than one regulated capacity (for example as both an insurer and a

retirement fund benefit administrator, or as both a Category I FSP and an insurer), similar

submissions were made for both roles. Although these submissions have not been

repeated, this does mean that some responses will not be unique to the category of

participant concerned, but will rather reflect that participant’s more general group-wide

motivation for the rating concerned.

1. LONG-TERM INSURERS

Some of the specific questions selected for follow-up for this category of participants, and a

summary of responses, are as follows.

Outcome 1, question 1.21: Remuneration is meaningfully linked to the achievement of TCF

objectives, at all levels.

A rating of “3” for this question was motivated as follows:


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The firm has included achievement of TCF outcomes in certain senior management

incentives during 2013, with plans to roll this out to other staff levels in 2014. All staff

levels’ incentives are however already linked to the firm’s customer service strategy,

which contains TCF elements.


Operational staff performance is measured on quantitative and qualitative measures

based on the firm’s values. Telemarketers’ remuneration takes account of lapse

ratios and other customer experience measures at various stages of the product life

cycle. Support department remuneration, at department and individual levels, takes

account of customer satisfaction measures comprising a wide range of indicators

including complaints data, service level data, claims data, social media feedback

data, policy retention data, and quality assurance and audit data. All data is

supported by management information through a dedicated system.

Outcome 2, question 2.12: We track sales to determine whether products are in fact sold to

identified customer groups.


The insurer concerned operates in the consumer credit insurance market. Customer

groups are identified as a function of the firm’s specific product offering and suitability

of individual sales is achieved through the credit assessment process. Regular

management reports on product take-up are monitored to ensure sales to the correct

target market.

Outcome 2, question 2.13: We have a process in place to mitigate risks where it becomes

apparent that the product or distribution and/or administration method was not suitable for

the identified customer group, or that the product has been distributed to inappropriate

customer target groups.


The firm’s proactive product design process (it operates in a targeted niche, high

income market) in itself mitigates the risk of unsuitable products. Products are

developed in consultation with the specific business that distributes and administers

products to the target customer base on an exclusive basis. Due to the niche nature

of the products, product changes are rare and subject to strict compliance oversight.

The relevant standards are not documented, but are consistently applied.


Risk of inappropriately targeted products is addressed by ensuring that products are

distributed only through the firm’s advisers, with compliance checks of the financial

advice process.


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Outcome 2, additional Question 1: We have identified specific risks in the business that

could impact on our ability to deliver this TCF Outcome, and we are actively managing these

risks as part of our risk management framework.

“Yes” answers to this question were motivated by different participants as follows:

The firm’s products are specifically designed for the needs of a fairly narrowly defined

mainly lower income target market. This is verified through regular market research,

the results of which are used to inform ongoing product and service improvement.

The market research results are also analysed together with dispute resolution data

to identify risks of inappropriate product targeting or inadequate communication.

Specific risks that have been identified for this Outcome include lack of product

understanding and submission of incomplete claims requirements. Examples of risk

mitigation measures for each of these risks were provided.

The insurer does not provide advice and products are distributed through

independent advisers. General risk management processes were described.

Specific risks identified include: The risk of creating products and services not

aligned to target market needs; the risk of inaccurate product advertising; the risk of

inadequate adviser accreditation or staff training; the risk of inadequate product

design; and the risk of poor quality underwriting or customer service. Details were

provided of how each of these risks were categorised within the firm’s risk

management framework and of specific risk mitigation measures for each risk.




A “yes” answer to this question was motivated as follows:

Specific risks identified for this Outcome relate to lapses, gearing, claims

management. Risk mitigation measures include rules based underwriting, quality

assurance processes based on specific risk criteria, workflow management systems

and record keeping processes.

Outcome 3, additional Question 2: We are able to provide concrete examples, supported by

management information, of improvement in the extent to which we are delivering this TCF

Outcome to our customers.


Customer feedback surveys are conducted on quality of communication. Customer

interactions are subject to quality assurance and monthly management information

covering various indicators, including clarity of communication.

Outcome 4, question 4.1: Before deciding to market a product, we assess whether we have

the appropriate skills and business processes in place to provide advice and service that will

be suitable for the target market and product concerned.


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Product development projects include assessment of services required and

associated skills. Product training and ongoing product information is also provided

to intermediaries, who are also subject to oversight. Customer feedback from multiple

sources is monitored by various internal operational and control functions.





Specific risks identified for this Outcome were described as lapse risk and

governance and compliance risk. Risk mitigation tools include product substitution,

PI cover, and various compliance checks. The risk is also managed through an

automated advice scripting process, limited financial needs analysis template and

parameter driven underwriting, all of which are subject to quality assurance and

record keeping controls (the participant operates a direct telesales marketing model.)

Outcome 4, additional question 2: We are able to provide concrete examples, supported by




Monthly management reports on risk, error and developmental areas identified are

reviewed, and action taken includes financial penalties and possible disciplinary

action for representatives.

Outcome 5, question 5.2: We analyse the product retention / portfolio switching/ early

determination/ behaviour of our customers to identify risks that products or services are not

meeting expectations created.


TCF risk indicators reported to and monitored by the insurer’s Board include claims

experience and terminations, each being subject to set risk thresholds.

Outcome 5, question 5.13: We regularly monitor the third party's customer treatment

standards, including how the third party meets customer expectations.


Treatment of customers by third parties is monitored through: Thorough pre-

appointment assessment of service standards, quality of work and capacity; audited

service level agreements structured to enable service monitoring; third party

education initiatives; customer satisfaction surveys on third party service perceptions;

monitoring complaints data.


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Risks identified for this Outcome include: Risk of making incorrect payments; failure

to employ appropriately fit and proper staff; inadequate third party supplier base;

service delivery failure; failure of support systems; risk of not addressing poor

performance by third party service providers. Details of a range of specific risk

identification and mitigation tools for each of these risks were provided.





A detailed list of TCF related indicators was provided, together with explanations of

how these are monitored using various risk management tools and reports.

Indicators included (but were not limited to) analysis of multiple sources of customer

feedback and complaints (including Ombud data); cancellation and retention data;

claims rejection data; social media; and findings of internal quality assurance and

audit processes. Over and above formal management information reporting on these

indicators, “robust discussions and debates where results are challenged and

analysed” were also described as a risk mitigation tool.

Outcome 6, question 6.7: When we receive a request to switch providers (whether directly or

indirectly through another party) we inform the customer of any potential risks associated

with the switch.


Adherence to the ASISA Code on Replacements and ensuring a signed customer

request to transfer, with reasons for the transfer, is obtained.


A dedicated retention team informs the customer of the risks of switching and

consequences of policy cancellation are also set out in product documentation.

Cancellation requests and the service standards of the retention team are regularly

reviewed.

Outcome 6, question 6.16: We analyse types of claims and claims repudiation experience to

assess the appropriateness of the product for the customer group concerned and to identify

any risks of mis-selling (whether by our own representatives or not).


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An independent committee, including external representatives, reviews claims and

underwriting trends and processes and uses its findings to update relevant business

processes.

Outcome 6, question 6.29: We analyse complaints to identify any risks of mis-selling

(whether by our own representatives or not).


Customer complaints from multiple sources throughout the group are centrally

analysed on a regular basis and results are used to improve business and sales

processes.

Outcome 6, additional question 1: We have identified specific risks in the business that could

impact on our ability to deliver this TCF Outcome, and we are actively managing these risks

as part of our risk management framework.


Specific risks identified for this Outcome include the risk of not capturing claims

accurately and completely and the risk of failing to identify, manage and adequately

rectify customer complaints. Risk management measures to respond to these

include relevant procedure manuals and policies, automated processes, record

keeping, coaching and training and disciplinary processes.

2. SHORT-TERM INSURERS



Outcome 1, question 1.24: Existing MI measures have been reviewed to determine which

are useful for TCF monitoring and new measures have been identified where necessary.


An example was provided of daily, weekly and monthly reporting prepared by a

central research team and shared with all business units, containing detailed

customer feedback information from multiple internal and external sources. Follow-up

mechanisms are in place for business units to report on preventative action taken in

response to such reports. Trends identified are addressed through training and

coaching, or disciplinary action where necessary.


A detailed list of TCF related MI measures and reporting processes (copies provided

by the participant) was developed, linking existing MI measures back to the TCF


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Outcomes and introducing new measures. Thereafter, a number of these measures

have also been identified as key risk indicators for purposes of the Solvency

Assessment and Management (SAM) implementation measures. The participant

described TCF risk management as “evolving process” requiring continuous MI

improvement.





Various types of internal and external consumer research carried out by the insurer

were described.

Outcome 3, question 3.7: We regularly review standardised product information we use

(whether produced by us or not) to ensure that it remains accurate, clear and appropriate to

the applicable customer groups.


A list of specific types of product related information that is regularly reviewed was

provided, including physical and electronic information, and including contractual,

marketing and training material. Responsibility for such review is assigned to a

dedicated team. An annual scheduled plan for review of all listed items is in place.

Additional ad hoc documentation checks are carried out by the compliance team.

Input on information quality is obtained from policyholders, staff and service

providers. Processes are in place to ensure that relevant training material is updated

simultaneously with changes to product material. Documentation changes are

subject to a “combined assurance” multi-department testing process.

Outcome 3, question 3.12: We control the accuracy and quality of any once-off or non-

standard product information provided by staff or representatives.


Accuracy and quality is controlled through a combination of: Staff training and testing

on product information before staff may interact with customers; an accessible

business rules information repository; regular “refresher” communications to staff,

highlighting information on issues that have been identified as confusing or

commonly misunderstood; quality assurance and improvement processes; coaching

and training; and staff performance measures.


Accuracy and quality is controlled through a combination of: Training and testing of

new staff members; ongoing training including e-learning; team manager supervision;

and regular and ad hoc quality audits. Where quality audits reveal misinformation,

remedial action is taken to ensure the customer is not prejudiced.


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Specific identified risks related to this Outcome include: Risk that customers do not

receive information; failure to issue specific communications on the happening of

certain events; post office strikes; equipment failure; poor quality communication

(verbal or written); risk that customer are not kept informed of progress of

transactions; unauthorised or inaccurate information. Details were provided of

specific identification and mitigation tools in relation to each of these risks. One of

these relates to encouraging customers to use faster, more reliable communication

channels.


impact on our ability to delivery this TCF Outcome, and we are actively managing these risks



The product itself is designed to ensure flexibility, so that customers may add or

remove product features (including “value added products”) or switch between

product features as their needs change. Product material clearly sets out claims

processes, cover exclusions or limitations, and warns of the consequences of non-

disclosure. Complaints management standards are in place, complaint channels are

clearly communicated and complaints handling staff are appropriately trained.





A weekly forum to review and debate disputed claims has been established, the

complaints management process has been enhanced and an automated complaints

escalation mechanism for customers has been introduced.

3. INSURANCE BINDER HOLDERS







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The binder holder has recently agreed with the insurer it is contracted to that TCF

principles will be included in the staff performance appraisal process. Intermediary

remuneration paid and binder fees earned are disclosed to customers.




The firm has a “needs-based” approach to product development which helps it

ensure that products are suitably targeted. The product is designed to be able to

meet exact needs, and adapt to them over time, making it accessible to and

appropriate for a broader range of customers than less flexible products.




Intermediaries receive product information through formal product training at launch,

refresher training and product material. The binder holder also ensures that a staff

member is allocated to the intermediary and is accessible if information is required.


The binder holder provides the broker, as the point of contact with the customer, with

relevant product information. To minimise the risk of possible incorrect product

information, the binder holder maintains an updated website, interacts on social

media platforms, provides regular product training to brokers and carries out regular

“industry education” in the form of articles in industry magazines and radio and

television interviews educating both the industry and the public on general insurance

principles, claims tips, underwriting principles and insurance pitfalls. A monthly

newsletter to the intermediary base is distributed, which includes information on

product related developments.

Outcome 4, question 4.12: There are clear agreements in place between us and any

intermediaries who provide advice on the products we provide or administer, setting out our

respective responsibilities in relation to providing customers with advice, information and

service support. These agreements are structured to ensure that customers understand

who they should look to in relation to different aspects of the financial products or service

provided to them.


Service level agreements are in place between the binder holder and intermediaries,

setting out their respective responsibilities. Disclosures to customers also describe

the different parties’ roles, together with relevant contact information.


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“Yes” answers to this question from different participants were motivated as follows:

As the binder holder is not a party to the sales transaction, advice related risk is

managed through proactive controls such as product training and reactive controls

such as complaint escalation processes.

As the intermediary, not the binder holder, is responsible for customer advice, the

binder holder manages advice risk by keeping the intermediaries informed and

training them on product, product changes and implementation.

Before entering into an agreement with an intermediary to distribute products, the

binder holder uses a profile checklist to determine the most appropriate product set

for the distributor’s profile.

Outcome 6, additional question 6.13: We consider the customer’s reasonable benefit

expectations and our TCF objectives before making a decision to repudiate or decline a

claim or disbursement request.


The binder holder has identified common customer misunderstandings in respect of

the products concerned and has designed contract material to draw customers’

attention to the relevant provisions. Intermediaries are also trained to draw the

customer’s attention to these provisions. Appeal mechanisms are available to

customers and “ex gratia” payments are considered where warranted.

Outcome 6, question 6.28: Processes are in place to ensure consistency in complaints

handling. We have a policy in place for fair compensation of customers who have been

financially prejudiced by unfair treatment, which is not limited only to those customers who

complain.

Ratings of “3” for this question were motivated by different participants as follows:

Formal complaints and escalation procedures are in place, including an appeal

mechanism.

Complaints channels are clearly disclosed, and service levels and escalation

processes communicated to financial advisers. The individual tasked with overseeing

complaints is an executive board member, supported by a dedicated team. The

mandate of the team includes acting in the customer’s best interests and avoiding

customer financial prejudice, including in respect of customers who may not request


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or be aware of benefits to which they may be entitled. Examples were provided of

customers being proactively alerted to claimable benefits, without a specific claim

having been made and proactively advised of opportunities to restructure products

when needs change (including where a need falls away).


The binder holder’s complaints policy is publicly available on its website, a

complaints register is maintained and complaints contact details are communicated

to customers. The firm does not however have clear standards regarding customer

compensation.





Customer complaints are analysed on an on-going basis and a “live” claims register

is designed to record customers’ reasons for dissatisfaction and their feedback both

during the complaints handling process and after resolution, to help ensure that

complaints are handled consistently and timeously. Customer service and claim call

centre interactions are constantly monitored.





Social media feedback and complaints are monitored constantly and analysed and

categorised to identify root causes as well as respond to resolve the matter

concerned. A copy of the firm’s risk management report, evidencing an improvement

in customer ratings in this regard, was provided.

4. FAIS CATEGORY I FSP’S – PART OF A PRODUCT SUPPLIER GROUP



Outcome 1, question 1.14: The management of TCF and market conduct risks are formally

included in the risk management framework.


The formal risk management and reporting framework of the broader group was

briefly described, confirming that legislative changes, including TCF, have been

identified as a major risk area which is being actively monitored.


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The firm’s conceptual approach to embedding TCF throughout its business was

described, including integrating responsibility for TCF compliance into normal line

management duties and processes. Emphasis was placed on reputational risk

management. Specific risk mitigation measures highlighted related to voluntary

terminations of certain agreements, and controls over advertising practices, primarily

with reference to FAIS Act provisions.

Outcome 1, question 1.18: Performance evaluation criteria incorporate TCF objectives and

are rigorously applied at all levels.


TCF objectives are included in performance criteria for both customer facing and

support staff at across all levels. Performance measures include: Quality assurance

data; measures based on the firm’s internal culture and values programme, which is

largely broadly aligned to the TCF Outcomes (details of the programme and

measures were provided); external customer survey measures. TCF objectives are

addressed at performance planning, performance evaluation and ongoing staff

development phases of the performance management process. Performance

measures, including TCF measures, are taken into account in determining salary

increases, bonuses and specific recognition awards.


TCF principles and deliverables are incorporated in policies and procedures,

including training, evaluation, testing and performance appraisals, and monitored

through regular reporting. Recruitment processes include psychometric assessments

and interview guidelines in respect of relevant attributes. Mis-selling or bad service

by any staff member will result in them being removed from the reward system, the

loss of bonuses and initiation of remedial action through counselling and further

training. Management information findings are used to identify staff training needs,

restraining, counselling and disciplinary action.



Ratings of “3” for this question were motivated as follows by different participants:

The product concerned is designed for a wide market, with identified customer

groups determined based on a specific target market analysis, profiling criteria

including, age, demographics, the inherent nature of the insured risk and inherent

client risk. The product pricing also includes elements of customer behaviour and

demographics which are designed into the risk rating criteria. In all cases the sale is

only made to customers who meet these criteria. Where pricing and risk models

change from time to time, processes are in place to ensure that outlying customers

can be accommodated with the same or replacement products. Indicators used to

measure product fairness include termination/cancellation data, policy changes,


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complaints, quality assurance, customer satisfaction measures, and mystery

shopping. Certain indicators also apply at individual intermediary level.

The product is designed to meet specific individual needs, and adapt to changing

needs over time. Details and background to the product design and needs matching

process were provided. The needs matching process enables financial advisers to

capture details of specific customer circumstances and structure cover accordingly.

Because of the detailed information about the client’s needs that is captured at

quotation stage, the FSP is able to closely track and monitor customer needs and

product suitability. It also enables the FSP to identify trends and changes over time.

This analysis is used to inform the training of the FSP’s representatives, as well as

the development of marketing material.


The FSP’s actuaries maintain a demographic analysis of customers, which is used to

track demographic details across all products, using the data to inform future product

design and pricing.

Outcome 2, question 2.13: We have a process in place to mitigate risks where it becomes

apparent that the product or distribution and/or administration method was not suitable for

the identified customer group, or that the product has been distributed to inappropriate

customer target groups.


The FSP concerned operates in the occupational retirement fund space, with its

objective being to achieve a good retirement outcome for members. Risk in this

regard is monitored through regulator operations reports to fund trustees, analysis of

member movements, analysis of complaints data. Employers are also expected to

exercise judgment and care when selecting products for their employees, supported

by the FSP’s authorised advisers, who undergo an approval process.


A cooling-off period applies for new transactions, and certain product changes are

available during the life of the product in the event of changed needs or in the event

of “default” options not proving suitable.





Specific risks identified relate to lapse and claims experience and acquisition

expenses. Risk management tools include product substitution; rules based

underwriting; sales quality assessment and re-pricing strategies. Alignment of

product profiles and customer demographic profiles is managed through appropriate


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advertising. Research is conducted to review market trends and identify product gaps

in the industry. Independent customer surveys are also triggered after a customer

interacts with one of the firm’s representatives, a consultant conducted by an outside

party and reported on regularly.

Outcome 4, question 4.2: Before contracting with any FSP to market our products, we

conduct an appropriate level of due diligence to satisfy ourselves that their advice processes

and service levels are likely to meet our customers’ reasonable expectations.


Contracts with intermediaries contain service level agreements. Due diligence checks

may include interviews and site visits, and checking FSB records.

Outcome 4, question 4.8: Over and above complaints, we monitor potential TCF indicators

such as insurance claims experience, product retention, early termination data, investment

portfolio switching, type and frequency of product changes, etc., in relation to customers

associated with different FSP’s to identify and mitigate risks of inappropriate advice or poor

customer outcomes attributable to the FSP concerned.


TCF indicators reported on monthly include deal retention, early termination and

claims and are reviewed at different organisational levels.


TCF indicators monitored, reported on to the firm’s Board and subject to a set risk

threshold include service level experience and service contract terminations.




“Yes” answers to this question were motivated as follows by different participants:

Such risks are monitored through the firm’s compliance and risk reporting processes.

An example of a specific reported incident was provided.

Advice related risks are managed through PI cover, intermediary FAIS examinations,

and internal service culture measures. The sales process entails a system driven

advice scripting and recording process, which is subject to ongoing quality

assurance.




A “yes’ answer to this question was motivated as follows:


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A description and example was provided of product related consumer research

undertaken, which was used to inform product improvements. Various other types of

internal and external consumer research undertaken by the firm were also described.




A “yes’ answer to this question was motivated as follows by different participants:

The firm’s enterprise wide risk management framework was described. A key

performance requirement for this Outcome is for the customer to be able to contact

the firm in the event of a change, claim or complaint. Ease of access, clear

communication of access points and complaints handling skills are focus areas. TCF

indicators monitored in this regard are complaints data, cancellations soon after

claiming (the participant is in the short-term insurance market), and customers

changing advisers or advisers moving business. Claim repudiations, related

customer communications and complaints after a claim are closely vetted.

Claims risk is managed through parameter driven underwriting and sales quality

assessment, with scripted, sequenced, recorded and quality assured.

5. FAIS CATEGORY I FSP’S – NOT PART OF A PRODUCT SUPPLIER GROUP



Outcome 2, question 2.7: We have processes in place to ensure fair treatment of customers

or members, with regard to bundled and “add on” products or services, including ensuring

that these products or services are appropriately targeted to the needs of customer groups

they are provided to.


The FSP’s product approval committee ensures that these features meet the needs

of the identified target market when launched, and thereafter working groups review

business sustainability by monitoring lapses, withdrawals, cancellations, etc., by

product. Follow up calls are made to customers to better understand reasons for

these events.





Details were provided of an analysis the firm conducted of customers to whom

products were sold over a nine month period, to determine the firm’s target market.


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The analysis has satisfied the FSP that it has sufficient products and services

available to be able to meet the target market’s needs. Client data management

systems are also used to enable representatives to focus on offering a particular

product to a particular target market, albeit at the representative’s discretion.





Advice risk in general is mitigated through a control system that prevents commission

on a product sale being released to the FSP’s representatives unless and until a

customer advice record is captured on the firm’s systems. In addition, a particular

risk was identified in relation to a specific product feature offered by one of the

insurers supported by the FSP, which requires a particular level of disclosure to

ensure the product’s intended benefits are realised. Additional controls were

introduced to ensure that customers are provided with the information concerned on

an ongoing basis, failing which commission restrictions apply. Another specific risk

identified related to the quality of advice of new, inexperienced representatives,

where supervision and monitoring controls were introduced.

Outcome 5, question 5.1: Processes are in place to mitigate risks to customers identified by

our on-going monitoring of environmental, regulatory and economic developments that could

impact on the extent to which products will meet with customers reasonable benefit

expectations.


The FSP’s representatives are required to conduct regular reviews of customers’

investment risk profiles, taking into account both changes in personal and economic

circumstances. Any relevant changes in regulation are communicated to

management, who are expected to pass this information on the FSP’s

representatives, although evidence of this having been done is not required.

Outcome 6, question 6.5: When we receive a request to change a product (whether directly

or through another party), we inform the customer of any potential risks associated with the

change, in reasonable time for them to respond or act on the information.


The FSP described product replacement controls over and above the policy

replacement processes required by ASISA. Inter alia, a full comparison of the new

product and the replaced product must be provided, failing which commission in

respect of the new product will not be released. Where the FSP’s representatives

are informed by a product provider that an existing product is being replaced by a

product policy with another product provider, representatives are required to contact

the customer to ascertain that the replacement is in the customer’s interest.


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The FSP’s complaints handling process for complaints regarding the conduct, service

or advice provided by its representatives was described. The process includes

requiring management to submit a full report on full details of any such complaints to

the firm’s executive management on a weekly basis, and details are also submitted

to the FSP’s compliance officer.

6. CIS MANAGEMENT COMPANIES



Outcome 4, question 4.2: Before contracting with any FSP to market our products, we

conduct an appropriate level of due diligence to satisfy ourselves that their advice processes

and service levels are likely to meet our customers’ reasonable expectations.


The CIS manager described due diligence processes used when making its products

available on an external LISP platform, and when contracting with independent

intermediaries to market its products. In the former case, controls include assessing

the platform provider’s administration and marketing processes, financial stability,

organisational structure and licensing conditions. In the latter case, controls include

evidence of FSB FAIS licensing.

Outcome 4, question 4.3: We satisfy ourselves that the FSPs and their representatives who

provide advice on our products are adequately trained on the specific products concerned to

enable them to provide suitable advice on those products.


The CIS manager applies the following controls: Only suitably qualifies investment

managers are appointed to manage investments through its schemes; checks are

performed to ensure that the representative of an FSP which provides advice on the

product is suitably FAIS licensed; representatives of FSPs who provide advice on the

firm’s funds are invited to annual road shows and other forums to learn more about

the firm’s investment philosophies, people and processes behind each portfolio and

via their collective investment scheme also provide regular communication and

updates to FSPs and their representatives to make sure that their clients are

appropriately advised on these funds.




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expectations.


Each member of the Board and senior management of the firm are themselves

expected to identify potential external factors that could impact its ability to serve its

clients. In addition, the firm’s risk management function annually reports on possible

high level environmental and/or economic conditions for Board and senior

management discussion, with specific deliverables arising from this discussion being

delegated to business units for action. The firm also actively participates in industry

association forums focussing on various environmental factors. Legal and

compliance functions monitor and communicate legislative and regulatory changes

and, together with other parts of the business, analyse the impact of such changes

and find ways to maximise customer benefit, initiating specific projects where

relevant.

Outcome 5, question 5.8: Processes are in place to mitigate the risks to our

customers/members where it becomes apparent that products are not performing or are

unlikely to perform as they have been led to expect.


The CIS management company regularly reviews the performance of its investment

managers against peers and sets investment objectives to identify products which

are or are not performing or are unlikely to perform in future. It is not so much

underperformance as unexplained performance that will cause the firm to act in a

case of non-performing products. The firm also monitors the compliance of

investment managers with investment mandates.


The response was based on the fact that the firm’s products offer stable, relatively

low risk returns, and that customers dissatisfied with investment performance have

complaint escalation processes available to them.





Peer group investment rankings are monitored regularly. Initial and ongoing due

diligence visits with investment managers are conducted, which entail interrogation of

performance, investment philosophy, people and processes, and any changes to

these factors that contribute to consistent delivery on investment mandates.

Outcome 6, question 6.28: Processes are in place to ensure consistency in complaints

handling. We have a policy in place for fair compensation of customers who have been


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financially prejudiced by unfair treatment, which is not limited only to those customers who

complain.


All client-facing staff undergoes specific training to resolve customer queries

themselves where possible. For retail customers, escalations are allocated to a

dedicated team responsible for root cause analysis, monitoring and prevention of

recurrences, and which also trains new client facing staff on the complaints process.

Weekly complaints reports are used for early identification of trends and resolution of

possible fairness or market conduct risks. The firms risk structures also monitor

complaints trends and data, feeding relevant management information through to

Board level governance structures. A separate dedicated team deals with service

failure related complaints. Where a customer has been potentially financially

disadvantaged, senior management is consulted and, where applicable, legal opinion

is sought from our Legal and Compliance departments. The firm’s policy is to

compensate clients when it is at fault. Where multiple clients may be affected,

specific analysis is done and the same corrective action as for individual cases

applies, including financial compensation to all affected clients.


The firm’s centralised, group level complaints management structure, ensuring

operational consistency, was described. A complaint resolution manual exists, which

is annually reviewed and updated. Full details of all complaints throughout the group,

including analysis and management information, are captured on a central web-

based system, ensuring that complaint themes and issues can be identified, tracked,

monitored, reported and resolved. Monthly complaints meetings are held with team

leaders and staff. Monthly complaints reports are submitted to a group-wide risk

forum, which discusses and records underlying complaint issues, themes and

possible compensations. Further escalation of material matters lies to Board

strictures. The firm has begun categorising complaints in terms of TCF outcomes to

ensure TCF assessment and analysis. Complaint training processes are in the

process of being enhanced.





A specific identified risk relates to the fact that the CIS managers customers cannot

transact electronically in relation to transactions covered by this Outcome. Enhanced

systems functionality is being introduced and is at an advanced stage.


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7. FAIS CATEGORY II AND IIA FSP’S (INVESTMENT MANAGERS AND HEDGE

FUND MANAGERS)



Outcome 1, question 1.14: The management of TCF and market conduct risks are formally

included in the risk management framework.


The investment manager is subject to the group-wide risk management and

corporate governance framework of its overall group, including a group Board

committee whose terms of reference include adherence to the six TCF Outcomes.





Prior to constructing an investment portfolio on which an FSP would provide advice

to their clients, the investment manager carries out an in-depth mandate discussion

to ensure alignment between the portfolios’ intended investment outcome and the

investors’ expectations. Suitability of each portfolio’s investment mandate is then

reviewed at quarterly meetings with FSP’s to ensure they remain applicable to the

clients invested in each portfolio.




“Yes” answers to this question were motivated as follows by different investment managers:

The investment manager provided an example of a quarterly reporting format,

analysing each investment portfolio against an agreed peer group. This is done in

order to assess the appropriateness of the portfolio as measured against other

similar portfolios which could be considered by investors.

Products are monitored on an ongoing basis to confirm benefit to the customer.

Financial advisers make use of cash flow models and risk profile questionnaires,

amongst others, to assist in this regard. The investment manager performs annual

due diligence investigations on all product suppliers’ products and underlying funds.

Outcome 3, question 3.3: We test the product information for its clarity with the target

audience before issuing it.



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The investment manager acts as an investment consultant to a number of FSP’s.

Before we coming to an agreement with any FSP the firm engages with the

prospective customer to determine the exact mandate that it is expected to deliver on

and to clarify all parties’ expectations.


Pension fund customers of the investment manager are regularly briefed on fund

performance and trustee training provided. These sessions are used to test trustees’

understanding of the different funds and products. Monthly newsletters on

investment performance matters are also distributed.

Outcome 4, question 4.3: We satisfy ourselves that the FSPs and their representatives who

provide advice on our products are adequately trained on the specific products concerned to

enable them to provide suitable advice on those products.


Comprehensive quarterly customer investment reports are presented to and

discussed with the relevant FSP and its representatives. All FSP’s through whom

investment services are provided are vetted for FAIS licence compliance.


All the investment manager’s representatives are members of the Financial Planning

Institute and are required to meet ongoing CPD requirements. Representatives

receive training from the product supplier concerned whenever any new product from

another provider is introduced. Both investment managers and advisers receive

frequent, regular updated training, including from external parties.





The question was answered with reference to the quality of ongoing investment

reports and other regulator engagements with customers, together with the fact that

client retention ratios for the investment manager are high.

Outcome 5, question 5.2: We analyse the product retention / portfolio switching/ early

determination/ behaviour of our customers to identify risks that products or services are not

meeting expectations created.


System reports, filtered according to age, risk profile, and equity content, track sales

to determine whether products are in fact sold to identified groups with the correct

profile. Any variation from the firm’s sales budget is evaluated to identify the


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possibility of miss-selling. Customer profiles are reviewed annually and customers

are contacted as soon as suitability risks are identified. Insurance is in place should

losses be suffered.

Outcome 5, question 5.13: We regularly monitor the third party's customer treatment

standards, including how the third party meets customer expectations.


Customer treatment standards are enforced on behalf of clients by the investment

manager acting as a “true intermediary” (through its full discretionary mandate) in the

sense that there is no contact between the third party service provider and the

investment manager’s customer. The level of service that the customer has come to

expect is therefore set and maintained by the investment manager

itself.


The investment manager maintains continuous contact with the third parties (such as

LISP’s) and seeks to negotiate lower fees and clearer and more complete and user-

friendly communications for their customers.





(Note that this response also applied to other regulated capacities in which the firm

operates). The firm described its general approach to embedding TCF in its business

practices and enterprise wide risk framework, with an emphasis on the challenge of

ensuring adequate and effective evidence to demonstrate TCF conformance. The

steps in a detailed TCF risk assessment analysis were set out. Processes in place

(supporting evidence was provided) that are relevant to Outcome 5 include: On-

going monitoring of environmental, regulatory and economic developments and

associated action plans and risk mitigations; a formal retention programme to alert

customers to the possible risks of terminating products including early termination

charges; processes to manage outstanding transaction requirements; customer

input surveys for all core processes to ensure the service delivery is meeting

customer expectation; processes to alerting customers to and illustrating risks of

certain actions and non-actions. Details of regular and “event driven” customer

communications designed to manage expectations were also provided. Service

standards and ongoing testing of these standards, with management reports, are

also in place.

Outcome 6, question 6.30: We consider the nature of complaints received and complaints

handling performance of different product suppliers in deciding whether to do business with

them or recommend them or their products to customers.


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A “4” rating for this question was motivated as follows:

The investment manager’s complaints management system is formalised and all

complaints are assessed in order to determine the relevance and appropriateness of

the product concerned. All complaints are also sent to the firm’s independent

compliance officers for assessment and feedback.

8. FAIS CATEGORY III FSP’S (ADMINISTRATIVE FSP’S / LISP’S)



Outcome 1, question 1.2: Senior management have adopted TCF objectives and are

specifically responsible for them.


A group level Board committee has been mandated to exercise governance and

oversight of fair customer treatment practises in the Group, including specific

reference to TCF in its charter.




The firm has dedicated specialists as well as a call centre that facilitates all queries

relating to once-off or non-standard product information. It performs ongoing quality

assurance checks on interactions from this team to independent FSP’s and

customers to ensure consistency and accuracy of product information.

9. FAIS CATEGORY IV FSP’S (FUNERAL BENEFIT ADMINISTRATORS)



Outcome 1, question 1.18: Performance evaluation criteria incorporate TCF objectives and

are rigorously applied at all levels.


The administrator has implemented monthly monitoring of TCF related key

performance areas, with associated monitoring and coaching and counselling

processes.




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The administrator monitors quality assurance measures on a continuous basis and

includes them in performance evaluation criteria.

Outcome 1, question 1.24: Existing MI measures have been reviewed to determine which

are useful for TCF monitoring and new measures have been identified where necessary.


Existing MI reports, adapted as TCF indicators, were listed. Indicators include

cancellation, claims and quality assurance data.

Outcome 2, question 2.7: We have processes in place to ensure fair treatment of customers

or members, with regard to bundled and “add on” products or services, including ensuring

that these products or services are appropriately targeted to the needs of customer groups

they are provided to.


Service level agreements with third party “value added” product and service

providers are in place, supported by regular meetings. Feedback and market

research on these products and providers is reviewed to ensure that both the product

offering and service levels adhere to the customer’s needs and expectations.

Outcome 2, question 2.9: We have measures in place to evaluate the customer group’s

financial understanding of products or services offered or provided to them.


The administrator evaluates customer understanding by analysing complaints and

claim repudiation trends. Quality assurance processes are in place, covering up to

10% of all sales and service related calls. Product specific and industry related

information is shared with all customers through regular newsletters and educational

media releases address a wide range of insurance related topics.





Low average “churn rates” are cited as evidence of customer satisfaction. Specimens

of specific new customer communications were also provided.

10. RETIREMENT FUND BENEFIT ADMINISTRATORS




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Outcome 1, question 1.2: Senior management have adopted TCF objectives and are

specifically responsible for them.

Ratings of “4” for this question were motivated as follows by different participants:

The group Board has adopted TCF objectives. Executive accountability for achieving

the TCF outcomes and embedding the TCF culture within the organisation has been

specifically allocated to each member of the firm’s executive management. TCF

principles have also been included in “model leadership behaviours” and executive

performance criteria are aligned to TCF. The TCF project and programme

implementation is a standing agenda item on the executive committee agenda.

TCF has been included in strategic planning, with an outcome of a list of initiatives

and “thinking items” for the year, each of which is assigned to specific members of

senior management, who are responsible for delivery.

Outcome 1, question 1.9: The current strategic plan includes TCF deliverables.


Planning includes aligning current company policies with TCF Outcomes; embedding

the Outcomes in operations; making TCF a regular Board agenda item; and

implementing TCF awareness and training strategies throughout the group.


The administrator described its overall strategic approach to TCF implementation,

which includes having formulated a policy to outline the ways in which the firm

implements, demonstrates and evidences this commitment. The firm is undertaking

an exercise of assessing the TCF outcomes against the responsibilities and practices

of each of the regulated entities within the group, product providers and service

providers.

Outcome 4, question 4.5: FSPs and their representatives have reasonable on-going access

to any product information they require from us in order to provide suitable advice.


Reasonable access for FSPs and their representatives (both tied and independent)

who provide advice or market or distribute the firm’s products is achieved through:

Making all relevant product material available on a dedicated website for financial

advisers; product road; newsbreaks / communications on product changes; an

accreditation programme whereby all financial advisers who have current business

with the firm or wish to recommend its products are required to attend product

training, write assessments and attend refresher training.

A rating of “4” for this question was motivated as follows by different administrators:

The firm has the following in place: A specific product information document with full

fund details that is made available at quotation stage ad on the firm’s website;


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additional product information on a dedicated retirement fund website; a monthly

electronic publication targeted at retirement fund advisers; and dedicated

management staff across the country to support these intermediaries in customer

interactions and provide them with training.

Various information access points for intermediaries in respect to product information

include: Employees of the administrator (in this case also a product supplier) to

support advisers, provide training and ensure access to information; a dedicated

website with comprehensive information and specimens of all standard product

information; management communication forums; newsletters; other ongoing

awareness and training interventions.




A “yes” answer to this question was motivated as follows by different administrators:

Advice risk management measures for identified advice related risks, include: FAIS

licence checking, both up front and ongoing, of all advisers to funds administered,

with funds required to appoint a new suitably qualified adviser if the necessary FAIS

criteria are not met; customer complaint and feedback monitoring.

The answer was motivated with reference to the firm’s group wide recruitment

practices for financial advisers, including product training and accreditation

processes. Controls are in place to prevent the firm’s own representatives from

selling products for which they are not accredited. Details of the structured advice

process representatives are required to follow were also provided.




expectations.


The administrator’s product approval committee evaluates environmental, regulatory

and economic developments that may impact on its product and/or its customers.

The committee includes representatives from the administrator itself, as well as the

fund sponsor, trustees, distribution channel and fund secretariat.


The administrator’s risk management and governance team, made up of compliance,

legal and internal audit functions, monitors changes in the regulatory environment

and enables it to monitor, identify and respond to changes in the broader

environment such as economic, environmental and regulatory developments. The

firm ensures that any changes or developments that may have an impact on

customers are brought to their attention in a reasonable time to afford them the


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opportunity to make informed decisions where necessary. Information is also

provided through other customer facing channels such as the media, investment

presentations, radio programmes, and client dinners.

Outcome 6, question 6.7: When we receive a request to switch providers (whether directly or

indirectly through another party) we inform the customer of any potential risks associated

with the switch.

A rating of “4” for this question was motivated as follows by different administrators:

The administrator described the process followed when a customer, or an

intermediary on behalf of a customer, requests to switch providers. Various steps in

the process require disclosure to the customer, and acknowledgement by the

customer, of risks associated with a switch. Fund trustees are thereafter also

informed of the switch request and required to approve it.





Specific identified risks for this Outcome are included in the firm’s risk management

framework. Mitigation measures in respect of Outcome 6 risks include disclosure of

termination conditions in fund disclosure material, including an appeal mechanism for

“more lenient” termination conditions; a documented complaints procedure, including

provision of complaint contact details; and publication of service level agreements

between the administrator and funds administered for specific customer service

transactions.

11. RETIREMENT FUNDS (TRUSTEES)







Specific identified risks for this Outcome are included in the fund’s risk management

framework. Mitigation measures in respect of Outcome 3 risks include

comprehensive fund related disclosure documentation; a formal record of all

customer communications; and a dedicated website with various items of information

accessible to fund members, employers and intermediaries.


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Outcome 4, question 4.5: FSPs and their representatives have reasonable on-going access

to any product information they require from us in order to provide suitable advice.


The fund provided details of a range of channels (apparently provided by the

administrator concerned) through which intermediaries can access product

information either on request or proactively.






provided to them.


The administrator of the fund contracts with appropriately FAIS licensed

intermediaries. The agreements concerned stipulate that the intermediary operates

as an independent intermediary not as a representative of the administrator. This is

informally monitored. The administrator operates a call centre that measures

customer complaints relating to the quality of financial services rendered by advisers.

Fund product related information also sets out the responsibilities of the various

parties involved and complaints channels.


The fund provided a specimen of a standard agreement which various parties in the

value chain (“benefit consultant”, contracted financial adviser and employer) before a

new fund is accepted. (The participant concerned is an umbrella fund).





Specific identified risks for this Outcome are included in the fund’s risk management

framework. Mitigation measures in respect of Outcome 5 risks include analysis of

customer requests and market feedback by a product committee (this appears to

refer to the administrator’s product committee, although the trustees are

represented); customer complaint data; a requirement for employer and member

representatives to hold structured regular meetings; dedicated forums set up by

trustees to monitor product and associated service and report back to the trustees.

Outcome 6, question 6.13: We consider the customer’s reasonable benefit expectations and

our TCF objectives before making a decision to repudiate or decline a claim or disbursement

request.


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The administrator is bound by regulatory requirements regarding retirement fund

claims and disbursements and makes “all effort” to make these rules available to

customers both up front and on an ongoing basis. A call centre is also available for

customer queries. When assessing claims, the administrator aims to ensure that

procedures as communicated to clients are adhered to. Complaint trends identified in

respect of claims and disbursement decisions which indicate that customers feel that

their reasonable benefit expectations have not been met, inform amendments to

communication material, policies and procedures.


The trustees have a dedicated death claims sub-committee to determine benefit

allocations as required by retirement funds legislation and documented claims

protocols and processes.




The fund has a formal complaints process which is communicated to customers in

fund documentation. All complaints received by the administrator or sponsor are sent

to the fund secretariat in terms of a documented complaints protocol. Complaints

records are maintained and submitted to a sub-committee of the fund on a regular

basis for analysis, including identification of potential mis-selling. The trustees have

also established a dedicated sub-committee to look at all complaints lodged directly

to the fund as well as serious complaints escalated to it from the general complaints

process and all Pension Fund Adjudicator complaints.

12. BANKS






The bank has a process to track appropriate product sales based on the product

rules and information provided by the customer. Customers are restricted from taking

up a product a level above what they can afford and are allowed to take up a lower

level product. A product approval forum is in place that is responsible for reviewing all

new products. In order for a product to be approved the business is required to have

performed prior market research.



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All sales data and targeted marketing campaign results are regularly analysed.

Quality checks are performed against the data to ascertain the value of sales and to

determine that relevant products are sold to identified target groups.




A “yes” answer to this question was motivated as follows by different banks:

Management of Outcome 2 risks is done through: A staff education programme on

product targeting strategies and customer retention; employee performance

management criteria; product rules on account activation; and value chain analysis.

The bank’s customer segmentation strategy is designed to gain better insight into

customer needs, how their behaviours change over time and how the bank can cater

for such needs and changes in a cost-effective and value-adding manner for the

customers and the bank.

The response was motivated with reference to the bank’s risk management and

compliance plans, which have been designed to track compliance with laws and also

the achievement of TCF Outcomes. These frameworks include tracking of risks

associated with new products.





Examples were provided of reports from the bank’s system based compliance

monitoring process, to demonstrate the type of corrective action taken to ensure that

appropriate product-related information is provided to a customer. Examples of on-

going customer communications in respect of investment products were also

provided.






provided to them.


Contractual agreements with intermediaries and 3rd parties who provide a service

to the bank's clients or potential clients include a service level agreement against

which performance is measured. Call centre scripts also include communication to

customers on the responsibilities of the respective parties.


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Outcome 5, question 5.8: Processes are in place to mitigate the risks to our

customers/members where it becomes apparent that products are not performing or are

unlikely to perform as they have been led to expect.


There are escalation procedures in place, in the event a product is not operating in

the manner in which it was expected by a customer. Customer complaints in respect

of performance of a product are dealt with on a case by case basis, with the

complaint handling area liaising with the affected business area to ascertain if

remedial action is required.





To ensure that clients experience no post sale barriers, complaints and compliments

can be logged via the bank’s website.





Product contractual documentation includes contact details for customers should

they wish to discuss or amend their product, or wish to submit a claim or make a

complaint.