In terms of the Financial Advisory and Intermediary Services Act 37 of 2002 (“FAIS“), The Financial Services Board (“FSB“) published the Treating Customers Fairly (“TCF“) outcomes as the foundation of the FSB’s objectives for consumer protection and market conduct. The need for these outcomes is because of the imbalances previously experienced between financial services consumers and regulated financial entities, rendering consumers vulnerable to market conduct abuse. As financial products are complex, poor decision making and bad advice in respect of these products can lead to unintended consequences being experienced and suffered by a consumer a long time after the transaction was entered into.
The aim of TCF
The TCF outcomes are aimed at reducing market conduct risks and protecting consumers of financial products. The outcomes must be delivered to consumers throughout the product life cycle and at all stages of the relationship with the consumer. The TCF outcomes must be incorporated throughout the company so that everyone understands what TCF is and so that they can apply it.
The TCF outcomes address certain issues that are common in all industries. The outcomes may assist companies and consumers in instances where consumers have unrealistic expectations about the financial products/services being offered by companies even where the consumer was treated fairly; and on the other hand, where a consumer with a low level of understanding about the product/service is satisfied with the service received from the company but is unaware that he/she has been treated unfairly.
The key principles
TCF focuses on two key principles:
- ensuring that consumers understand the risks and benefits of the financial products/services they are investing in; and
- minimising the sale of unsuitable products/services to consumers.
What TCF is not
TCF is not about creating satisfied consumers at all costs. A satisfied consumer can still be treated unfairly and not know that he/she was treated unfairly.
TCF does not absolve consumers from making decisions and taking responsibility for such decisions – consumers still have a responsibility to know what they are getting into and to take responsibility for their decisions.
It also does not mean that all companies must do business in an identical manner – as long as business is done fairly and transparently, TCF requirements will be met.
The 6 TCF outcomes
- Culture: consumers should be confident that they are dealing with companies where TCF is central to the corporate culture;
- Products and services: products and services marketed and sold in the retail market should be designed to meet the needs of identified consumer groups and should be targeted according to such identified groups;
- Clear and appropriate information: consumers must be provided with clear information and kept appropriately informed before, during and after point of sale (i.e. throughout the product/service’s life-cycle);
- Consumer advice: where advice is given, it must be suitable and should take account of the consumer’s circumstances;
- Product performance expectations: products should perform in the way that consumers have been led to expect and service must similarly be of an expected acceptable standard; and
- Post-sale barriers: consumers must not face unreasonable post-sale barriers imposed by companies when they want to change products, switch providers, submit a claim or make a complaint.
The TCF outcomes were created to ensure that the fair treatment of consumers is imbedded in the culture of companies operating in the financial services industry. The outcomes must be implemented throughout the life-cycle of the product/service, meaning that financial service providers have a duty to continuously ensure that consumers are treated accordingly.
Enforcement of the TCF outcomes will occur through a range of deterrents with the objective of preventing unfair treatment of consumers, and may be penalised through mechanisms such as intensive and intrusive supervision, naming and shaming of offenders, and financial penalties.
Essentially, the ultimate goal of TCF is to ensure that the financial needs of consumers are suitably met through a sustainable industry. If a financial services provider aims to achieve the outcomes, the direct effects should be appropriate financial products and services and heightened transparency in the industry.