1. Treating Customers Fairly Myhendri Govender November 2011

2. Background Why? Knowledge gap between Financial institutions and consumers Close the gaps in consumer protection regulations Financial institutions expertise in design, distribution and servicing Products Versus Consumer’s decision making Consumer exploitation, unfair/inequitable treatment of consumers, poor decision making on part of the consumer

3. Background /cont A holistic and coordinated consumer protection regulatory framework that applies consistently across the financial services sector has been lacking National Treasury published a policy document in which SA is moving toward a “twin peaks” model of financial regulation SARB as the macro prudential regulator and the FSB as the market conduct regulator

4. Source: Leeanne Jackson - FSB TCF and the Product Life Cycle Financial institutions will need to consider their treatment of customers at all stages of their relationship with the customer, from product design and marketing, through to the advice, point-of-sale and after-sale stages

5. TCF and Product Life Cycle Continued….. Product and service design: Must be based on a clear understanding of the likely needs and financial capability of each customer group Promotion and marketing: Marketing communications to specific target groups must be clear, fair, not misleading and appropriate for the target group Advice: Ensure that advisers are fully equipped to provide advice that is suitable to the needs of the customer concerned, balancing the commercial objective of increasing sales with the objectives of TCF and avoiding conflicts of interest Point-of-sale: Provide clear and fair information to enable customers to make informed decisions including transparency on product risks, commitments, limitations and charges Disclosure around bundled products must enable customers to understand the different components of the bundle

6. TCF and Product Life Cycle Continued….. Information after point-of-sale: Provide customers with ongoing relevant information to enable them to monitor whether the product or service continues to meet their needs and expectations Provide acceptable levels of service for post-sale transactions or enquiries Monitor and respond to changes in the wider environment that may affect products and impact on particular groups of customers Complaints and claims handling: Honor representations, assurances and promises that lead to legitimate customer expectations No unreasonable post-sale barriers Fairness and consistency Timeous resolution Actions to eliminate of the root cause of the Complaints

7. Final Outcome Intermediate Outcomes Immediate Outcomes Customers’ financial services needs are appropriately met through a sustainable industry 1. Improved customer confidence 2. Appropriate products and services 3. Enhanced transparency and discipline 4. Where customer s receive advice, it is suitable and takes account of their circum- stances. 2. Products perform as firms have led customers to expect; Service is of an acceptable standard. 1. Customers are confident that they are dealing with firms where the fair treatment of customers is central to the firm culture. 3. Products and services are designed to meet the needs of identified customer groups and are targeted accordingly. 6. Customers do not face unreasonab le post-sale barriers to change product, switch provider, submit a claim or make a complaint. 5. Customers are given clear information and kept appropriatel y informed before, during and after contracting. Source: Leanne Jackson - FSB Desired Outcomes

8. The six outcomes of TCF explained

9. Outcome 1 Customers are confident that they are dealing with firms where the fair treatment of customers is central to the firm culture Incorporation of TCF into firm’s values, culture and standards Awareness and understanding of TCF among Board members and senior management Transmission of the Board and senior management’s commitment to TCF to staff, intermediaries and business partners Incorporation of TCF outcomes into strategic planning process, business cases, projects or material expenditure Encouragement of staff and management to evaluate TCF impact on Ops and decision making Forums for debating TCF Assignment of TCF responsibilities in the Organisation Reporting process for TCF Changes to business operations MI for the above

10. 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 Design of product to meet requirements of target group Testing of product to meet the needs of target group Assess suitability of the advertising and promotional material for the product Product approval process and promotions approval process Selection of appropriate distribution channel to ensure appropriateness for target market taking into account risk and complexity Suitability of related or optional products Measures to ensure understanding of product and type of client it is suitable for Measures to evaluate customer’s financial capability and understanding of product Processes to ensure fair treatment of customers wrt bundled products and loyalty programs Tracking of sales to ensure products sold to target client group and process to address mismatch Alignment of incentives with TCF objectives Measuring success of product Feedback of complaints to product design phase MI for the above

11. Outcome 3 Customers are given clear information and are kept appropriately informed before, during and after the time of contracting Process for evaluating clarity and fairness of product information Approach to ensure client is aware of key product features and risks Process to ensure complaints about promotion or quality of information is fed to ensure improvement of information quality or to stop the promotion Process to ensure accuracy and quality of once off or non standard product information Record keeping of discussion and communication with customers Processes to review communications to the customer Processes to consider redress for financial prejudice caused by misleading information Monitoring and acting on feedback, complaints and suggestions from clients on products Notification of changes in products MI Measures

12. Outcome 4 Where customers receive advice, the advice is suitable and takes account of their circumstances Mystery shopping by product supplier processes to determine whether advice appropriate Processes by product supplier to ensure intermediaries have adequate knowledge Monitoring and mitigation of risks with regard to lapses in quality of advice, conflict and sales incentives and targets Addressing feedback or complaints relating to quality of advice Process to compensate clients where inappropriately advised Changes to business practises as a result of TCF MI for the above

13. 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 Evaluation of customer expectations met Mechanisms to ensure that products are supported after launch Process to alert customers to the risks of action or non-action Monitoring of ongoing developments that impact on customer’s benefit expectations Assessment of service standards of agents and staff toward customers Monitor and act on feedback, complaints and suggestions received for improvement in types of services or service standards Process to mitigate risks to customer where products not performing Where 3 rd parties part of value chain measure in ensure adequate standard for fair treatment of the client Mitigation of risks where 3 rd party product not performing

14. Outcome 6 Customers do not face unreasonable post-sale barriers to change product, switch provider, submit a claim or make a complaint Incorporation of product flexibility and product switching incorporated into design phase of product Communication of product flexibility and product switching information during marketing, sales and after sales Service standards to product switching reflective of TCF outcomes Claims /complaints handling ensure that customers expectations are met Monitoring of the above Complaints/Claims processes Use of complaints data, claims data and lapse/early termination data to evaluate success of product or service and firm’s fairness to clients

15. Pillar 1: TCF Framework Pillar 2: Implementing TCF Pillar 3: Incentives & deterrence FirmsRegulatory Framework Will be developed within which firms must conduct their business. Combination of market conduct principals and explicit rules Culture & governance Firms must demonstrably embed a TCF culture, supported by controls, governance structures, management information and self-assessment Disclosure & reporting Firms will be required to publicly disclose identified TCF performance measures and submit non-public TCF reports as required by the FSB FSBSupervisory framework The FSB will develop a framework for effective, intensive and intrusive supervision of firms’ adherence to the market conduct regulatory framework. The framework will comprise monitoring, reporting, off- site analysis and on-site components Proactive supervision The FSB must implement the supervisory framework to enable proactive monitoring of and response to industry (macro) and firm-specific (micro) TCF risks and outcomes Enforcement mechanisms The FSB will enforce the TCF framework through a combination of pre-emptive intervention for identified industry and firm-specific conduct risks, regulatory sanctions (incl. “naming and shaming”) for firms in breach and prosecution of individual wrongdoers A structural model to deliver TCF

16. Supporting Structures Ultimate Fairness - Ombudsman with jurisdiction Regulatory co-ordination and information sharing – FSB to take the lead on market conduct initiatives Consumer education and awareness – TCF included in FSB and national consumer education strategies Ultimate Fairness - Ombudsman with jurisdiction

17. What does this mean for the Financial Adviser?

18. FAIS imposes obligations on FSPs FAIS imposes obligations on FSPs and reps which are relevant to TCF outcomes Outcomes 3 (clear information) and 4 (suitable advice) are driven by the disclosure, advice, conflict of interest and licensing requirements under the FAIS Act Intermediaries’ adherence to FAIS must be complemented by demonstrating that they have embedded the broader TCF culture framework within their organisation (TCF fairness outcome 1) Intermediaries will also be expected to consider their role in delivering TCF fairness outcomes 2, 5 and 6 (the outcomes related to appropriate product and service design, product performance and service levels, and post-sale barriers) Duty on Product supplier in ensuring a product is appropriate for a particular target market but on financial adviser to ensure the product is suitable for the particular customer concerned However, an appropriate level of product “due diligence” is expected from financial advisers TCF will require product suppliers and intermediaries to share accountability for fair treatment of their mutual customers Note the product cycle

20. Regulatory alignment analysis will start inJanuary 2011 Draft and publishing of the legislative proposal document will start in Q1 2012 Development of the internal FSB framework will start in May 2011 Developing and publishing the TCF supervisory framework will start During November 2011 and will be finalised during Q4 2012 Pilot participants submit completed questionnaires during June 2011 Interview pilot participants should be finalised during July 2011 July 2011 Stakeholder input should be finalised duringAugust 2011 Timelines

21. Publish final self-assessment tool for industry use by August 2011 Provide feedback to pilot participants bySeptember 2011 Identify benchmark participants & distribute self- assessment tool by August 2011 Publish benchmark exercise findings byQ1 2012 FSB publishes guidance notes during Q1 2012 and should be finalised during Q4 2013 Include TCF in 2011 FSB Annual Report and annually thereafter Q3 2012 Develop initial non-public and public reporting requirements will commence during October 2011 and should be finalised by Q1 & Q2 2012

22. FSB begins pro-active intervention for identified TCF conduct risks will commence Q1 2012 Formal TCF enforcementJan 2014 Momentum participated in a self assessment in July/August 20 firms participated Results will be published by December 2011

23. Implementation of the TCF principals in Momentum Sales Leadership: The Board, senior and middle management need to provide direction and monitor the delivery of the TCF behaviours and outcomes Strategy: The TCF aims should form part of Momentum’s stated vision, values and broader business strategy Decision-making: Decision-making procedures should ensure that decisions are tested for customer impact Governance and controls: Governance processes around product approval, distribution models, service standards, claims reviews and complaint escalations should cater for TCF. We will need to focus on TCF outcomes at all stages of product life cycle Performance management: TCF deliverables should form part of staff performance appraisals where appropriate Reward: Remuneration, incentive and reward policies must take into consideration fair customer outcomes and entail consequences for TCF successes and failures

24. Source The Road Map – Leanne Jackson (FSB)

25. Thank you Myhendri Govender November 2011

26. Questions?