GOOD DECADE FOR SOUTH AFRICAN CONSUMERS

The South African consumer is among the best-protected in the world. Since 2004, financial services consumers have engaged confidently with intermediaries and product providers thanks to safeguards introduced in the Financial Advisory and Intermediary Services (FAIS) Act and its accompanying Codes of Conduct. And with the introduction of the Consumer Protection Act (CPA) Joe Average can take the fight to the supplier of just about every good or service "sold" within our borders. It comes as no surprise, therefore, that insurance companies and other financial services providers identify regulation as their top operational risk! "Every move we make these days has to be checked against upwards of 150 pieces of legislation," observed Jolandi Wassermann, Head of Legal & Policy at PPS Insurance. She was presenting at the group's Insurance Sector media presentation, held 7 February 2012.

Consumers of financial services will soon benefit from additional protections following the Financial Services Board (FSB) decision to implement Treating Customers Fairly (TCF) regulations. This regulation will ensure a higher standard of consumer protection across the financial services space. Its primary objective is to embed the fair treatment of consumers into corporate culture. There are six "fairness" outcomes embedded in the regulation to ensure the consumer gets a "fair" deal from product design to performance! "TCF applies to all FSB regulated entities," says Wassermann. It offers a fuller and more comprehensive set of consumer protections than the FAIS Act because it forces companies to reform their business practices. The regulation demands a proactive approach and encourages companies to identify problems and implement redress as early as possible. Unfortunately banks and medical schemes will fall outside the TCF regulation for now.

Banks must treat customers fairly too

The regulators will have to bring banks into the fold due to ongoing complaints about their fee structures and financial product distribution practices. Phil Billingham, a regulatory change specialist at UK-based Threesixty Services, shared the following at a recent FAnews TCF Seminar: "It is clear from UK statistics that the adviser, who accounts for around 80% of financial services product distribution, only contributes to around 1.5% of complaints. Banks meanwhile, with a mere 20% of the distribution load, were responsible for 90% of post-sales disputes." We expect a detailed analysis of post-sales financial services complaints in the domestic market would yield a similar "result".

Local financial services stakeholders can expect many regulatory changes over the next three years. National Treasury recently published their vision for the South African financial services environment in a paper titled A Safer Financial Sector to Serve South Africa Better. The so-called "Red Book" documents a series of legislative changes that South Africa will have to implement to meet undertakings given at the G20. These changes will lead to greater financial stability at an institutional level, extended consumer protection, improved access to financial services products and reductions in financial crime. South Africa will develop a "twin peaks" model under which the Reserve Bank is tasked with prudential regulation and the FSB with market conduct. As National Treasury pushes ahead with these changes, banks will eventually be drawn in.

Future consumer protections

FAIS, the CPA, the various industry ombudsman schemes and TCF are the first steps on the path to holistic consumer protection. "Apart from TCF there are a couple of other consumer protection issues that must be considered," said Wassermann. The insurance industry regulation has to "tie in" with the CPA by October 2012. Further changes to the insurance Acts are likely to be introduced throughout 2012. And all industries will soon have to comply with the Protection of Personal Information Bill too…