Harsh penalties will be levied on insurers and advisors who do not embrace TCF compliance principles
Harsh fines imposed by the UK Financial Conduct Authority (FCA) during 2013/14 could be a sign of things to come in South Africa.
The top 20 fines totalled over £180 million for TCF compliance principles breaches. Breaches included inadequate administration processes, an inability to ensure suitable advice was given to customers, and poor (misleading) communication relating to financial promotions. Unfortunately many businesses within the wealth management sector have not yet taken these warnings seriously.
The FSB have clearly stated they will not only develop and monitor the TCF framework, but also enforce adherence.
Jonathan Dixon, deputy executive officer of the Financial Services Board (FSB), stated in May 2016 that increasingly harsh penalties will be levied on insurers and advisors who do not prioritise embedding TCF practices into their frameworks. It is important to also ensure that advice, distribution and earnings structures are in line with the current retail distribution review (RDR) and support the delivery of TCF outcomes.
Compliance and HR are primarily responsible within the organisation for ensuring regulatory standards are met in terms of ethics, training and competence and TCF. Unfortunately the reality is that without total support and commitment from leadership there is little chance of building a TCF culture that is up to the FSB’s expectations.
Organisations need to embrace and embed a compliance culture, putting in place robust systems and processes that ensure delivery by employees through training, objective setting, supervision, monitoring and assessment. An electronic recording and monitoring system is also essential in providing an audit trail to prove compliance.
Due to the importance of leadership support, a top-down approach has been adopted with regard to conduct, training and TCF compliance principles. In many organisations HR and Compliance Officers may still struggle to justify the business case for increased investment and focus on TCF until the fines begin. TCF compliance requires senior management to commit to investing time and capital to deliver best practice.
- A cultural shift and real commitment, not just a tick box approach.
- Ensuring all staff are fully aware of how the required TCF standards and expectations, in addition to revenue and profit generation targets, are part of their performance requirements.
- Assessing these expectations against performance benchmarks.
- Comprehensive record keeping to ensure effective delivery and necessary course adjustments.
- A real commitment to rewarding good performance in line with TCF outcomes.
Embrace and embed TCF compliance principles
Commitment from the top down requires a clear intention to make these competencies and standards central to the reward and remuneration within the organisation. This commitment requires a fundamental cultural shift towards a TCF culture.
Comprehensive record keeping
A clear and thorough assessment of individuals, training and competence form part of a transparent audit trail. This requires investment in an IT system to record, and effectively deliver, the required Management Information (MI). Spreadsheets and heaps of paper files won’t do the job. Records need to demonstrate that both the organisation and the individual demonstrate TCF competence in line with the new RDR guidelines.
Integrity and ethical conduct
A balance needs to be found between motivating employees to be productive and profitable and encouraging the right TCF behaviours.
The key drivers are:
- Compliance is a necessity, no longer just an option. To stay in business the FSB needs to be satisfied that ethics and integrity standards are met
- There is a very real Reputational and financial risk in non-compliance
- There is a substantial competitive advantage for organisations that visibly displays ethical behaviours in line with TCF principles.
Treating customers fairly
Recruitment, training and competence are at the heart of driving a TCF cultural imperative. Organisations must be able to provide a clear audit trail to support the fact that a TCF culture is encouraged and rewarded.
Writing ambitious TCF policies and implementing them are useless if they are not embedded in the culture of the organisation and made central to training and competence, delivery and performance.
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