What is TCF? - FSCA



2101851-27241600GUIDANCE TO BOARDS OF RETIREMENT FUNDS FOR THE IMPLEMENTATION OF THE TCF OUTCOMESWhat is TCF?TCF stands for Treating Customers Fairly. It is a consumer protection framework that requires all regulated financial institutions, including retirement funds and their service providers, to demonstrate that they have implemented and are delivering the 6 TCF outcomes in the way they conduct their business.What are the 6 TCF Outcomes, from the perspective of retirement funds?2.1Outcome 1 – Customers are confident that they are dealing with firms where the fair treatment of customers is central to the firm cultureRetirement Funds are confident that the retirement fund is managed and administered in such a way that the fair treatment of members and beneficiaries is central to the retirement fund’s culture. Member satisfaction should not be misconstrued for fairness as if a member or beneficiary is satisfied with the service provided it does not necessarily mean that the fund has treated the member fairly.2.2Outcome 2 – Products and services marketed and sold in the retail market are designed to meet the needs of identified customer groups and are targeted accordingly2.2.1Retirement fund products and services should be developed and administered to meet the needs and expectations of – members and former members of the retirement fund;(ii)beneficiaries of members or former members of the retirement fund;(iii)nominees or dependants of members or former members of the retirement fund;(iv)participating employer(s) participating in the retirement fund; and(v)spouse or a former spouse of a member or former member of a retirement fund to achieve the ultimate goal of providing appropriate retirement income.2.2.2Boards should not be influenced or induced by current or potential providers of financial products and services which may result in the products and services purchased by the fund be inappropriate or not offering value for money for the retirement fund, its members and beneficiaries;2.2.3Complaints and service call data must be taken into account in assessing the suitability of the products, investments or services provided to members and/or beneficiaries;Bundling of products and/or services, or excessive incentives to funds may lead to inappropriate or unnecessary products or services;The board must ensure that the retirement products provided by the fund is appropriate after considering the needs and risk profile of the members and beneficiaries;The board must understand and monitor the risks of the retirement fund products/investments offered by the fund; The board must ensure that members and beneficiaries have sufficient information to make an informed decision in selecting investment and other options offered by a fund; andSurveys on the needs of members and beneficiaries must be done by to ensure that the services provided meet the needs of the members and beneficiaries, and not be conducted by consultants and intermediaries that will rather design retirement products that will be to the benefit of the consultant / service provider, as there may be conflict of interest.2.3Outcome 3 – Customers are given clear information and are kept appropriately informed before, during and after the time of contractingMembers and beneficiaries receive clear and appropriate information regarding the retirement fund, retirement benefits and the operations of the fund before joining (where applicable), on joining, and regularly during their membership of the fund which includes at least the following -on joining the retirement fund, members must be provided with appropriate information regarding the fund;boards must provide members with sufficient information and if necessary, advice to ensure that member and beneficiaries understand the type of fund, e.g. DB, DC, pension or provident fund, and how the benefits relating to the type of fund will influence their ultimate benefits;timeous and appropriate information as and when important events or changes take place;boards must ensure that members and beneficiaries receive annual benefit statements;information regarding the process that must be followed in terms of the rules and the PFA to lodge an enquiry or rmation provided must at all times be current and appropriate; information must be clear and understandable;the risks of the relevant investment products invested into, especially in the case where a fund offers individual investment choice;fees, costs and charges in respect of their retirement fund savings; the long term impact for not preserving and the income tax impact where a member intends to withdraw from a fund;the late or non-payment of contributions; andany change in policy or legislation that might have an impact on their retirement savings.2.4Outcome 4 – Where customers receive advice, the advice is suitable and takes account of their circumstancesWhere boards and/or members of retirement funds receive advice, the advice is suitable and takes account of their respective circumstances. Boards must at least- ensure that the intermediaries appointed are, where applicable, appropriately licensed, understand the products and have sufficient expertise;ensure that they understand the risks of products and receive sufficient information on the possible risks involved before taking a decision;request and verify whether the advisor receives any incentives from the service provider for selling a specific product and whether there are similar products in the market to be compared to; andensure that the product is suitable for the needs of the fund and its members.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 expectRetirement funds provide products and benefits which perform in a manner that meets the needs and reasonable expectations of their members and are in line with what members have been led to expect. The products and service provided to members is of an acceptable standard and in line with what members have been led to expect. Boards must ensure that - current products and services are regularly reviewed for suitability and obtain information about new products and service providers;members know what the costs, fees and expenses relating to the fund is and how it impacts their ultimate benefits; andproducts and benefits offered to members and beneficiaries are meeting the objectives of the retirement fund in providing benefits that meets the member’s retirement fund needs.Outcome 6 – Customers do not face unreasonable post-sale barriers to change product, switch provider, submit a claim or make a complaintRetirement funds and members do not face unreasonable barriers to submit a claim or make a complaint or to change product, switch provider where the rules of a fund allows for such choices.Boards must ensure that an appropriate complaints management process is implemented as defined in this Notice. Boards must establish and implement an effective complaints management process. The complaints management process must not frustrate complainants due to insufficient resources or ineffective processes.The FSB's approach to implementing TCF3.1In the Treating Customers Fairly Roadmap 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. 3.2The FSB is adopting an incremental approach to implementing the TCF framework. There has been no single "launch date" planned for TCF implementation. Instead, the FSB has adopted a process of introducing TCF into both its regulatory and supervisory frameworks on a gradual, incremental basis. Although there will be explicit inclusion of TCF outcomes in the future new over-arching legislation to be introduced in time under Twin Peaks, it is clear that existing legislative and regulatory frameworks already allow for the application of TCF outcomes.3.3The Pension Funds Act (“the Act”) already requires a board of a fund in pursuing its object, to-take all reasonable steps to ensure that the interest of members in terms of the rules of the fund and the provisions of the Act are protected at all times, especially in the event of an amalgamation or transfer of any business contemplated in section 14, splitting of a fund, termination or reduction of contributions to a fund by an employer, increase of contributions of members and withdrawal of an employer who participates in a fund;act with due care, diligence and good faith;avoid conflicts of interest;act with impartiality in respect of all members and beneficiaries;act independently; andhave a fiduciary duty to members and beneficiaries in respect of accrued benefits or any amount accrued to provide a benefit, as well as a fiduciary duty to the fund, to ensure that the fund is financially sound and is responsibly managed and governed in accordance with the rules and the Act.3.4The Act further places a duty on the board to ensure that adequate and appropriate information is communicated to the members and beneficiaries of the fund informing them of their rights, benefits and duties in terms of the rules of the fund subject to the disclosure requirements as prescribed by the registrar. 3.5In practice, failure to deliver one or more of the TCF Outcomes will in most cases already constitute a breach of these obligations, and would, therefore, be actionable by the regulator. However, there are other legislative requirements contained in FSB-supervised legislation relating to disclosure, suitability of advice, etc. that are equally applicable in achieving the TCF outcomes.3.6No regulatory change is, therefore, required to enable the FSB to start taking TCF considerations into account in its supervisory approach and there will be a focus on customer fairness outcomes (over and above checking compliance with specific rules-based provisions ) in conducting on-site visits or when complaints or business practices are investigated. For retirement funds, this includes assessing the board’s insight into identified conduct risks and conduct risk mitigation measures. Reviews of product approval processes, advice processes and operational and member 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 fund and members concerned. Boards must also ensure that the types of management information (MI) they use, including management information they rely on administrators or other service providers to provide, is adequate, complete and fit for the purpose of measuring delivery of TCF outcomes. On-going reviews of the board’s governance and control functions, including its risk management functions, should provide evidence of how these functions demonstrate the embedding of TCF in the fund’s culture.3.7The TCF Outcomes will be taken 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 institutions on the fairness of specific products or practices which call into question their commitment to the TCF outcomes, over and above any decision as to whether a legislative breach has been committed. The types of situations where TCF considerations have been brought to bear (not limited to the retirement industry) 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. The FSB’s experience has been that, in almost all cases, this supervisory approach has resulted in agreement between the FSB and the institution on pre-emptive action to mitigate on-going consumer risk, usually without formal enforcement action being required. The FSB has also found that those entities 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.3.8FSB will continue to adopt a consultative approach to TCF implementation4.Management InformationAs part of the TCF initiative, retirement funds are required to demonstrate that:4.1They are integrating TCF into their business culture, i.e.4.1.1allocation of resources and responsibilities to obtain and monitor TCF management information;4.1.2development, implementation and monitoring of TCF plans, processes and procedures; and4.1.3capacity to ensure compliance and the monitoring thereof.4.2TCF compliance is measured and reported to ensure that customers are treated fairly and that retirement funds are delivering on the six TCF consumer outcomes; and4.3Processes and monitoring is efficient to enable corrective action where TCF outcomes are not delivered on.5.TCF Baseline Study 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.A report was published in late 2013, which 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. A copy of the full document can be accessed on the FSB website. Although this baseline study took place some time ago, and the FSB accepts that a number of regulated entities will have made further progress in their TCF implementation in the interim, some aspects of the baseline results may be instructive. Note that the baseline study was based on a self-assessment by the baseline participants – in other words, it is a reflection of the participants’ own views of their TCF readiness at the time, which does not necessarily align with the FSB’s view. Ratings for purposes of the baseline studyRating of 0: “This action or process is not applicable to our business.” Rating of 1: “No, we do not apply this action or process in our business.” Rating of 2: “We do apply this action or process in our business, but only on an informal or implicit basis.” 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.” 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 ongoing basis.” Results of the baseline study for boards of retirement funds5.1Self-assessment ratings The Baseline Study that was done by the trustees of retirement funds indicated that:5.1.1The overall self-assessed average TCF readiness rating for retirement funds, as indicated by their trustees, was 68%. This ranges between 62% for Outcome 1 (Culture and Governance) and 77% for Outcome 3 (Clear and appropriate information).5.1.2On the .sub-components of each TCF Outcome, the sector as a whole rated itself highest on the ease of switching product providers.5.1.3Retirement funds rated themselves lowest on the extent to which reward, remuneration and recognition are linked to TCF objectives (a component of TCF Outcome 1). The development of TCF related management information also attracted a relatively low score.5.1.4The graph below 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. 5.2Confusion regarding TCF accountabilityA noteworthy finding of the TCF baseline study for the retirement funds industry, is a lack of clarity regarding allocation of TCF accountability across the retirement fund value chain. It is evident from the baseline responses that administrators, trustees, product suppliers and others in the value chain have inconsistent views on their respective responsibilities toward the member. 6.What should you do?The FSB has developed an electronic self-assessment tool to assist all regulated financial institutions, including the boards of funds and administrators, to assess their TCF readiness at any given point in time. This tool is available on the FSB website fsb.co.za and can be used by groups or individual boards and other entities. A specific self-assessment tool for pension funds will be developed and made available taking into account recent developments. The FSB recommends that entities assess their TCF readiness and compliance if they are not already doing so. As explained above, the TCF framework has been communicated over a number of years and the Pension Funds Act and other applicable legislation create an enabling framework within which the FSB has already begun to apply TCF outcomes in its regulatory and supervisory approach.6.1Initial questions that boards of funds should ask themselves6.1.1Do our members have confidence that we have their best interests at heart (building a trusted relationship)? How do we know this?6.1.2Do the products and services meet the needs and expectations of our members?6.1.3Do we communicate clearly, appropriately and timely?6.1.4Do we have mechanisms in place to enable members to obtain appropriate advice that suits their circumstances?6.1.5Are we making it easy and accessible for members and beneficiaries to lodge claims, complaints and change products or providers?6.2What is the role of the board of a fund in TCF?Boards of funds must in reviewing their policies, processes and procedures ensure that the TCF outcomes are appropriately addressed, implemented and continuously monitored. TCF is ultimately about a commitment to a culture of fair treatment – something which can only be achieved by the board itself. Although operational actions to achieve this can be outsourced to another party, it should be noted that, even where some actions are outsourced, the board remains ultimately accountable for the implementation and adherence to the outcomes.7.Some more detailed questions.The questions below are a few examples of the types of questions you may use to assess your ability to demonstrate delivery of the 6 TCF outcomes. For a more comprehensive set of questions, please refer to the TCF self-assessment tool. 4476755714900341630675386000OUTCOME 1 Members and beneficiaries are confident that they belong to a retirement fund where the fair treatment of members and beneficiaries is central to the retirement fund’s culture.?Do you have the best interests of the members of the fund at heart in order to building a trusted relationship??Do you know your fiduciary role and responsibility towards the fund and its members and have you considered how ensuring TCF delivery fits into this role??Have you taken steps to ensure that your governance processes, risk management processes, performance and reward processes and management information support the delivery of TCF??Has the board ensured that its service providers have embedded TCF in their operations, and if necessary are agreements amended accordingly?OUTCOME 2 Retirement fund benefits are designed to meet the needs of members and beneficiaries. Where applicable, benefits are marketed in a manner appropriate to the members and beneficiaries concerned.?Do the benefits and services meet the needs and expectations of the members – including those of different types of members - of your fund??Do the benefits, benefit options, defaults, investment products and services meet the needs of the fund, members and beneficiaries??Are agreements with service providers regularly reviewed and monitored to ensure that they continuously and appropriately address the needs of the members in a cost effective manner? ?Do you do due diligence on all the products and service providers, including to satisfy yourself that they will be able to deliver fair outcomes for members?OUTCOME 3 Members and beneficiaries receive clear and appropriate information regarding the retirement fund and its benefits and operations before joining (where applicable), on joining, regularly during their membership of the retirement fund and when important events or changes take place.? Does the retirement fund communicate sufficient information clearly, appropriately and timely, taking into account the type/s of members concerned??Are new members provided with sufficient information regarding the fund and the benefits provided by it, in an appropriate medium and format??Do you have a communication policy that ensures that all communication is clear, transparent and appropriate, including relevant information regarding the fund and a member’s individual rights, duties and benefits and any relevant risks?OUTCOME 4Where boards and/or members of retirement funds receive advice, the advice is suitable takes account of their respective circumstances?Does the fund have proper mechanisms in place to ensure that the advice members or pensioners receive from service providers is appropriate for the needs and expectations of the fund and its members??Do you ensure that the investment portfolios of the fund or in the case of individual investment are appropriate for the membership of the fund??Do you have controls in place to mitigate the risk of inappropriate advice to members?OUTCOME 5 Members have been provided with services and benefits that meet their needs and are in line with what they have been led to expect. The service provided to members by the fund, or by the service providers on its behalf, is of an acceptable standard and in line with what members have been led to expect.?Do you ensure that the MI reports received from your service providers provide sufficient information that you can monitor compliance and performance against the agreed service levels and against TCF outcomes??Do you review products and services offered against an agreed norm or benchmark??Do you have controls in place to mitigate the risk benefits or services falling short of expectations?OUTCOME 6 Members do not face unreasonable barriers to change product, switch provider, submit a claim or make a complaint?Do you and/or service providers have easy and accessible processes and procedures to deal with enquiries and complaints??Do you keep a register and monitor the enquiry / complaints handling process??Do you analyse complaints to understand root causes and take corrective action??Is your claims handling process easy, accessible and effective??Do you have a process in place to monitor complaints received by or in respect of your service provider? ................
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