FSB Discussion Document: TCF Aligned Complaints Management, Thesis of Customer Relationship Management (CRM)

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“Customers do not face unreasonable post-sale barriers imposed by firms to change product, switch providers, submit a claim or make a complaint”.

PROPOSED TCF ALIGNED COMPLAINTS MANAGEMENT (TCF DD – October 2014)

DISCUSSION DOCUMENT

Document Ref: TCF DD – October 2014

PROPOSED REQUIREMENTS FOR CUSTOMER COMPLAINTS MANAGEMENT BY

REGULATED FINANCIAL INSTITUTIONS, ALIGNED TO THE TREATING CUSTOMERS

FAIRLY FRAMEWORK

1. BACKGROUND

The Financial Services Board (FSB) has adopted a Treating Customers Fairly (TCF) framework as the basis for its supervision of the conduct of business of regulated financial institutions^1. The TCF framework will also be a key component of the future market conduct regulatory authority’s mandate to promote fair treatment of financial customers under the “Twin Peaks” model of financial sector regulation^2. The TCF approach seeks to ensure that specific, clearly articulated fairness outcomes for financial services customers are demonstrably delivered by regulated financial institutions, at all stages of the relationship between the institution and its customers.

Effective management of customer complaints by financial institutions is a vital component of financial consumer protection. TCF Outcome 6 provides that “Customers do not face unreasonable post-sale barriers imposed by firms^3 to change product, switch providers, submit a claim or make a complaint”. The current financial services regulatory framework in relation to complaints management is inconsistent, with different levels of responsibility placed on different types of entities. This document proposes a more consistent and comprehensive regulatory framework to support delivery of the complaints related aspect of Outcome 6, across different types of financial institutions.

This proposal is the outcome of a series of consultations, going back to February 2013, with the TCF Regulatory Framework Steering Committee (the “TCF Steering Committee”)^4. After consideration of all inputs provided by the TCF Steering

(^1) For further detail regarding the TCF framework, please see the “TCF Roadmap” (March, 2011) and

subsequent TCF related communications, available on the FSB’s website: www.fsb.co.za. (^2) Please refer to the policy publications “A safer financial sector to serve South Africa better” (February 2011) and “Implementing a twin peaks model of financial regulation in South Africa” (February, 2013), available on the National Treasury website: www.treasury.gov.za.

(^3) The term “firm” is used in the phrasing of the TCF Outcomes and elsewhere in this document, to refer generally to any financial institution currently regulated by the FSB and, under the Twin Peaks regime, to be regulated by the market conduct authority. Terminology used in subordinate legislation will however align to the terms used in applicable primary legislation.

(^4) The Steering Committee is a multi-stakeholder consultation forum, comprising representatives of the FSB, the National Treasury, the SA Reserve Bank, various industry and professional associations and Ombud schemes.

PROPOSED TCF ALIGNED COMPLAINTS MANAGEMENT (TCF DD – October 2014)

2.1. Definitions^6

To ensure that regulated firms consistently manage complaints in accordance with TCF standards, and to ensure meaningful and comparable complaints related management information and data, consistent definitions of certain key terms are required. The following definitions are proposed:

“Complaint” means an expression of dissatisfaction by a complainant, relating to a product or service provided or offered by a financial institution, or to an agreement with the financial institution in respect of its products or services and indicating that -

(a) the financial institution or its service provider has contravened or failed to comply with an agreement, a law, a rule, or a code of conduct which is binding on the financial institution or to which it subscribes;

(b) the financial institution or its service provider’s maladministration or wilful or negligent action or failure to act, has caused the complainant harm, prejudice, distress or substantial inconvenience; or

(c) the financial institution or its service provider has treated the complainant unfairly

and regardless of whether such an expression of dissatisfaction is submitted together with or in relation to a customer query^7.

“Complainant” means a person who has submitted a specific complaint to a financial institution or, to the knowledge of the financial institution, to the financial institution’s service provider and who –

(a) is a customer or prospective customer of the financial institution concerned and has a direct interest in the agreement, product or service to which the complaint relates; or

(b) has submitted the complaint on behalf of a person mentioned in (a),

provided that a prospective customer will only be regarded as a complainant to the extent that the complaint relates to the prospective customer’s dissatisfaction in relation to the application, approach, solicitation or advertising or marketing material contemplated in the definition of “prospective customer”.

“Compensation payment” means a payment, other than a goodwill payment, by a financial institution to a complainant to compensate the complainant for a proven or estimated financial loss incurred as a result of the financial institution’s contravention, non-compliance, action, failure to act, or unfair treatment forming the basis of the

(^6) The FSB recognises that certain of the definitions proposed differ from existing definitions in some current legislation. See the discussion in Section 3.

(^7) This last part of the definition of “complaint” does not imply that customer queries are elevated to the status of complaints. The intention is simply to clarify that where the complaint is made together with a query, that does not exclude it from being regarded as a complaint – an interpretation which some commentators have previously sought to adopt. For the expression of dissatisfaction concerned to qualify as a complaint, all requirements set out in the definition of “complaint” and “complainant” will still need to be met.

PROPOSED TCF ALIGNED COMPLAINTS MANAGEMENT (TCF DD – October 2014)

complaint , where the financial institution accepts liability for having caused the loss concerned.

“Compensation payment” excludes -

(a) payment of amounts contractually due to the complainant in terms of the financial product or service concerned, or

(b) refunds of amounts paid by or on behalf of the complainant to the financial institution where such payments were not contractually due

but includes interest on late payment of amounts or refunds referred to in (a) or (b).

“Customer” of a financial institution means any user, former user or beneficiary of one or more of the financial institution’s financial products or services, and their successors in title.

“Customer query” means a request to the financial institution by or on behalf of a customer or prospective customer, for information regarding the financial institution’s products, services or related processes, or to carry out a transaction or action in relation to any such product or service.

“Financial institution” means a financial institution as defined in the Financial Services Board Act 97 of 1990^8.

“Goodwill payment” means a payment by a financial institution to a complainant as an expression of goodwill aimed at resolving a complaint, but where the financial institution does not accept liability for any financial loss to the customer as a result of the matter complained about.

“Prospective customer” of a financial institution means a person who has applied to or otherwise approached the financial institution in relation to becoming a customer of the financial institution, or a person who has been solicited by the financial institution to become a customer or has received marketing or advertising material in relation to the financial institution’s products or services.

“Rejected” in relation to a complaint means that the complaint has not been upheld and the financial institution regards the complaint as finalised after advising the complainant that it does not intend to take any further action to resolve the complaint. This can arise either where the financial institution rejects a complaint without offering to take steps to resolve it because the financial institution regards the complaint as unjustified or invalid, or where the customer or prospective customer does not accept or respond to the financial institution’s proposals to resolve the complaint and the financial institution then advises the complainant that it does not intend to take any further action to attempt to resolve the complaint.

(^8) This is likely to be changed to refer to the relevant definition in the Financial Sector Regulation Bill, once

enacted.

PROPOSED TCF ALIGNED COMPLAINTS MANAGEMENT (TCF DD – October 2014)

implement complaints management processes, and set consistent standards which those processes should meet.

It is accepted that complaints handling requirements need to be proportional to the nature, scale and complexity of the business concerned, as well as sufficiently flexible to cater for different types of products, services and business models^11. A set of overarching standards and requirements for complaints handling is therefore proposed. These standards and requirements are mainly principles based but may be supplemented by specific rules where appropriate, either for all sectors or for specific sectors or situations, as the case may be.

Standards and requirements for complaints management processes will include at least the following:

 A requirement to develop a Complaints Management Process (CMP), meeting prescribed standards.

 Standards for complaints record keeping.

 Standards for complaints monitoring and analysis.

Details of these proposed standards and requirements are set out in paragraphs 2.2.1 to 2.2.3.

2.2.1. Complaints Management Process (CMP)

All regulated financial institutions will be obliged to develop, implement and maintain a complaints management process (“CMP”) that records in writing the institution’s commitment to fair and transparent complaints handling, and its systems, processes and procedures for internal resolution of complaints. The CMP and the processes it sets out must be appropriate to the particular firm’s business model and the nature and scale of its products, services and customer base, and must meet the following standards:

a) The firm’s senior governance body^12 must approve and endorse the CMP and any changes thereto, and review it on a regular basis.

b) The CMP must be readily available to all staff, representatives and service providers involved in marketing, distributing, providing or administering the firm’s products or services or interacting with customers or prospective customers in any way, who must be appropriately and adequately trained on its provisions.

c) Responsibility for oversight, implementation and monitoring of the CMP must be allocated to one or more specific staff members, with the appropriate level of authority, competence and resources to ensure that the CMP is adhered to fairly, objectively and transparently and that any conflicts of interest are identified and

(^11) Where justified to ensure proportionality, certain standards or specific rules may be relaxed in specific situations, for example in respect of very small firms with limited infrastructure or where the nature of a process or business model renders them unduly onerous. The FSB may also, if it deems this necessary, provide guidance from time to time in relation to how standards or rules should be applied in certain situations.

(^12) The board of directors of a company, or equivalent for other structures.

PROPOSED TCF ALIGNED COMPLAINTS MANAGEMENT (TCF DD – October 2014)

mitigated. This function may be delegated to an appropriately constituted committee or office, although the senior governance body will remain accountable for the delegated function.

d) Responsibility for handling of specific complaints must be appropriately delegated to ensure efficient handling. Delegation should be to staff who are adequately trained and have an appropriate mix of experience, knowledge and skill in complaints handling, in the relevant complaints subject matter, in the principles of TCF, and in relevant legal and regulatory provisions. The organisational structure must also ensure that such staff are not conflicted and are empowered to make impartial decisions or recommendations.

e) The CMP must establish processes that will ensure that potential complainants do not face unreasonable barriers to making a complaint. The complaints process must be transparent, visible and accessible through channels that are appropriate and accessible to the firm’s target customer groups. Wherever feasible, customers and prospective cutomers should be provided with a single point of contact for submitting complaints. Transparency of the process includes adequate and appropriate communication to customers and prospective customers regarding how to complain (e.g. the type of information required from the complainant; where, how and to whom to submit the complaint; any time limits on submitting complaints; any other relevant responsibilities of the complainant). All relevant communications must be in clear and understandable language. The complaints process must be free of charge^13 to the complainant.

f) The CMP must enable complaints to be considered after taking reasonable steps to gather and investigate all relevant information and circumstances and with due regard to TCF principles and commitments.

g) Complaints must be acknowledged on receipt and complainants must be promptly informed of the process that will be followed in handling the complaint (e.g. indicative timelines; availability of escalation or ombud options in the event of an outcome not in the complainant’s favour; contact details of the person who will be handling the complaint in order to follow up on progress.)

h) Complaints must be effectively dealt with in the shortest reasonable time, and in accordance with any prescribed timeframes and any timeframes set out in the firm’s CMP.

i) Complainants must be kept adequately informed of the progress of their complaint, and of the firm’s decision in response to the complaint. Where resolution takes longer than expected, the complainant must be informed of causes of the delay and provided with revised timelines. Where a complaint is upheld, any commitment by the firm to make a compensation payment, goodwill payment or to take any other action must be carried out without delay and within any agreed timeframes. Where a

(^13) Where some aspects of the complaint investigation may entail cost to the complainant, for example reasonably requested new medical evidence to review an insurance claim, the complainant should be made aware of this as early as reasonably possible.

PROPOSED TCF ALIGNED COMPLAINTS MANAGEMENT (TCF DD – October 2014)

established by the firm’s CMP) must enable recordal of at least the following in relation to reportable complaints:

 All relevant details of the complainant and the subject matter of the complaint, including copies of all relevant evidence, correspondence and decisions.

 Appropriate TCF aligned categorisation of complaints (see paragraph 2.3 below).

 Progress and status of the complaint, including whether such progress is within or outside any relevant prescribed timelines or internal service levels.

 Details of numbers of complaints received, complaints upheld, rejected complaints, complaints escalated by complainants to the internal review function (where applicable)^15 , complaints referred to an Ombud, compensation payments and goodwill payments.

Firms are encouraged to also record as many of the above details as possible in relation to non-reportable complaints^16. Where non-reportable complaints are concerned, a firm’s CMP must include appropriate processes for handling such non-reportable complaints, including reasonable steps to identify noteworthy trends in relation to the types, volumes or incidence of non-reportable complaints.

2.2.3. Standards for complaints monitoring and analysis

Effective monitoring and analysis of complaints is a key tool for firms to use to identify, manage and mitigate emerging TCF related and other market conduct risks within their operations, to identify opportunities for improving TCF outcomes for their customers, and to prevent recurrences of poor outcomes and errors.

In order for firms to use complaints information to manage conduct risks and effect improved outcomes and processes as pro-actively as possible, complaints information should be scrutinised and analysed on an ongoing basis. Depending on the volume and nature of complaints received, a combination of qualitative and quantitative analysis should be undertaken. Qualitative analysis can for example include reviewing particular complaints as case studies and using them for staff training purposes or as motivations for process or product improvements. Quantitative data can be used to identify positive or negative trends and take these into account to confirm the success of initiatives or mitigate emerging risks, as the case may be.

Complaints analysis should be used to –

 Identify root causes common to categories of complaints and instances where such root causes are likely to affect other customers, products or processes.

 Identify failings in control systems.

 Detect poor staff or service provider performance, lack of skills or misconduct.

(^15) See paragraph 2.2.1(j) above.

(^16) Non-reportable complaints are those complaints contemplated in paragraphs (a), (b) or (c) of the definition

of “reportable complaint”. See also the discussion in footnote 9.

PROPOSED TCF ALIGNED COMPLAINTS MANAGEMENT (TCF DD – October 2014)

 Track the success of the firm’s TCF delivery, or risks to TCF delivery.

 Demonstrate the benefits of effective complaints management by using lessons from complaints analysis to effect meaningful improvements for customers and the business.

2.3. TCF aligned complaints categories

The six TCF Outcomes constitute a set of principles against which the conduct of business of firms in relation to their customers, as well as the effectiveness and suitability of the regulatory and supervisory approach of the FSB (as market conduct regulator), will be tested.

Against this background, it makes sense for both firms and the regulator to be able to use complaints information to measure the industry’s progress in delivering the TCF Outcomes, and to identify and mitigate risks to the delivery of those Outcomes. To achieve this, the FSB proposes that financial institutions be required to manage and categorise complaints in line with the TCF Outcomes.

TCF aligned complaints categorisation entails the following:

a) Financial institutions should categorise, record and report on complaints by identifying the TCF Outcome category to which a complaint most closely relates, and group complaints accordingly. Paragraphs 2.3.1 to 2.3.9 provide more detail on the minimum complaints categories required and set out examples of types of complaints which would typically fall under each category. For some of the TCF Outcomes (Outcomes 5 and 6), additional sub-categories are proposed. There is therefore a total of nine minimum categories which should be used, wherever applicable.

b) This categorisation is not intended to restrict institutions from using any other internal complaints categorisation process that they deem appropriate, over and above or in conjunction with the nine TCF aligned categories.

c) Future regulatory and public complaints reporting will require affected institutions to report using the TCF aligned categories.

d) Where a particular complaint could fall under more than one category firms should, for reporting purposes, identify the category to which the complaint most strongly relates. For internal analysis purposes however, where a complaint clearly indicates more than one type of TCF failing (for example a complaint relating to both poor administrative service as well as misleading disclosure), the firm should consider how best to ensure that both types of failing are identified and managed. The FSB accepts that additional regulatory guidance in relation to complaints categorisation may be required from time to time.

e) Each of paragraphs 2.3.1 to 2.3.9 below provide non-exhaustive examples of possible complaint types in relation to each of the nine categories. These examples are provided as guidance, to assist firms in interpreting the scope of the category. Subject to paragraphs (f) and (g) below, it will therefore not be prescribed that firms

PROPOSED TCF ALIGNED COMPLAINTS MANAGEMENT (TCF DD – October 2014)

2.3.2. Outcome 3: Complaints relating to information provided

This will include complaints that any documentation provided to customers or prospective customers, or other communications with customers or prospective customers are inaccurate, unsuitable, misleading, incomplete, confusing, unclear, etc. It will cover both advertising and marketing material as well as specific product or service related communications. It will also cover information provided at all stages of the product life cycle, not only at or before point of sale. Complaints regarding such information could apply to either the content of the information, or the manner or medium in which it is provided. It will also include complaints regarding a failure to provide information, or complaints that information was provided at an inappropriate time.

2.3.3. Outcome 4: Complaints relating to advice

This category relates to complaints that advice provided did not take adequate account of the customer or prospective customer’s needs and circumstances (including affordability),was factually incorrect or misleading, or that advice was not provided when the complainant believes it should have been provided. Complaints indicating that the adviser was subject to a conflict of interest, or was lacking in knowledge, skill, experience or integrity would also fall under this category. Complaints directed to advisers themselves, relating to the adviser’s remuneration, would also be included. Complaints relating to the inclusion of advice related charges in the cost structure of the product itself, however, should be addressed under Outcome 2.

Reporting requirements in relation to this category are likely to require firms to sub- categorise these complaints in respect of different types of distribution channels^19 , such as:

 Tied channels

 Multi-tied channels

 Direct marketing channels

 Independent channels

 Other.

It is important to note that the FSB would expect product suppliers who distribute their products through multi-tied or independent intermediaries to record and monitor complaints that relate to advice provided by such intermediaries. See also paragraph 2.2.1(n) in this regard.

2.3.4. Outcome 5(a): Complaints relating to product performance

This category will include complaints indicating a customer’s disappointment in becoming aware of limitations relating to the product or service that are not in line with their expectations. Where applicable, this would include (but is not limited to) complaints regarding perceived poor investment returns on investment, savings or retirement savings

(^19) The Retail Distribution Review currently being undertaken by the FSB may result in changes to the types of

distribution channels to be taken into account.

PROPOSED TCF ALIGNED COMPLAINTS MANAGEMENT (TCF DD – October 2014)

products. The category would also include complaints indicating that the customer was not kept adequately informed during the life of the product of matters that affect the product’s ability to meet expectations. Complaints regarding a product supplier’s exercise of any contractual right to terminate a product or amend its terms would also fall under this category.

Complaints relating to non-payment of insurance risk claims should not however be placed in this category but in the Outcome 6(c) category.

Reporting requirements in relation to this category are likely to require firms to sub- categorise these complaints in respect of the classes of products and services concerned, as well as in respect of the target customer groups.

2.3.5. Outcome 5(b): Complaints relating to customer service

Customer service complaints are those expressing dissatisfaction with the firm’s administration of requests and transactions (including complaints regarding the firm’s technological support) and complaints relating to the way in which the firm’s staff have dealt with the customer (for e.g. complaints of rudeness, incompetence or non-responsiveness). This would include complaints regarding the administrative processing of payments to or by the customer. Complaints relating to breaches of privacy or confidentiality also fall under this category.

It is important to note that complaints relating to the customer service standards of third party or outsourced service providers are included in this category and should be specifically identified.

Complaints arising from alleged fraudulent activity by the firm or a third party, where the customer is dissatisfied with the manner in which the firm has handled the matter or with the assistance provided by the firm in attempting to resolve the matter, would typically also fall under this category. It is recommended that fraud related complaints of this type be specifically identified.

Service complaints relating to the complaints handling process itself or to the administration of insurance risk claims, should not be included in this category but in category 6(b) or (c), as appropriate.

2.3.6. Outcome 6(a): Complaints relating to product accessibility, changes or switches

This category relates to complaints in respect of barriers or limitations on access to funds, or on the ability to transfer products or services to another provider, or on the ability to make changes to the product or service. Types of barriers or limitations covered would include penalties, termination charges, lengthy notice periods, complex “red tape” administrative hurdles when trying to access funds, etc.

Note that complaints relating to non-payment of insurance risk claims should not however be placed in this category but in the Outcome 6(c) category.

PROPOSED TCF ALIGNED COMPLAINTS MANAGEMENT (TCF DD – October 2014)

 Dispute re quantum of claim

 Other reasons.

2.3.9. Other complaints

A catch-all category for any complaints not falling within one of the above TCF aligned complaints categories or sub-categories. This category should however not be be treated as a “default” reporting category. The FSB will, in the course of its review of complints reporting and management, interrogate cases where a disproportionate number of complaints are categorised as “other”.

2.4. Engagement with Ombud schemes

Details of the regulatory provisions governing interaction between regulated firms and ombud schemes are to a degree dependent on the outcomes of the current National Treasury review of the ombud schemes structure. Regardless of the final ombud model however, the following requirements, which in some cases are already provided for in the current regulatory framework, can be expected to apply:

 Obligations on regulated firms to clearly and transparently communicate the availability and contact details of the relevant ombud’s services to customers and prospective customers at relevant stages of the customer relationship. Relevant stages include point of sale, relevant periodic communications, on receipt of a complaint, and when a complaint (or a claim, in the case of insurance) is rejected.

 Where appropriate, obligations on firms to display and / or make available information regarding the availability and contact details of the relevant ombud’s services at premises^25 and / or on websites.

 The principle that the firm should endeavour and, wherever feasible, be afforded an opportunity to resolve the complaint with the complainant before a final determination or ruling is made by an ombud. This does not however imply that a complainant’s access to an Ombud may be impeded or unduly delayed where the firm’s complaint management process is onerous or inefficient, or where the circumstances justify direct recourse to the ombud.

 Open and honest communication and co-operation between the ombud and firms in endeavouring to resolve complaints through conciliation or mediation (as opposed to final ruling or determination) as the preferred option.

 Firms should maintain specific records and carry out specific analysis of complaints referred to them by the ombud and their outcomes.

 Firms should monitor determinations (whether involving their own firm or others), publications and guidance issued by relevant ombuds with a view to identifying failings or risks in their own products or practices.

(^25) Display of these details or making them available (such as through readily accessible pamphlets or leaflets) at the firm’s premises would, for example, be appropriate where the firm has “walk-in” customer contact points.

PROPOSED TCF ALIGNED COMPLAINTS MANAGEMENT (TCF DD – October 2014)

Pending the review of the Ombud schemes structure, consultation with current voluntary Ombud schemes to identify opportunities for co-ordinating their complaints handling processes with the framework proposed in this paper will continue. It is also recognised that differences in categorisation between the categorisation models used by firms and those of the Ombud schemes will need to be taken into account in developing reporting requirements and in analysing complaints data. Alignment will however be facilitated once firms themselves categorise complaints on a TCF aligned basis, as they will then be able to indicate their view of the relevant category to the Ombud in their responses to the Ombud.

2.5. Complaints reporting to the market conduct regulator

An effective complaint management system combined with effective complaints reporting and monitoring provides an early warning signal to regulators and supervisors. More particularly: “Analysing consumer complaints data across financial services entities in a standardised reporting format, provides information to regulators and supervisors on how to improve market conduct, and helps regulators to identify consumer risks, regulatory gaps, systemic irregularities in the market place, and to assess the effectiveness of regulatory measures and compliance with laws and regulations.”^26

Submission by firms of meaningful and reasonably consistently compiled complaints information enables the regulator to use the complaints information, in much the same way as a firm is expected to use it, to identify and mitigate emerging TCF related and other market conduct risks, to identify opportunities for improving TCF Outcomes for financial services customers, and to prevent recurrences of poor outcomes and errors. The regulator can use the information concerned to take conduct risk mitigation or remedial action either at the level of the individual firm or group concerned (micro conduct risk) or at an industry-wide or sector-wide level (macro conduct risk). Complaints information is also a useful factor, among others, to consider in prioritising supervisory scrutiny of different firms for purposes of risk-based supervision. Complaints reporting to the regulator is therefore a necessary tool to facilitate the principles of risk-based, proportional, pro-active and pre- emptive supervision.^27

The FSB is therefore in the process of developing more detailed proposals to introduce regulatory complaints reporting requirements, in a prescribed format, for regulated firms. The first industry to which this obligation will apply is the insurance industry, with both long- term and short-term insurers soon being required to submit regular conduct of business statutory returns, which will include – inter alia – complaints related data. Consultation with the insurance industry on proposed reporting templates is currently underway. Requirements in respect of other industry sectors will be considered as a subsequent phase, and consultation on any such requirements and implementation timelines will be undertaken^28.

(^26) See the Update Report on G20 Principles 4, 6 and 9 by the G20/OECD Task Force on Financial Consumer Protection, referred to in Annexure B.

(^27) As contemplated in both the TCF Roadmap and the Twin Peaks implementation document.

(^28) It is recognised that prescribed reporting requirements need to take the principle of proportionality into

account, as contemplated in paragraph 2.2 and footnote 11 above.

PROPOSED TCF ALIGNED COMPLAINTS MANAGEMENT (TCF DD – October 2014)

proposed in this document for reports to the regulator, is suitable for public reporting. Consideration will also be given as to which types of firms will be required to publicly report complaints data and what criteria should be applied to exclude certain firms, if any, from such requirements.

3. EMBEDDING TCF ALIGNED COMPLAINTS MANAGEMENT IN THE CURRENT

REGULATORY FRAMEWORK

Some, but not all, current legislation or subordinate legislation already imposes specific obligations on firms to develop and implement complaints handling processes as part of their operations, and in some cases prescribes specific requirements and standards for these processes. The most comprehensive of these sets of requirements is the complaints handling process prescribed in Part XI of the General Code of Conduct under the Financial Advisory and Intermediary Services (FAIS) Act. The complaints management proposals in this document have therefore been distilled largely from the current FAIS provisions, also taking into account other local and international standards and practices^31.

Over time, the intention is to incorporate final definitions and requirements in the market conduct regulatory framework being developed for purposes of the “Twin Peaks” implementation, on an over-arching, cross-sectoral basis. In the interim, however, it is recognised that existing legislated definitions and requirements, where they exist, will continue to apply in specific circumstances until such time as regulatory alignment can be achieved. Where current definitions and requirements are included in subordinate instruments, not requiring primary legislative amendment, opportunities will be sought to align these as far as possible, with appropriate adjustments where necessary to ensure consistency and relevance.

Further consultation will take place in the normal course on any specific proposed amendments to existing legislation or subordinate legislation. However, comment is invited on the high level proposed approach to embedding TCF aligned complaints management requirements in the current regulatory framework, as it applies to different types of financial institutions and dispute resolution structures, as set out in paragraphs 3.1 to 3.8 below.

3.1. Long-term and short-term insurers

The requirements and standards in relation to a firm’s CMP, complaints record keeping and complaints monitoring and analysis, can be implemented through amendments to the Policyholder Protection Rules (PPR’s) issued under the Long-term and Short-term Insurance Acts respectively. Since the promulgation of the Financial Services General Laws Amendment Act, such amendments may be effected by the Registrar of Insurance.

Requirements in relation to complaints reporting can be introduced through existing powers of the Registrar in relation to information requests or statutory returns. Consultation with the insurance industry regarding a regular Conduct of Business Return by insurers, including complaints related data, has already been undertaken.

(^31) See Annexure B for information sources reviewed.

PROPOSED TCF ALIGNED COMPLAINTS MANAGEMENT (TCF DD – October 2014)

Consideration will also be given to the responsibilities of insurance binder holders in relation to managing and reporting on complaints in relation to the activities they carry out on behalf of insurers.

3.2. Collective investment scheme (CIS) managers

In terms of the Collective Investment Schemes Control Act, the Registrar of Collective Investment Schemes determines conditions of registration for a CIS manager. These conditions already provide for a complaints management process, and can be amended as necessary to require such complaints management process to meet the requirements and standards in relation to a firm’s CMP, complaints record keeping and complaints monitoring and analysis.

Requirements in relation to complaints reporting can be introduced through existing powers of the Registrar in relation to information requests or statutory returns.

3.3. Retirement funds and retirement fund administrators

Regulation 30 under the Pension Funds Act, which prescribes the requirements for the Rules of retirement funds, already requires such Rules to provide for the manner in which disputes between a retirement fund and its members or between the retirement fund and another person whose claim derives from a member, shall be settled.

Further detail regarding complaints management requirements – such as the above requirements and standards in relation to a financial institution’s CMP, complaints record keeping and complaints monitoring and analysis – can be introduced through current regulatory enhancements that the Registrar of Pension Funds is in the process of effecting. In addition to a review of Regulation 30 requirements, these include the development of a Good Governance Directive for retirement fund boards of management (to replace and enhance the current PF Circular 130) and the revision of disclosure requirements currently contained in PF Circulars 86 and 90.

Where retirement fund benefit administrators are concerned, the current revision of registration requirements under s13B of the Pension Funds Act can impose explicit obligations on administrators in relation to managing complaints on behalf of the funds they administer.

Requirements in relation to complaints reporting can be introduced through existing powers of the Registrar in relation to information requests or statutory returns.

3.4. Financial services providers

The General Code of Conduct under the FAIS Act already imposes detailed obligations on authorised financial services providers in relation to complaints management processes. The relevant provisions of the Code can be amended as necessary to align to the above requirements and standards in relation to a firm’s CMP, complaints record keeping and complaints monitoring and analysis.

The Registrar of Financial Services Providers is commencing a review of current FAIS reporting requirements, including but not limited to a review of the current Compliance Report format and process, to enable enhanced conduct of business monitoring. This review can include introducing requirements for complaints reporting.