What Asian banks need to know about customers' trust and fair treatment (Part 3)

In Part Three of a special series of reports regarding conduct risk/consumer protection regulations, we start with an overview of existing Asia Pacific regulations designed to address misleading and deceptive practices.

1.      In Australia - the government has recently implemented a series of changes under the “Future of Financial Advice” reforms.

2.      In Thailand - there is the “Framework for Insurance Advertising” which focuses on ensuring material is truthful clear and not misleading

3.      In Hong Kong - the OCI is proposing a new Independent Insurance Authority, which will aim to provide enhanced regulation so that insurance companies and intermediaries act honestly, fairly and in the best interests of the policyholder.

4.      In Singapore - the regulator is in the final stages of the “Financial Advisory Industry Review”  And, within the last couple of months, the regulator has also:

·         updated their fair dealing guidelines for Board Members & Senior Management,

·         updated their advice relating to product disclosures,

·         and have announced they will be increasing their focus on product design.

5.      In Malaysia– The regulator has developed the “Guidelines on Introduction of New Products for Insurance Companies, Takaful Operators, and Banks” which were updated at the end of 2011. In addition, a recent country report by the IMF recommended that the effectiveness of the Malaysian regulators could be enhanced with strengthened enforcement tools and the development of a supervisory framework specific to market conduct activities.

6.      In India – in March 2013 new Investment Adviser Regulations came into force.

7.      In New Zealand - there is the Financial Advisers Act.  It’s also worth noting that in February the regulator published its priorities for 2013 and top of the list was “building customer trust.”

In short, what we’re seeing across the region is the continuing development of a range of regulations with one thing in mind – to protect the customer.  And there seems to be no let-up in the pace of change. A recent KPMG report produced earlier this year talked about the global conduct risk regulatory agenda in the following terms:

·         more intrusive supervision;

·         early intervention before customer detriment can occur;

·         a tighter focus on product development and on the root causes of poor customer outcomes;

·         significantly lower tolerance for customer detriment;

·         more credible deterrence.                    

So what are the key strategic areas that will, collectively, drive the culture and behaviour in the organisation.

1.       CEO Leadership – this is about driving the organisation to accept TCF and lead by example. The CEO must become the “ultimate” TCF Champion, to ensure everyone plays their part and that everyone is accountable. They must ensure that all parts of the organisation look at their systems and processes and to ensure the right people are in place to deliver the cultural change.

2.       Strategy – This is about ensuring that the vision and core values of the organisation are aligned with TCF and that customer feedback and research is used to inform and shape the strategy. People, technology, policies & procedures must be consistent with TCF.

3.       Decision Making: This is about understanding the customer impact of key business decisions. It’s about staff being confident, authorised, empowered, and competent to make such decisions; and it’s about having a culture that encourages and allows staff to escalate issues, and to question or challenge decisions. Finally, it’s about recording these decisions and capturing the rationale.

4.       Controls: This is about having the mechanisms, checks, balances, andthe MI to measure fair treatment.

5.       Recruitment, Training and Competence: This is about TCF being reflected in all stages of employee journey – Induction, training, performance reviews, continuous development; and it’s about every employee having competencies and objectives that can be aligned to TCF.

6.       Reward: This is about having a salary review mechanism that recognises the “quality” of interaction with customers; it’s about having a transparent Commission policy that recognises measures such as persistency and complaints; and finally it’s about having formal and informal recognition schemes that recognise the right TCF behaviours.

And of course, where there’s “reward” there must also be punishments for poor behaviours.

This framework, (based on the UK FCA “Culture Framework”), will allow the delegation of the more ‘tactical’ elements of TCF which will be discussed in the final part of this series.