South Africa\u27s regulatory regime for the financial services sector is going through major changes. The question is whether companies can adapt to a principles-based approach. Or will they default back to rules-based compliance during the implementation of the Conduct of Financial Institutions Act? The aim of the new law is to improve financial sector conduct and ensure fairer outcomes, particularly for customers

Schmulow, Andrew D

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Research Online

University of Wollongong Research Online Faculty of Law, Humanities and the Arts - Papers Faculty of Law, Humanities and the Arts 1-1-2019 Financial services need to wake up to fact that treating customers well is good business Andrew D. Schmulow University of Wollongong, andys@uow.edu.au Follow this and additional works at: https://ro.uow.edu.au/lhapapers  Part of the Arts and Humanities Commons, and the Law Commons Recommended Citation Schmulow, Andrew D., "Financial services need to wake up to fact that treating customers well is good business" (2019). Faculty of Law, Humanities and the Arts - Papers. 4120. https://ro.uow.edu.au/lhapapers/4120 Research Online is the open access institutional repository for the University of Wollongong. For further information contact the UOW Library: research-pubs@uow.edu.au Financial services need to wake up to fact that treating customers well is good business Abstract South Africa's regulatory regime for the financial services sector is going through major changes. The question is whether companies can adapt to a principles-based approach. Or will they default back to rules-based compliance during the implementation of the Conduct of Financial Institutions Act? The aim of the new law is to improve financial sector conduct and ensure fairer outcomes, particularly for customers. Disciplines Arts and Humanities | Law Publication Details A. Schmulow, 'Financial services need to wake up to fact that treating customers well is good business' (2019) 17 November The Conversation 1-6. This journal article is available at Research Online: https://ro.uow.edu.au/lhapapers/4120 AuthorAndrew SchmulowSenior Lecturer, Faculty of Law, Universityof WollongongAcademic rigour, journalistic flairSouth Africa’s regulatory regime for the financial services sector is going through majorchanges. The question is whether companies can adapt to a principles-based approach.Or will they default back to rules-based compliance during the implementation of theConduct of Financial Institutions Act? The aim of the new law is to improve financialsector conduct and ensure fairer outcomes, particularly for customers.There are strong arguments that a business that prioritises the values of good conductwill be rewarded with loyal customers. They, in turn, have a high degree of trust in thebusiness, and are more likely to source products and services from it. There are alsoindications that more loyal customers are less concerned about marginal differences in the price of aproduct or service, when compared to those of competitors.In a wider social context, the South African government has made it clear that it expects financialservices companies to take seriously the idea of a social contract. And that this, is essentially, theirShutterstockNovember 17, 2019 4.30pm AEDTFinancial services need to wake up to fact that treating customers well is... https://theconversation.com/financial-services-need-to-wake-up-to-fact-t...1 of 6 3/02/2020, 12:55 pmlicence to operate in the financial industry.From the industry’s perspective this means that treating customers well and pursuing greaterfinancial inclusion are a legal requirement, as well as necessary to mitigate risk.These developments reflect changed and changing expectations by wider society of the role financialservice providers should play in contributing to South Africa’s future.For all these reasons, compliance with new conduct standards should be regarded as an opportunityto embed resilience.BenefitsBut these kinds of changes are often met with anxiety. Rules-based compliance is straightforward.Principles-based systems are less clear.In my view anxiety is unnecessary, as compliance with new conduct standards serves a practicalpurpose.If done in conjunction with deep reflection, compliance will steer the business towards better conduct.Moreover, a principles-based approach allows for flexibility by eschewing a tick-a-box mentality,which leaves the firm at risk. In some entities, good conduct already runs deep in the organisation.What will change, even for them, is the introduction of a more structured framework, more finelytargeted, and set against ideational principles, not prescriptive rules.Put simply, the new conduct regime produces an unexpected additional benefit: through compliancewith the principles of good conduct and the assurance of good consumer outcomes, firms may expectto gain greater resilience.Achieving authenticityIn practical terms, compliance that is founded in ethics and integrity brings authenticity.To achieve this, three issues should be addressed.The role and perception of compliance: It is important that businesses understand that compliance isnot the “business prevention department” but the “business sustainability department”. Put simply,compliance should be regarded as a protector of the business and its place in society. An excellentcompliance department, operating in a principles-based regime, is the vector by which the businesstransmits good outcomes for customers in future.Implementation: By structuring the business around core principles, the entire organisation isFinancial services need to wake up to fact that treating customers well is... https://theconversation.com/financial-services-need-to-wake-up-to-fact-t...2 of 6 3/02/2020, 12:55 pmAustralia South Africa Twin Peaks Insurance sector RandDbrought along, and helps strengthen the underlying sub-set of narrow compliance. For this process,the compliance department must deploy a framework across the business, under the rubric that it iseveryone’s job to act ethically. This envisages leveraging the existing skills, and especially in the caseof highly compliant firms, long-standing expertise that is embedded within compliance.Conduct review: Interrogating the life cycle of a product or service starts with product or serviceconception. This is more extensive than the customer journey. By spending time with stakeholders –including customers – to help understand why a product or service process works or does not work,these enquiries deliver significant understanding to the firm, and will deliver monetary benefits. Putdifferently, product performance information intelligible only to a highly educated customer will notbe adequate for customers who are low income. Therefore, it would fail to comport with theunderlying principles of constructing a financial system that is aimed at “protecting financialcustomers, promotes their fair treatment and protection, and promotes financial inclusion and thetransformation of the financial sector”.Interrogation of those processes would involve chunking conduct standards into a set of qualitativeand conceptual (as opposed to analytical) enquiries. By aligning with overall corporate values, theseenquiries reinforce the “all together” concept. What is also required is independence in the design ofrecursive reviews that will make a valuable contribution in mitigating otherwise unavoidable“observer biases”. Evidence of the problems caused by such cognitive biases are to be found inAustralia, in the recent review by the Prudential Regulator of Commonwealth Bank and the Westpacself-assessment. Both allude to governance and conduct failures precipitated by a process-driven, asopposed to goal-orientated, myopia.Future-focused firms will lead the wayForward-thinking firms will be first movers towards stakeholder (as opposed to shareholder) primacy.This approach was recently promoted by the Australian Royal Commission as the way forward forAustralian banks and insurers. The South African authorities are paying careful attention to thecommission’s findings.In time, therefore, first movers in this space will no longer seem radical, but simply early. Those firmswill provide the definition of leadership in the industry. If being values-driven is an end in itself, thenfirst movers will enjoy an advantage. Moreover, credibility in this space affords firms the opportunityto set the standards to which the regulator will hold the rest of the industry.Financial services need to wake up to fact that treating customers well is... https://theconversation.com/financial-services-need-to-wake-up-to-fact-t...3 of 6 3/02/2020, 12:55 pmYou might also likeDonate NowThe digital economy is becoming ordinary. 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Financial services need to wake up to fact that treating customers well is good business

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Financial services need to wake up to fact that treating customers well is good business

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