By choosing to continue, you are consenting to the use and functioning of this site as is in accordance with our Privacy Policy.

find an article




The Conduct Standard for Banks and how it will support the 6 Treating Customers Fairly principles

On 3 July 2020, the Financial Sector Conduct Authority (“FSCA”) introduced the Conduct Standard for Banks. This regulatory framework enables the FSCA to critically and urgently supervise the market conduct of the banking sector in South Africa, in accordance with its mandate, as outlined in the Financial Sector Regulation Act, 2018 (“FSRA”).

The Conduct Standard establishes high-level requirements to be adhered to by the banking sector aimed at ensuring the fair treatment of financial customers. As such, the Conduct Standard was designed to give effect to the six Treating Customers Fairly (“TCF”) Outcomes:

TCF Outcome 1: Customers are confident that they are dealing with financial institutions in which the fair treatment of customers is central to their culture.

Section 3 of the Conduct Standard places an obligation on banks to demonstrate how the fair treatment of customers is central to its culture, governance and oversight mechanisms. Banks are obliged to conduct business with integrity, honesty, due care, skill and diligence, and by avoiding conflicts of interest. This ought to be done by banks while openly cooperating with the FSCA and undergoing continuous assessments of deficiencies and of the banks’ systems.

TCF Outcome 2: Entails that products and services marketed and sold in the retail market are designed to meet the needs of identified customer groups and are targeted at these customer groups.

Section 4 of the Conduct Standard regulates the manner in which financial products and financial services ought to be designed and performed. Clear roles and responsibilities are allocated to banks in order to ensure good record-keeping practices and to implement variable oversight arrangements which are dependent on the particular financial services or financial products being offered. It is worth noting that, although the FSCA intended for the Conduct Standard to apply across the business of the bank, the FSCA has imposed additional requirements in respect of retail financial customers in section 5 and in segments of sections 2, 4, 6, 7 and 8, in particular.

TCF Outcome 3: Customers are provided with clear information and kept appropriately informed before, during and after point of sale.

Section 6 of the Conduct Standard introduces minimum standards for advertising and the governance of processes relating to the approval of advertisements. Essentially, this section places an obligation on a bank to ensure that its financial customers are aware of and knowledgeable all facts which may reasonably influence the customer’s decisions relating to the particular financial product or financial service being sought after.

TCF Outcome 4: Where advice is given, it is suitable and takes account of customer circumstances.

Section 7 of the Conduct Standard provides that the nature and complexity of the financial product, along with various other factors, ought to be considered by banks when making disclosures to financial customers. This will ensure that financial customers will have useful information at hand upon making decisions relating to, or entering into, using or maintaining products or services with the bank.

TCF Outcome 5: Products perform as firms have led customers to expect, and service is of an acceptable standard as they have been led to expect.

Section 5 of the Conduct Standard is only applicable to retail financial customers. Unfair product terms and conditions, including unfair fees and charges, are prohibited. This is complementary to the prohibitions that the National Credit Act, 2005 (“NCA”) places on fees and charges that may be imposed by credit providers on a consumer. In doing so, it promotes the NCA’s aim to establish a fair market place for access to consumer credit, as well as the prohibition of unfair credit and credit-marketing practices. Banks are obliged to ensure that financial services and financial products remain appropriate to meet the identified needs of the target market.

TCF Outcome 6: Customers do not face unreasonable post-sale barriers imposed by firms to change products, switch providers, submit a claim or make a complaint.

Section 8 of the Conduct Standard provides for the implementation of the Complaints Management Framework. Sections 9 and 10 regulate the way in which banks or financial customers may initiate the closure or switching of a financial customer’s account. A financial customer must be assisted by banks to do what is requested. A bank must proactively disclose implications of maintaining a dormant financial product as opposed to closing or terminating the financial product.

The FSCA is empowered to be proactive in terms of the Conduct Standard in that it is entitled to pre-empt negative outcomes for customers where they are identifiable. Once the FSCA identifies a risk, be it at a macro- or micro-conduct level, the FSCA will engage with the bank in question to try to remedy the situation at hand or seek redress where necessary.

The FSCA’s expectation is that this Conduct Standard will lead to improved outcomes for customers with an emphasis on transparency and disclosure relating to the offering of financial products and services targeted to appropriate customer groups. Banks will need to assess the potential cost implications that may arise in implementing this Conduct Standard.

We will be unpacking the provisions of the Conduct Standard in greater detail at an upcoming webinar on TUE 21 JUL 2020 at 11am and will be exploring the impact of the Conduct Standard on the banking sector in terms of:

  • Advertising
  • Liability for distribution networks
  • Product design
  • Customer complaints
  • The termination or switching of financial products

Please click here to RSVP.

Clinton van Loggerenberg
Banking and Finance | Executive
+27 82 526 2888

Courtney-Jayne Dykes
Banking and Finance | Candidate Attorney
+27 76 871 0351