The 2nd Phase of Compliance with “The Conduct Standards for Banks“
The Financial Services Conduct Authority (FSCA) published the final Conduct Standard for Banks on 3 July 2020 after a long consultative process which incorporated industry body commentary. The standard was published under the premise of supporting the rollout of the conduct regulatory framework under the Twin Peaks Model – although historically the fair treatment of clients was catered for within the Financial Advisory and Intermediary Services Act and the respective Codes of Conduct as well as the Treating Client Fairly Principles. This was merely legislated in parts and was considered light touch as compared to the newly introduced Conduct Standard. Under the TWIN Peaks Model accountability on the part all Financial Service Providers has been addressed in detail and now been legislated within the Conduct Standards for Banks and the many more standards that will precede this piece of legislation for other Financial Service Providers.
With the final Conduct Standard now published, banks were faced with 3 distinct deadlines for compliance.
- Sections 1 & 2 of the Conduct Standard became operational on the date of publication;
- Sections 3 – 6 coming into operation 8 months after the date of publication;
- Sections 7- 10 require compliance 12 months after date of publication, which implies that this deadline is looming, as 3 July 2021 is just around the corner.
Of particular interest is Section 8 which relates to complaints, the Conduct Standards have set out clear requirements related to complaints which is strongly precedented on Outcome 6 – Customers do not face unreasonable post-sale barriers imposed by firms to change product, switch providers, submit a claim or make a complaint.
At a minimum Banks are required to ensure that the following requirements have been catered for or are defined, operational and deemed effective by the 3 July 2021 within their organizations: –
- A Complaints Management Framework must be established that incorporates the following requirements:
- The framework must be owned and approved by an existing senior governing body, this governing body should be designated as the accountable governance structure for the management, monitoring and reporting of complaints throughout the Bank.
- The framework should detail the end-to-end complaints management, escalation and resolution process.
- The framework should also address performance standards, remuneration and reward strategies for complaints management to ensure objectivity and impartiality.
- Furthermore, the framework should make provisions for standards for the categorization of complaints and define expected resolution timeframes and should also detail timeline deviations from normal practice.
- The framework should also provision for record management requirements and ensure that monitoring, analysis and reporting of the trends and identified risks are escalated to accountable governance structures such that remedial actions can be taken and managed.
- Communication strategies around addressing complaints must be defined highlighting roles and responsibilities of complaints representatives, and the associated processes and procedures for management of complaints.
- The framework must also define engagement models between the banks and respective Regulatory Authorities/Ombudsman’s.
- In addition, the framework must also document a process for management of complaints by service providers insofar as such complaints relate to services provided in connection with the bank’s financial products or financial services.
- This should reasonably satisfy the bank that adequate complaints management processes and procedures are in place for the management of complaints to ensure the fair treatment of complainants.
- Provide for the monitoring and analysis across aggregated complaints data in relation to complaints received by service providers and their outcomes.
- Detail effective referral processes between the bank and service providers for the handling and monitoring of complaints when referred by either party for resolution.
- Ensure that processes cater for communication requirements related to complainants to allow for these individuals to be kept informed of the process being followed and the outcome of their complaint.
- Banks must ensure that individuals who are responsible for any decision-making process or making recommendations in respect of complaints must be trained, have the appropriate skillset and experience, must not be referred to as an internal ombud, must not be subject to conflicts of interest and lastly must be empowered to make impartial decisions and recommendations.
- Complaints must be categorized as prescribed in section 8(7) (a) –(i), such that the bank is easily able to identify complaints relating to:
- Disclosures or Non-Disclosure
- Design of Financial product/services
- Advertising of Financial products and services
- Performance of Financial Products/Services
- Customer Experience including but not limited to the client experience with representatives of the organization who dealt with complaints, breaches of confidentiality and administrative processing of payments and general handling of complaints.
- Other complaints which the bank may deem relevant to be included which relate to its chosen business model, financial products or services that will support effectiveness of its complaint’s management framework.
- Banks must also ensure that appropriate data points as per the categorization categories in subsection (7) are identified, monitored and reported on into the relevant overarching governance forums, where this information should be scrutinized on an ongoing basis. This information should be utilized to proactively identify and manage conduct risks for the bank.
Section 8 of the Conduct Standard is very prescriptive around requirements to enable effective complaints management within bank. This practice on paper seems simple but can be complex in nature depending on the size of the organization, the level of maturity of the governance structures unpinned by cultural dynamics and in determining whether the bank has supporting technological platforms that have been enabled to create and manage the process, procedure and data points related to end to end complaints management.
It would be useful at this stage for those organizations who have not yet embarked on their conduct risk management journey to perhaps assess the status of their existing complaints framework against these standards to establish whether they are ready for the next phase of conduct risk management in the banking industry.