Market Conduct Standards Affecting CFIsCooperative Banks 16 March

Market Conduct Standards Affecting CFIs/Co-operative Banks 16 March 2021

Agenda 1. Role of the FSCA –Twin Peaks Landscape 2. Overview and purpose of the standards 3. Applicability of standards 4. Transitional arrangements 5. Conduct Standards: Sections 1 -11 6. Engagements with industry – 2020/2021

Role of the FSCA – cont. • Twin Peaks Model - FSCA was established 1 April 2018 • Extended mandate of the FSCA: – Supervision of Banks, Mutual Banks, CFIs & Cooperative Banks • Introduction of conduct for banks standards- 03 July 2020, i. t. o. the FSR Act, 2017

Overview and Purpose • Regulatory requirements for compliance • Fair Treatment of customers/ members of cooperative banks

Applicability • • Retail banks Mutual Banks Co-operative banks Draft standards for CFIs – will be published for comment after internal consultation

Transitional Arrangements • Effective date : 03 July 2020 • Phased in approach • Effective sections (As at the date of publication) 1 - Definitions 2 - Application 11 - Commencement

Transitional Arrangements • Effective date: 8 months after publication date (from 03 March 2021) 3 -Culture and governance 4 -Product design and suitability 5 -Additional requirements: retail financial customers 6 -Advertising

Transitional Arrangements • Effective date : 12 months after publication date (03 July 2021) 7 - Disclosure 8 - Complaints 9 - Refusal, withdrawal or closure of financial products/ services 10 -Termination, closure or switching of financial products/services

Section 3: Governance and Culture - Adopt, implement and monitor the effectiveness of appropriate governance arrangements - Proportionality of arrangements: nature, scale and complexity of activities - Regular risk-based monitoring and evaluation: effectiveness of systems, processes, procedures and internal control mechanisms

Section 4: Product design and suitability - Must take into account interests of financial customers - Responsible personnel must have necessary skills, knowledge and expertise - Establish and implement appropriate oversight arrangements - Immediate remedial action where products or services are expected to lead to unfair customer outcomes

Section 5: Additional requirements: Retail Financial Customers -Applicable to products and services offered by member-based institutions i. e Co-operative Banks -Ensure that terms, conditions and requirements in a contract are not unfair

Section 6: Advertising - Clear, fair and not misleading - Outsourcing arrangements: Co-operative Bank remains responsible for ensuring compliance with conduct standards and manner of advertising - Interest payable: appropriately describe interest rate and effective annual interest rate of the financial product

Section 6: Advertising - cont. - Advertising inconsistent with the conduct standards, the bank must: • Correct or withdraw the advertising • Take reasonable steps to ensure correction or withdrawal • Notify any person who it knows to have relied on the advertising -Adequate records kept- 5 years

Section 7: Disclosures -Customers to be made aware of all relevant facts that could potentially influence decision relating to a financial product or service -Disclosures must be made before, during and after conclusion of a contract -Considerations when making disclosures to financial customers

Section 7: Disclosures – cont. • Nature and complexity • Needs and level of knowledge of the customer • Appropriate timing of the disclosure

Section 8: Complaints -Establish, maintain and operate an adequate and effective complaints management framework -Regularly review complaints management framework -Decision makers on complaints must: • be adequately trained • Have appropriate experience, knowledge and skills

Section 8: Complaints – cont. • not be referred to as an internal ombud • not be subject to a conflict of interest; and • be empowered to make impartial decisions or recommendations -Must establish and maintain an appropriate internal complaints escalation and review processes -Provide clear and adequate reasons for rejected complaints

Section 9: Refusal, withdrawal and closure -Document, adopt and implement processes and procedures -May not take refuse, withdraw or close a financial product without providing reasonable prior notice to the financial customer.

Section 10: Termination, closure or switching of products -Must not impose unreasonable barriers -Assist financial customer to close, terminate or transfer to another bank-upon request -Processes and procedures to identify dormant financial products and notify customer

Engagements with industry – 2020/2021 Concerns identified: -Lack of documented processes for dealing with complaints -Lack of product design policies -Inadequate processes in relation to data protection -Rendering of financial services by the Co-operatives without being authorised in terms of the Financial Advisory and Intermediary Services (“FAIS”) Act, 37 of 2002.

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