Rob DeDominicis, GBST CEO and Managing Director, discusses moving forward after the Royal Commission and why regulating fairness could be positive for the industry.
The Australian financial sector does a lot of things well. But as we move through a tough time for the industry, let’s take a look at an area that has been slippery to define: fairness.
As we unravel the outcomes of the Royal Commission, experts estimate 40+ pieces of legislation will need to be amended. Some complex legislative change is undoubtedly needed to make good on Commission recommendations. But is a simple but powerful statement on customer fairness the ideal first legislative response?
Lessons from the UK
Legislating for fairness would let banks and consumers press reset and create a fairness-first environment to consider the rest of the Commission changes.
We could look to our friends in the UK for inspiration here. Following a challenging period of their own post-GFC, the UK financial regulator took the interesting approach of setting a fairness framework – putting customers firmly back in the picture for the financial institutions that had been accused of forgetting them.
The Treating Customers Fairly (TCF) guideline has a significant impact on organisational behaviour. As well as the obvious effect on customer communications and engagement, it embeds a customer-centric approach at all levels of the organisation.
It was introduced during my time working for GBST in the UK and I witnessed the market adapting, especially in the area of product design and development. It adds a step of explicitly assessing if customers are being treated fairly and reasonably by the product – an important sense check that had been overlooked in the past.
The UK model
At the heart of the Treating Customers Fairly framework are six consumer outcomes:
- Outcome 1: fair treatment of customers is central to corporate culture
- Outcome 2: products and services designed to meet the needs of identified consumer groups
- Outcome 3: clear information for consumers before, during and after point of sale
- Outcome 4: consumers receive advice suitable for their circumstances
- Outcome 5: consumers are provided with products that perform as firms have led them to expect
- Outcome 6: no unreasonable post-sale barriers to change product, switch provider, submit a claim or make a complaint.
What could it mean for customers?
Fairness is about consumers understanding what’s going on – risks, costs and reward – and making better informed decisions.
Fairness provides a buffer when knowledge is lacking. It’s not focused on not taking up a product, but taking up the one with the most value for them as an individual.
Without a stake in customers reaching their goals, financial institutions risk building brands that don’t have the trust to stand up to change like open banking where customers unlock more choice.
What’s your vision for Australian regulation?
We’re held in high regard internationally for our financial regulatory system, our banks sailed through the last GFC compared with the global response, and our superannuation system is in the top three in the world. Australia still punches above our weight when it comes to innovation and the speed of change.
But in a competitive marketplace ready for a reset, explicitly agreeing on a standard of what is fair means we have the tools to rein in bad behaviour.
Keep the discussion going and let me know the changes you’d like to see in Australian financial regulation. Is fairness a good start?
Send me an email with your thoughts here
Posted in: Wealth Management Administration
