The FSCA has published a draft conduct standard that sets baseline requirements for financial institutions that provide consumer financial education (FE).
The draft conduct standard follows the publication in 2020 of a discussion paper in which the FSCA put forward proposals related to ensuring that financial institutions’ FE programmes, or other financial literacy activities, are documented and meet the Authority’s FE objectives.
The statement supporting the proposed conduct standard provides an overview of the initiatives that the regulator, industry bodies, and the Financial Sector Transformation Council (FSTC) have undertaken since 2004 to promote FE and co-ordinate FE programmes.
However, data gathered over the past decade provides compelling evidence that financial literacy is low, and, in some instances, has declined.
Reasons for a conduct standard
The FSCA’s reasons for issuing an FE conduct standard include:
- FE initiatives can influence the financial decisions and well-being of consumers and small businesses, and they play a significant role in advancing transformation and the inclusion of financial customers.
- In many cases, FE initiatives and activities are fragmented and uncoordinated because regulatory compliance and consumer education activities are overseen by different entities: the FSCA and the FSTC.
- Financial institutions use various methods when designing and developing FE activities, which sometimes lead to marketing principles and interventions being used under the guise of education.
- Little data is available on the FE activities implemented by financial institutions. Enhanced reporting on how FE initiatives are undertaken is fundamental to making sure they are suitably co-ordinated, of an appropriate standard, and suitably targeted to the identified audiences. This is necessary for the effective monitoring of the efficiency, effectiveness, suitability, and possible impact of initiatives.
- Although providing the industry with guidelines on FE offers more flexibility, they will not be legally enforceable, which means that financial institutions will not be compelled to adhere to the guidelines, and the intended outcomes are likely to be compromised.
Some stakeholders that commented on the 2020 discussion paper said a conduct standard may result in a conflict of interest, because the FSCA will be both an implementer of FE initiatives and the regulator of FE standards.
The FSCA said it is still considering the need for it to supervise its own programmes. Also, other ways are being considered to promote further transparency and accountability regarding the Authority’s FE programmes.
Overview of the conduct standard
The proposed requirements in the conduct standard will apply only to financial institutions that provide FE.
Specifically, the conduct standard provides for the following:
Governance
Clause 3 provides for the governance arrangements, including the oversight arrangements that a financial institution must put in place to ensure appropriate standards of behaviour, governance and oversight when developing content, and when implementing, monitoring, evaluating, and reporting on FE activities.
Design and development
Clauses 4 and 5 propose to put requirements in place regarding the design, suitability, location, and accessibility of FE initiatives. These requirements also deal with the oversight arrangements that a financial institution must have in place to ensure that the interest of customers is protected, and the stated objectives of the initiatives are met.
When undertaking FE initiatives, a financial institution must be able to demonstrate that it identified the most appropriate channel for the relevant target audience and the potential benefit of providing the audience with financial literacy programmes that are tailored to their specific needs.
The content of an FE initiative should be based on objective and impartial information, as guided by the National Consumer Financial Education Strategy, and generally accepted methodologies, research, and trends.
Measurability, monitoring and evaluation
Clauses 6 and 7 set requirements for the monitoring of each FE initiative by a financial institution to ensure that the objective of the FE initiative is measurable and is monitored and evaluated. The purpose of monitoring and evaluation is to ensure that the programme was effective, to identify areas for improvement, and to verify that the initiative met its stated objective.
Marketing restrictions
Clause 8 provides for the marketing restrictions to which a financial institution must adhere when developing and offering FE, both to ensure that marketing does not take place under the guise of FE and to provide the standard to which branding must adhere and not cross over into the marketing sphere.
Reporting
Clause 9 provides for the information that will have to be reported to the FSCA when conducting FE initiatives. How this information must be submitted is still to be determined.
Further FE communication
The FSCA will consider issuing a guidance notice that sets out how the principles in the conduct standard should be applied.
The Authority said it is likely to send an information request to all financial institutions during 2023 to obtain baseline information about FE initiatives being undertaken. The FSCA will use the baseline information to measure the effectiveness of the requirements of the conduct standard once it is effective.
Deadline to comment
Stakeholders that want to comment on the draft conduct standard should do so using the comments template and email it to FSCA.RFDstandards@fsca.co.za by 15 May.
For further information, contact the FSCA’s Regulatory Framework Department by emailing Hannelie Hattingh at hannelie.hattingh@fsca.co.za.
