Frequently asked questions

TCF is at the forefront of our move to a more principles-based approach to regulation. We believe a more principles-based approach gives authorised firms greater flexibility to determine for themselves how to deliver fair treatment to their customers in a way that suits their business. The flexibility of the principles-based approach, rather than prescriptive rules and processes, should enable firms to compete and innovate more effectively in product design, in the quality of customer service, and in giving value for money.

TCF continues to be a business priority for us, as outlined in our 2008/09 Business Plan, and remains central to our Retail Strategy.

Not at all - our 11 Principles for Businesses have existed since the Financial Services and Markets Act (FSMA) came into force in 2001. Principle 6 says 'A firm must pay due regard to the interests of its customers and treat them fairly'. Principles 2,3, 6 and 7 are also relevant. Treating customers fairly is something all firms should be doing in their day-to-day business.

TCF remains a vital part of our retail strategy and as such, it is being fully integrated into our core supervisory work. This will help to safeguard the legacy of the significant effort made by the FSA and by firms on their TCF programmes, in terms of improved outcomes for consumers and all firms will be assessed against the December deadline as part of ARROW.

Due to the wide range of activities and business models firms carry out, it is not possible to outline TCF in a way that applies to everyone. We are moving towards a more principles-based approach to allow firms greater flexibility in deciding how best to meet our requirements. TCF is a good example of how we see this approach working in practice. Firms should decide for themselves what fairness means to them, bearing in mind the size, structure and nature of their business.

Principle 6, 'a firm must pay due regard to the interests of its customers and treat them fairly', applies to activities carried out from establishments in the UK. This includes activities carried out from UK establishments with overseas customers.

Currently, the Banking Code Standards Board (BCSB) monitors and enforces the voluntary Banking Codes governing current accounts, personal loans and overdrafts, savings, card services and ATMs.

However, from 2009, the FSA will become responsible for regulating banks and building societies' payment transactions under the Payment Services Directive (PSD). Our consultation paper (CP 08/19) considers whether it would be more effective to extend the FSA’s regulation across all aspects of retail deposit-taking at this time.

In the CP, we are proposing the following new framework:

• full application of the FSA’s Principles for Businesses to the regulated activities of accepting deposits and issuing electronic-money;
• new high-level rules applying to retail banking services outside PSD scope in a Banking Conduct of Business sourcebook (BCOBS);
• transfer of existing Handbook rules and guidance applying to deposit taking to BCOBS;
• monitoring and enforcement by the FSA, integrated into the wider risk-based approach to the supervision of the relevant firms and groups.

It is the responsibility of a firm’s senior management to make sure that their firm treats its customers fairly. Senior management must also ensure a TCF culture is implemented and fully embedded throughout the firm.

TCF is concerned with a firm's systems and controls and culture, and how these ensure or reduce risk to fair outcomes for all customers. The FOS deals with individual cases where a particular problem has arisen that cannot be resolved between the customer and the firm. In doing this, the FOS takes account of Principle 6, as it does of all FSA rules guidance and standards, in reaching its decisions taken by reference to what in its opinion is fair and reasonable.

While the TCF principle does not apply directly to unregulated business, if we discover behaviour related to a firm's unregulated business which arouses our concerns, we may use this as an indicator of risks in the firm's regulated business. However, the TCF principle goes to the heart of a firm's culture. In our dialogue with firms on TCF we have said that it is difficult to see how they could successfully introduce a culture in one part of their business (the regulated part) without simultaneously expecting the same approach elsewhere (the unregulated part).

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Through TCF we are trying to bring about a real change in behaviour of firms towards their customers. We have defined six outcomes for consumers which summarise what we want TCF to achieve. These are:

Outcome 1: Consumers can be confident they are dealing with firms where the fair treatment of customers is central to the corporate culture.

Outcome 2: Products and services marketed and sold in the retail market are designed to meet the needs of identified consumer groups and are targeted accordingly.

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

Outcome 4: Where consumers receive advice, the advice is suitable and takes account of their circumstances.

Outcome 5: Consumers are provided with products that perform as firms have led them to expect, and the associated service is both of an acceptable standard and as they have been led to expect.

Outcome 6: Consumers do not face unreasonable barriers after a sale imposed by firms to change product, switch provider, submit a claim or make a complaint.

We expect senior management to take responsibility for ensuring their firms treat their customers fairly. This includes identifying risks, having appropriate systems and controls in place to mitigate these risks, and making sure these are effective. If we notice a breach that requires enforcement action, we will consider taking action against individuals within the firm if we think senior management have failed in their responsibilities. We have already taken enforcement action on breaches of Principle 6 and we will continue to do so.

No. Satisfied customers may not always have been treated fairly or vice versa. Although firms' use of data on customer perceptions is a useful management information (MI) tool, TCF is more than about satisfying customers.

The FSA is not a price regulator. We view a firm’s decision to provide products (or not) and at what price (whether over the phone, internet or by email) as a commercial decision by that firm. It would not be appropriate for us to force companies to provide products at a price that they do not judge commercially sensible or which would expose them to unacceptable risks. Furthermore, to treat customers fairly does not mean that a firm is required to offer the same products or levels of service to all customers, as long as they deliver the product or level of service promised, and that customers are protected from unpleasant surprises from the products they buy.

By December 2008 we expect all firms to be able to demonstrate to themselves and to us that they are consistently treating their customers fairly. Our June 2008 publication ‘Treating Customers Fairly: Progress Update’ explained that to meet the December deadline, firms will have to:

• demonstrate that senior management have instilled a culture within the firm, whereby they understand what the fair treatment of customers means; where they expect their staff to achieve this at all times; and where (a relatively small number of) errors are promptly found by firms, put right and learned from;
• be appropriately and accurately measuring performance against all customer fairness issues materially relevant to their business, and be acting on the results;
• be demonstrating through those measures that they are delivering fair outcomes; and
• have no serious failings – whether seen through MI or known to us directly, including in areas of particular regulatory interest previously publicised by the FSA

The list below is a reminder of some of the areas that have been the focus of recent FSA thematic work or communications:

• ongoing poor PPI sales practices;
• failure to explain clearly key information in product disclosure documents (such as Key Features Documents) and post-sale communications on with-profits;
• failure to evidence good advice quality in an area/product where the firm had performed poorly in the past (mortgages and investments);
• failure to take into account the right factors in making lending decisions;
• unfair arrears management practices when firms are trying to secure payments on outstanding debts; 
• with-profits funds run without due independent challenge;
• high pressure selling of shares and structured products; and
• failure to resolve issues concerning firms' promotional material and using unfair terms in customer contracts (which result in material levels of consumer detriment).

For those firms that meet our deadlines there will be a regulatory dividend – we have little reason to ask further detailed questions about TCF if firms produce and use well constructed measures of performance which demonstrate fair treatment of customers.

We will continue to challenge firms rigorously where there are issues and take hard, fast and decisive action where necessary. The standard against which firms will be judged remains high and where we find failings, we will continue to use our full range of regulatory powers to take tough and visible action.

No, TCF is an existing and continuing requirement. New risks to consumers will emerge as firms move into new areas of business, alter their strategies and design new products. We expect firms to keep TCF under review to ensure they deliver against their ongoing requirement to treat their customers fairly. By having effective TCF MI in place, firms will be able to regularly test whether they are consistently treating customers fairly, and to take necessary action to put things right where they are not.

The obligation that firms treat their customers fairly is central to our Retail Strategy – it has gained enormous buy-in from firms and their senior management, and is a hugely important part of our retail agenda for consumer protection. To accelerate the benefits of the TCF initiative, we have decided to integrate TCF into our core supervisory work more quickly than currently planned – by February rather than September 2009.

This means TCF will be embedded within our Advanced Risk Responsive Operating frameWork (ARROW). Firms must still meet with the December 2008 deadline and compliance will be tested in ARROW visits from 2009. Where we find failings (and particularly so if after the December deadline), we will use our full range of regulatory powers to take action. We will continue to monitor the progress of small firms via the enhanced strategy. See the small firms’ webpages for more information.

In the July 2006 paper 'Treating customers fairly – towards fair outcomes for consumers' we stated that we intended to look at some of the organisational and management arrangements that may encourage or inhibit the move from senior management commitment to the consistent delivery of fair treatment of customers in all parts of a firm's business'. We believe that it is only through establishing the right culture that senior management can convert their good intentions into actual fair outcomes for consumers.

Our July 2007 paper ‘Treating customers fairly – culture’ sets out the culture framework based on six 'key drivers', which we believe have a significant influence on behaviours in firms. The framework has been fully integrated into our ARROW risk-assessment process and helps our supervisors assess whether the drivers of behaviours in a firm are aligned to the delivery of fair consumer outcomes.

It is only through establishing the right culture that senior management can convert their good intentions into actual fair consumer outcomes. We think using the culture framework will help senior management in firms to understand some of the root causes of unfair outcomes, and therefore reduce the risk that customers are treated unfairly.

We now expect to see firms taking action to ensure they are demonstrating to themselves and to us that they are consistently treating their customers fairly. As part of this, firms need to consider their culture including their approach to TCF management information. The culture of an organisation drives the behaviours of its management and staff and hence their actions, which in turn will determine the outcomes for consumers.

In our July 2007 paper ‘Treating customers fairly – culture’ we included a 'management behaviours' framework for small firms. This identifies the key management behaviours which could influence how a customer is treated and will help firms to make the appropriate cultural changes to ensure the consistent delivery of fair consumer outcomes. As part of our enhanced strategy for small firms we are using this framework to assess how firms’ management are embedding TCF into the way they run their business.

MI is information that is collected during a period of business activity. It may be about customers, staff, calls, visits, meetings, sales, opinions, parts of a process, predictions etc. MI is not just numbers. Quantitative data is valuable to any business, but commentary or opinions are also MI and can help provide a comprehensive, balanced view. All information relevant to a firm, from whatever source, can be described as MI.

TCF MI is information or measures which tell firms how far they are delivering the six TCF consumer outcomes. It may include other evidence not typically captured as part of a firm's existing MI. TCF MI is more than just information about the status of a firm's TCF initiative.

Our Measuring TCF page provides a range of materials that may be useful for firms including our latest publications, real examples of management information by outcome and suggestions on how firms may wish to improve and use their TCF MI.

As well as helping a firm to meet its regulatory requirements, we hope that much of the evidence firms use to measure fair treatment will be MI which it already uses for business purposes. If we are satisfied that a firm has robust systems and controls and the senior management are reviewing and using reliable MI which demonstrates that they are treating their customers fairly, we will significantly reduce the level of testing we carry out on the firm's culture and at the consumer interface.

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TCF MI should not be seen as just excel spreadsheets and figures in monthly board reports. Qualitative MI is commentary and analysis rather than just numbers – this may relate to the quantitative data captured by a firm. TCF MI is likely to include a mix of both quantitative and qualitative data and measures. It may also include one-off reports that are relevant to TCF, such as the results of a customer survey, an internal audit or compliance report.

No. Evidence could come in a variety of forms, for example, conventional MI, results of compliance checks, and senior management's assessment of call-centre traffic or press coverage. In fact, anything that provides sound and reliable information on whether a firm is treating its customers fairly could, in principle, be used as evidence.

No, we do not. All firms should produce MI to measure TCF outcomes as appropriate for the size and nature of their business. Even the smallest firms should produce evidence to satisfy themselves they are treating their customers fairly.

MI on customer satisfaction may be indicative of fairness. However it does not demonstrate fairness – customers can be satisfied with unfair treatment and dissatisfied with fair treatment. Satisfaction can therefore only go so far in measuring TCF.

We believe that a customer's experience should not be affected by whether a product or service is provided and distributed by a single institution or by two or more institutions. Our policy statement (PS07/11) sets out the responsibilities of providers and distributors for the fair treatment of customers.

Our January 2008 publication ‘Treating Customers Fairly and UK Authorised Collective Investment Scheme Managers’ provides good practice illustrations for managers of UK-authorised collective investment schemes.

The key Principle for firms to consider is Principle 6 - 'A firm must pay due regard to the interests of its customers and treat them fairly'. However, firms should also consider their regulatory obligations under the other principles which also contribute to ensuring that customers are treated fairly. For example:

• Principle 2 – 'A firm must conduct its business with due skill, care and diligence';
• Principle 3 – 'A firm must take reasonable care to organise and control its affairs responsibly and effectively with adequate risk management systems'; and
• Principle 7 – 'A firm must pay due regard to the information needs of its clients, and communicate information to them in a way which is clear, fair and not misleading'.

These principles mean that, where the firm does not have a direct interface with customers, the regulatory obligations under the other principles will contribute to the fair treatment of customers.

Firms should look at the roles they play in providing and distributing a product, and work out which responsibilities apply. Ultimately, responsibility flows from the role the firm undertakes – not the label attached to it.

Whether providers and distributors can agree between themselves how to divide responsibilities will depend on the circumstances. In particular, it depends on the nature of the regulatory responsibility; the extent to which such an agreement would be reasonable; whether the arrangement is clear to both parties and properly recorded; and the systems and controls used to monitor whether the agreement continues to be appropriate in the circumstances.

No. Typically, an overseas provider will distribute its products through a UK distributor that is bound by the Principles. The UK distributor will need to consider its responsibilities to the customer as set out in the Guide. This will be harder to do if it cannot be confident the provider has met its responsibilities.

No. This guidance is fully consistent with our risk-based and more principles-based approach to regulation. Regulation of this kind serves to strengthen the UK as a financial centre.

In any event, UK providers should already be meeting these standards – the Guide outlines existing Principles and rules that firms should already be complying with.

Not at all. We expect firms to actively look at how their products are being distributed – in particular by collecting management information about patterns in distribution and distribution channels. It should be clear if what is happening in practice is consistent with what it planned for the product. But this is not the same as us expecting firms to 'police' or 'second guess' their individual distributors.

There are TCF responsibilities throughout the lifecycle of a product, even where there is no direct contact with the retail customer. For example, a firm that designs a product for retail customers must consider TCF while it is designing the product, even if the firm does not have any contact with the end-customer.

Firms not covered by Principle 6 because they only deal with market counterparties will continue in the same way. However, Treating Customers Fairly is about more than ensuring that firms comply with Principle 6. Compliance with all our principles will contribute to achieving fairer outcomes for consumers - for example, Principle 2 requires a firm to conduct its business with due skill, care and diligence.

The Treating customers fairly in wholesale markets speech given in April 2008 explains the types of firms to which our TCF work applies, providing examples of firms that would fall within and outside of the scope of this work.

All commercial clients that are not market counterparties are 'customers' and are covered by the TCF initiative. However, in line with our risk-based approach to regulation, we have focused on improving standards for non-commercial retail customers. That said, we expect firms to satisfy themselves they are also treating their commercial clients fairly.

Yes, unless all of its clients are market counterparties.