Frequently asked questions

TCF is at the forefront of our move to a principles-based approach to regulation. We believe a 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.

Treating Customers Fairly continues to be a business priority for us, as outlined in our 2007/08 Business Plan. We believe TCF is one of our major initiatives in the retail market.

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.

We see TCF as a continuous process – it is not something that firms can carry out and then forget about or that can be reviewed once a year. We will only see real results when TCF is part of a firm's culture and we can measure success against the six defined outcomes for consumers as part of the next stage of our work. Until then, TCF will continue to be a key part of our retail strategy.

Because of 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 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.

As the Banking Code Standards Board already monitors firms’ deposit-taking activities, we do not include straightforward banking products and services in TCF work. However, we think it would be difficult for one firm to apply TCF only to some parts of the business – this would mean carrying out different practices and cultures.

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).

There may be changes brought about by European legislation, but we would not think there will be any change that means firms would no longer have to consider treating their customers fairly.

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.

We are not a price regulator.

We have set two deadlines. 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. To do this, we expect firms to have the right management information in place to test whether they are treating their customers fairly. We would expect this to be in place by the end of March 2008.

No. TCF applies to all firms in the retail supply chain. We will be assessing firms' compliance with TCF as part of our ongoing supervisory and thematic work.

We believe the embedding phase, and achieving a step change in behaviour, is characterised by the following:

• The fair treatment of consumers is established throughout the firm – not just in systems and controls but in business culture. This includes strategy, training, remuneration and staff behaviours.
• Recognition that the firm is engaged in a continuous process – rather than TCF being a short-term project that can be completed and then put on one side. It should be built into processes and strategy so it is automatically included in all relevant business decisions (for example when new products or services are launched).
• Adequate management information available for firms' management to monitor TCF.
• Improvement in the quality of the outcomes experienced by a firm's customers.

TCF is a continuing requirement and so is the need to have appropriate systems and controls in place (including MI). We set the March deadline to maintain focus on TCF and to ensure that firms have measures they can use to test whether they are treating their customers fairly. By December 2008 firms should be in a position to use these measures to demonstrate that they are consistently treating their customers fairly.

Both deadlines are non-negotiable. If firms are not able to meet the March 2008 deadline – and therefore do not have measures in place to test whether they are treating their customers fairly – then they will not be in the position to satisfy us they are consistently treating their customers fairly for the December 2008 deadline.

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.

Firms that fail to meet our deadlines will face more regulatory intervention. We have a range of regulatory tools at our disposal, including taking enforcement action in appropriate circumstances. We will continue to take action against firms who fail to meet our Principles or rules.

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'. The FSA believes that it is only through establishing the right culture that senior management can convert their good intentions into actual fair outcomes for consumers.

We have used the 'key drivers' to develop a culture framework for supervisors to use when assessing the risk a firm's culture presents to treating their customers fairly. The framework will help supervisors assess whether the drivers of behaviours in a firm are aligned to the delivery of fair consumer outcomes.

We will integrate the culture framework into our ARROW risk assessments, where appropriate. We already look at a firm’s culture as part of the ARROW risk assessment but this framework will enable supervisors to assess TCF culture in a more structured and in-depth way, including spending more time talking to middle management and frontline staff.

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.

If we are satisfied that a firm has robust systems and controls and the senior management are reviewing and using reliable management information 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 regarding treating customers fairly.

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.

We have drawn up a separate 'management behaviours' framework for the smallest firms who have shorter reporting lines and simpler business models. This identifies the key management behaviours which could have an impact on whether a customer is treated fairly.

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.

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'
• 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.

We take enforcement action against breaches of our Principles and rules. Firms do not need to follow guidance to comply with our Principles and rules. However, if a firm follows the Regulatory Guide it can be confident we will not take enforcement action against it.

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 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.

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.

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.

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.

We believe that many firms may not need to generate new evidence. Instead they may need to think differently about the information they already collect. In many cases, an expansion of existing MI to include extra analysis may enable firms to demonstrate delivery of TCF outcomes. The difference may be the viewpoint with management considering ‘what is the MI telling the firm about the treatment of customers?’ rather than, for example, the performance of the firm.

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, 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.

We have recently announced an enhanced strategy for supervision of small firms, which will include a large-scale series of structured visits or telephone assessments to test the quality of management and progress towards embedding TCF. At the same time, we are introducing new style roadshows. The aim of these events is to deliver messages to firms during a period where they are preparing for and being assessed. We believe this will maximise the opportunity for messages to be acted upon and firms' thinking and behaviours to be challenged and changed, if necessary.

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.

The key areas for mortgage are:

• Product design - this should include consideration of how to treat customers fairly. This includes associated issues such as the marketing strategy, developing product literature and the training implications, particularly for complex or new products.
• Disclosure – it is important firms consider whether their product literature is capable of delivering product understanding.
• Remuneration strategy - firms should design their remuneration strategy to reflect Principle 6 and ensure commission rates can not result in sales bias.

It is clear many large- and medium-sized mortgage firms are making progress in implementing TCF. Equally, others, particularly smaller firms, are having some difficulty working out what TCF means for them and how to approach it. Our self-assessment tool for small firms and our mortgage report should help these firms.

While we recognise competition can bring valuable advantages for consumers, it is not enough in itself to ensure that customers are treated fairly. When there is a focus on price, customers may not be aware of the extent of the coverage of the policy. Customers need to know what they are getting for their money. Customers will also be unaware of areas such as claim-handling quality until after they have bought the policy, so firms need to make sure they treat customers fairly throughout the life of the insurance contract and not just at the beginning.

No, TCF is an issue for all sectors of the general insurance (GI) industry. While there are particular concerns about some areas of protection, which have been considered through thematic projects, the GI industry as a whole still has further to go in meeting its obligations under TCF.