Meeting the 2008 deadlines - February 2008 update
27 February 2008
This latest addition to the Treating Customers Fairly webpages updates you as we move towards the 2008 deadlines. It summarises what has happened since our last publication in November 2007 and gives links to support materials we have previously published to help you meet the deadlines. It also offers a round up of what's ahead in 2008 and beyond.
This note is relevant to all firms operating in the retail financial services market, including smaller firms.
Treating Customers Fairly and today's market
Treating Customers Fairly, with its principles-based approach and focus on consumer outcomes, is central to our work in ensuring a fair deal for consumers. It underpins the delivery of our statutory consumer protection objective and times of market turbulence are when consumers need protection the most. Our Financial Risk Outlook (FRO) for 2008 recognises the difficult economic and financial conditions, but emphasises that firms must not divert attention away from focus on the high-level principles. In particular, firms will need to ensure they treat customers fairly. Today's market offers an excellent opportunity to embed a new Treating Customers Fairly culture, sending out immensely strong messages to staff and customers. Against this background – and despite the pressures faced by firms – we think it is essential for firms to press on with meeting the Treating Customers Fairly deadlines.
The deadlines
This year sees two important deadlines for firms – one in March 2008 and one in December 2008. By December 2008, firms must be able to demonstrate they are consistently treating their customers fairly. To do this, firms will need evidence to demonstrate they are meeting the Treating Customers Fairly Outcomes. The evidence will vary with the size and complexity of the firm. To encourage firms to focus on this area, we have set an interim deadline that by March 2008, firms should have appropriate evidence – in the form of management information (MI) or other measures – in place to test whether they are treating their customers fairly.
The deadlines are rapidly approaching. In November 2007, we reported that while senior management in firms are taking Treating Customers Fairly seriously and building it into their culture, there was little evidence that this is translating into improved outcomes for consumers. We believe many firms have been working hard in the intervening months, but much remains to be done. Firms must take action where necessary to meet the deadlines. The amount of work needed will vary from firm to firm, but it will require sustained energy and commitment from senior management and, in many instances, cultural change. We continue to work with firms to deliver fair outcomes for consumers. You can find links to a range of useful materials in the Useful materials for firms section.
Firms that miss the deadlines will face more regulatory intervention. We have a range of regulatory tools at our disposal and in appropriate circumstances we will consider enforcement action. Should this be taken, then in line with the commitment set out in our Business Plan 2008/09, where we see evidence that standards are not improving despite clear messages to industry, we will seek to increase penalties to achieve our goals.
A simple approach
Firms have asked us to keep things simple. In essence, Treating Customers Fairly is simple – firms must focus on delivering the Treating Customers Fairly Outcomes and giving us evidence they are doing so. In practice, this means firms should:
- look at their business and identify all of the Treating Customers Fairly Outcomes that are relevant to them;
- ensure they have appropriate evidence in place – using MI or other sources – to measure whether they are delivering all the identified outcomes. Firms may find it helpful to consider where there are specific risks to Treating Customers Fairly when they are assembling their evidence and
- look at what the evidence is telling them – and act on it.
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. Firms' evidence does not have to be structured around the Treating Customers Fairly Outcomes, but firms must be able to demonstrate through their evidence that they are delivering the Outcomes.
What's been happening – and what can firms expect?
We continue with our programme of retail thematic work. We give links to recent publications in the 'Useful materials for firms' section.
Our assessment programme is underway. Many firms will already have been contacted as part of this process. This is what firms can expect:
All major retail groups, medium sized firms, and wholesale firms where Treating Customers Fairly is materially relevant, will be assessed against the December deadline. All major retail groups – with only a very few exceptions – and a sample of all other firms will be assessed against the March deadline. We will be publishing a document in Q2 2008 summarising how these firms have measured up against the March deadline.
We will normally ask firms to complete a questionnaire and submit the materials they use as evidence of Treating Customers Fairly before the assessment. We will look at the high-level evidence on the fair treatment of customers across all the firms' business. In addition, we will focus our work on areas of the firm's business where the risks to the fair treatment of customers are higher. We will speak to those who use management information at all levels within the firm so we can understand how it is used. We will use all the relevant evidence available to us, including, for example, the results of thematic work and culture visits. Firms should likewise analyse the results of our thematic work and consider what it tells them about their business.
Many firms will seek external input to help identify the Treating Customers Fairly Outcomes that are relevant to their business, or to identify methods of measurement. An external perspective can be helpful and is available from a range of sources. Consumer feedback or research, feedback on performance against peers from product providers, trade association materials and support from networks are all potential resources. And some firms may choose to use external consultancies, though this is not a necessary part of a firm's Treating Customers Fairly work.
Where possible, our assessments will take place at the same time as ARROW risk assessments. For a large proportion of firms this will not be possible, so we will carry out a separate assessment. We will tell firms what we find out in our assessments. Where we identify risks to the fair treatment of customers, risk mitigation programmes will include work to be undertaken by us, or the firm, on the specific potential or actual risks identified.
The results of the limited number of assessments of major retail groups, medium-sized firms and wholesale firms we have undertaken so far have been varied. But some common themes have emerged:
- Firms often have lots of data that is relevant to Treating Customers Fairly – but don't use it to measure whether they are treating their customers fairly.
For example, a firm maps expected sales to actual sales for business purposes, but doesn’t use this data to analyse why one sales office is selling much more of a product than expected. - Where a particular measure has been chosen to evidence Treating Customers Fairly, firms have not always thought through what that measure might tell them.
For example, a measure that captures customer satisfaction with an adviser does not necessarily mean customers understand what has been sold to them. - There is often little evidence of proper analysis of Treating Customers Fairly data, or commentary on it.
Without this, a firm might not identify Treating Customers Fairly issues, or managers in the firm may interpret data in different ways.
Overall, we still see too much focus by firms on customer satisfaction, rather than fair treatment – and too much focus on process, rather than the Treating Customers Fairly Outcomes.
Small firms can expect a simplified assessment process. This will focus on the approach of a firm's management and how this is affecting the firm's progress on Treating Customers Fairly. We are embarking on a rolling programme of assessments of small retail intermediary firms. As part of our commitment to increase contact with small firms, we will write to firms to invite them to our new, interactive roadshows as we roll out the regional assessment programme over the next three years. These are designed to help us engage better with small firms and provide practical support. Assessment by mini visits or telephone interviews will follow.
We will give firms more feedback as our assessment data emerges.
Looking ahead
We will continue our assessment programme through 2008. We will publish our assessment of progress to the March deadline in Q2 2008. In mid 2009, we will publish our assessment of firms' progress to the December 2008 deadline.
Back to Meeting the 2008 deadline - update for firms.