Frequently asked questions

We are focusing our more intrusive approach on ‘conduct of business’ risks just as much as on prudential risks. We have strengthened our focus on conduct risks, with a new Conduct Risk Division to identify and mitigate conduct risks and to support our assessment of TCF as part of our core supervisory processes.

We aim to do this by proactively focusing on the outcomes firms are delivering for consumers.  Our more intrusive supervisory approach means we will be ready to make more judgements about the quality of consumer outcomes.

The fair treatment of customers continues to be a high priority for the FSA.  Difficult market conditions pose particular risks to fair outcomes for consumers. We will continue to take tough, decisive action where we find actual or potential consumer detriment and this will include taking action against senior management.

TCF remains a vital part of our supervisory approach and as such, it has been fully integrated into our core supervisory work and embedded within our Advanced Risk Responsive Operating frameWork (ARROW). 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. Where we find failings, we will use our full range of regulatory powers to take action.

The six consumer outcomes which we have published define what we expect as fair outcomes for consumers.

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.

Please refer to the BCOBS page, which explains how our principles and rules apply to banking deposits.

It is the responsibility of a firm’s senior management to make sure 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 the outcomes that a firm delivers to consumers and its culture, and how the culture ensures or reduces 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, it takes account of Principle 6, as it does of all FSA rules guidance and standards, in reaching its decisions by referring to what in its opinion is fair and reasonable.

While our principles for business do 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. The firm’s culture determines whether customers are treated fairly. 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).

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 will continue to take enforcement action on breaches of Principle 6.

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 tool, TCF is about more than satisfying customers.

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. 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 it delivers the product or level of service promised, and that customers are protected from unpleasant surprises from the products they buy.

We expect all firms to be able to demonstrate to themselves and to us that they are consistently treating their customers fairly. We expect firms 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 the firm promptly identifies (a relatively small number of) errors it puts things right and learns from them;
• 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);
• poor quality advice (for example, in pension switching);
• 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;
• failings in the sale and marketing of 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)

We will continue to challenge firms rigorously where there are issues and take tough, 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, fair treatment of customers is a 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 risks to the fair treatment of customers under review to ensure they deliver against their ongoing requirement to treat their customers fairly. By having effective 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.

We recognise that there is no single ideal culture across the financial services industry, and that all cultures are likely to have good and bad aspects. Our aim is, therefore, to seek to facilitate the creation of good cultures and intervene when bad ones seem to be creating unacceptable outcomes.

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 and ensure that delivery of these outcomes are sustainable.

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. We have fully integrated the framework into our ARROW risk-assessment process and this helps our supervisors assess whether the drivers of behaviours in a firm are aligned to the delivery of sustainable fair consumer outcomes. It also helps to identify risks that might prevent good performance being sustained or to identify or explain poor performance where it exists.

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.

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 consumer outcomes. It may include other evidence not typically captured as part of a firm's existing MI.

Our Evidencing 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.

TCF MI should not be seen as just 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 that 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. So satisfaction can 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 direct contact 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. 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.

Firms have responsibilities to customers 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 risks to the fair treatment of customers 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.