Treating Customers Fairly

 

This latest addition to the TCF pages looks towards the March deadline and offers a round-up of key announcements and publications. Included are descriptions of implementing and embedding, an explanation of how the FSA will form a view of industry progress in April, and the next steps.

This note is relevant to all firms operating in the retail financial services market, including smaller firms.

In our July 2006 publication 'Treating customers fairly - towards fair outcomes for consumers' we set a target for the minority of firms that were lagging behind the rest of the industry. We said that we expect all firms to have reached the 'implementing' stage of their TCF work in a substantial part of their business by the end of March 2007.

Implementing and embedding

Senior management are free to choose their own strategies and processes to close any gaps between our current requirement to treat customers fairly and their existing practice. To assist, we identified in July 2005 four high level stages for all firms - basic awareness of TCF; strategy and planning; implementing; and embedding.

We explained then that a firm is at the implementing stage when it is:

  • developing plans and processes;
  • allocating TCF resources and responsibilities; and
  • creating capability among its staff.

We explained at the same time that a firm is at the embedding stage when it is 'following up on implementation; continuously monitoring its TCF performance and committed to maintaining standards in the future'.

In the July 2006 publication we built on the definition of embedding saying that a firm which is embedding has characteristics that include:

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

Assessing progress

In April, the FSA will assess the industry's progress on implementation, and publish summary results. For larger (relationship managed) firms engaged in retail markets, we will form a view on each firm. This view will take account of all relevant information available to us at that time, including that obtained in the course of usual supervisory contact (eg Arrow or thematic visits) and - in some cases - including the results of bespoke visits to look at particular TCF related issues. For smaller retail market firms, we are conducting a major qualitative survey of a sample of 700 firms.

Next steps

In April we will also explain our approach to firms that fail to meet the target. Factors that we will take into account will include

  • how well we know and understand the issues at the firm at that stage – more exploratory work may be necessary;
  • the reasons for delay in each case; and
  • how concerned we are about the scope for consumer detriment.

We set out our approach to enforcement action in July 2005 and reiterated it again in July 2006. We said

  • (on firms) 'We are less likely to take enforcement action where the firm has considered the implications of TCF for its business, where senior management have played the role we expect of them in relation to TCF; where a firm has made a genuine attempt to deliver on what TCF means for it; and where there has not been significant actual – or risk of – consumer detriment. Conversely, we are more likely to take enforcement action in cases where a firm has not responded to indications that there are problems, has failed to identify shortcomings and to develop a strategy or action plan to deal with them, where there has been a serious breach of Principle 6 or other relevant principles, or where there has been significant actual or potential consumer detriment.'
  • (on senior management) 'We expect senior management to take responsibility for ensuring that their firms treat their customers fairly, including identifying risks, having appropriate systems and controls in place to mitigate these risks, and ensuring these are effective. Where we detect a breach which requires enforcement action we will consider taking action against individuals within the firm if we consider that senior management have failed in their responsibilities.'

Useful reference materials

For more information on what we mean by implementing a TCF strategy, please refer to our publications:

  • Our July 2006 report 'Towards fair outcomes for consumers' outlines the six consumer outcomes that we are looking for our work on TCF to achieve and also updates on the progress firms are making with delivering these outcomes, based on firms' own assessment and the findings of our work.
  • Our July 2005 report 'Treating customers fairly - building on progress' [PDF] contains a chapter on 'Implementing a TCF strategy'
  • Our July 2004 report 'Treating customers fairly – progress and next steps' [PDF] offers the product life-cycle as a practical framework for considering TCF.
    For firms which are service providers and not involved in the direct supply of products, some elements of the product life-cycle will be less relevant, but these firms should still consider how TCF applies to their activities;
  • We have published a self assessment tool for small firms to self assess where risks might lie in their business that could prevent them from treating their customers fairly.
  • We have also published a range of materials on our website including new dedicated TCF web pages for smaller firms; case studies; and cluster reports, most recently on management information, quality of investment advice processes, TCF for mortgage and general insurance firms, which are available on our main TCF web pages.
  • Our most recent Discussion Paper (DP06/4) and accompanying small firm factsheet sets out the respective responsibilities of providers and distributors.

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