With just 14 months to go, firms are still failing to treat their customers fairly, and the FSA is ready to get tough. Anita Anandarajah reports

The FSA has laid down the gauntlet: many firms are on course to miss the December 2008 deadline to implement the Treating Customers Fairly principles. If they don’t buck up, they will face a much tougher regulatory environment.

Sarah Wilson, the FSA’s director of the programme, which is a shift from rules to principles-based regulation, told delegates at last week’s conference that time was running out.

“We have reached a turning point on TCF. The deadlines provide firms with a unique opportunity to achieve real cultural change and a major shift in consumer outcomes – benefiting consumers and the industry,” she says.

“For those firms that rise to the challenge, where senior management do drive change in the next 14 months, there will be a regulatory dividend. Supervisors have little reason to ask further detailed questions if you produce, and use, well constructed measures of your performance and they show a strong story.

“For those firms that miss the deadline and fail to take their obligations seriously, our message is absolutely clear – you will face more regulatory intervention.”

While the final deadline is some fourteen months away, firms have a second deadline to meet as early as March 2008. By this time, they must have management information that enables them to test whether their organisation meets the demands of TCF.

“There are of course two benefits in developing management information,” Wilson told the conference. “First, managing performance is a necessary precursor to managing it. And by management information, we mean all sots of quantitative and qualitative information of varying frequency designed to enable management to understand whether the firm is treating customers fairly. The second benefit is cultural – staff behaviour reflects the issues that are monitored by (and appear to concern) senior management. Use of good management information is therefore itself and immensely powerful cultural driver.”

To coincide with the conference and help companies develop management information, the FSA published “Treating Customers Fairly – Measuring Outcomes”, an assessment of how the financial services industries have progressed on the six measures of treating customers fairly. It found that while many senior managers are taking the initiative seriously, their good intentions are failing to translate into results for retail consumers.

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

Key finding:

For firms of all sizes and sectors, while many are committed to TCF, there is little evidence so far of firms making the cultural changes which are necessary if they are consistently to treat their customers fairly.

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

Key finding:

The FSA has seen some improvements, but more work is required by firms to ensure they are consistently providing products and services which meet consumer needs.

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

Key finding:

There has been an improvement in standards of financial promotions and some improvements in mortgage and general insurance disclosure. However, improvements have not been seen elsewhere and overall there is a lot more to do before information from firms to consumers could generally be considered to be fair and clear.

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

Key finding:

The FSA has seen specific products where there is evidence of unsuitable advice and broader work has shown common weaknesses in firms’ advice process. This increases the risk of mis-selling.

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

Key finding:

In very broad terms, financial products and services generally function as expected. However, the FSA has found several areas where false customer expectations may be created. Together with disappointing findings elsewhere, in particular on information and the risk of poor quality advice (Outcomes 3 and 4), this suggests consumers may often not experience the specific product and services features or standards they expect.

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

Key finding:

The FSA is unable to draw general conclusions on the extent to which unreasonable barriers are preventing consumers from switching product or provider. Some improvements were noted last year in claims handling, while complaints handling shows a mixed picture.

Boxes (please source to report):


The FSA report indicates a higher risk of customers being treated unfairly where firms sell single-premium PPI policies. This is because firms often choose to only offer a single-premium product at the point of sale, regardless of whether it is appropriate for their customer base.

It also found many instances of customers being recommended an extensive and costly PPI policy, even when they only had a very narrow gap in their exiting cover where a more tailored product could be more appropriate.

The report suggests that continuing poor PPI sales practises could show that TCF is not being effectively communicated, delivered and tested throughout organisations.

2. Motor and home insurance advertising

In a review of 57 firms’ press adverts from 2006, the FSA found more than half of motor

insurance savings claims and a quarter of similar home insurance adverts were either

unclear or misleading. The adverts did not set accurate expectations of what was really on offer. The firms in question were contacted and the FSA completed a second review in April 2007. There was a significant improvement in standards – 94% of the adverts the FSA looked at had fairly and accurately described what savings consumers would be able to achieve. The FSA is aware that complaints data are not necessarily a clear indicator of progress towards delivering Outcome 3 – consumers may not know when they are lacking in information or understand when information is misleading. However, as an indication, half-yearly complaints data from firms show the number of complaints about misleading advertising as a percentage of total complaints has remained steady at 1% since 2004.

3. Travel insurance

Under TCF, firms should not encourage consumers to buy products or services based on false expectations of how that product will perform or the level of service they will receive. In its last annual review, the Financial Ombudsman Service (FOS) expressed concerns about difficulties in the travel insurance market, despite the decline in the proportion of complaints it receives on general insurance. Many of the travel insurance complaints the FOS deals with display a clear mismatch between what insurers intend to offer and the cover that consumers believe they are buying. This is partly an issue of consumers’ financial capability. However, it is also a result of poorly-written policy documents, lack of advice and confusion from the provider, who often sell travel insurance as an add-on and so are not fully aware of the nature of the cover or do not make this clear. The FOS also highlighted issues with annual travel policies and long-term travel cover, for example those linked to premium bank-accounts and credit cards, where insurers have tried to withdraw cover simply because the risk of a claim has increased over the life of the policy.