The FSA's 'treating customers fairly' principle is a challenging concept which firms must prove they have taken on board. Michelle Slayford explains
The fair treatment of customers is not a new concept and the FSA's initiative of Treating Customers Fairly (TCF) has for some time been leading the charge for a more principles-based approach to regulation.
Proving that you have complied with a principle can be far more challenging than showing where you have complied with a prescriptive rule.
In order to demonstrate that TCF has been achieved, you will need to show how your strategies have resulted in real changes with improved outcomes for your customers.
TCF is ongoing. There is no date in the future when it stops. You need to be aiming to embed a TCF culture within your organisation. Senior management needs to review, on a regular basis, the effects of both internal and external changes on customers, to ensure they are always being treated fairly.
While the FSA has avoided precise definitions of 'treating customers fairly', the changes expected for customers are clear enough.
It is therefore imperative that your senior management thinks seriously about TCF within the context of the firm and its customers and has a very clear idea of what 'TCF success' looks like.
Without this and meaningful management information, measuring progress will be a challenge and you may even struggle to demonstrate TCF to the FSA and customers, regardless of the work you have carried out.
You also need to be aware of a common misconception that customer satisfaction equates to TCF.
The FSA has been very clear in its challenge to this approach. Firms who seek to rely on this to support their approach to TCF do so at their peril. The FSA may look very closely at all aspects of such a firm's behaviour on the basis that the firm has not understood what TCF means in practice.
There is not a 'one size fits all' formula, but it would seem prudent that firms review their TCF strategies and progress against both their own success measures and the six FSA customer outcomes (see box). At the very least firms should be taking stock ahead of the March 2007 deadline, ensuring that:
• All relevant areas have been considered and are being addressed
• Implementation success can be measured and is substantially underway within the business
• A TCF culture is being embedded and is an integral part of the business model
• The entire product cycle has been analysed including the distributor/manufacturer relationship
• TCF is reflected in the firm's front-line activities and is not just something discussed by senior management
• There is appropriate management information available to measure change in outcomes for customers, especially in relation to the quality of advice
• TCF will be a continuing process and part of a firm's monitoring programme.
All firms are expected to have reached the implementation stage in a substantial part of their business by March 2007, so there is no time to lose.
As always, the FSA stands prepared to take enforcement action based on TCF principles. "We have less patience with those firms that continue to deny incorrectly that TCF has any relevance for them, or have failed to take appropriate steps to work out what changes may be required," it says in Treating customers fairly - Towards fair outcomes for consumers FSA July 2006. IT
Michelle Slayford is an executive adviser at KPMG
