In the first part of a three part feature, Ian Jerrum provides a general introduction to the FSA's expectations and requirements on Treating Customers Fairly
As we are all well aware by now, the FSA is committed to developing what it calls a 'principles-based' approach to regulation. The intention is to allow individual firms the flexibility to adopt an approach that is appropriate to the nature and scale of their operations.
This 'principles-based' approach is particularly relevant to the FSA's requirements on treating customers fairly (TCF). Having said that, the regulator has produced a considerable volume of materials intended to assist firms in understanding their TCF obligations and suggesting how to implement appropriate procedures.
Much of this material is currently available at www.fsa.gov.uk/tcf .
The FSA has also been at pains to spell out what it does not mean by the term treating customers fairly. TCF is not about being nice to customers, nor about all firms offering identical standards of service, nor about inhibiting their ability to develop innovative products and services. The FSA does not intend to:
The FSA originally required firms seeking authorisation to:
The FSA made clear that action plans should be put in place to address any gaps or grey areas uncovered in the course of these reviews. Such plans are expected to identify unambiguous priorities and targets, and to specify how progress against these is to be measured.
Firms seeking FSA authorisation were not initially required to have a perfect TCF regime from day one, merely to have an action plan in place and to provide interim fixes for any problems areas identified.
Among the lessons learned from implementing TCF to date are that senior management has a key leadership role to play; that there is no single template for success; and that TCF is as much about staff behaviour and culture as systems and controls.
It was also found that gathering and analysing relevant management information internally is vital.
Since the end of last year TCF has become a core part of the FSA's 'arrow' risk assessment process. While enforcement remains an option in extreme cases, the FSA appears to be looking primarily to ensure that firms have made a genuine attempt to deliver on what TCF means for them and that their customers' interests are not compromised.
Appropriate redress
Where it identifies problems, the regulator will seek to agree with the firm how these will be remedied and how any appropriate redress should be provided to customers affected.
In practice, less is expected of smaller firms in terms of documented strategy and detailed written evidence of delivery.
But, as a minimum, the FSA does expect management to be able to outline their firm's business strategy and TCF's place within it, and to ensure that all relevant staff understand TCF principles and act in a way that takes account of customers' rights, needs and level of understanding.
The FSA has produced a four-stage TCF model that provides a useful guide for firms seeking to apply a structured approach to TCF.
Stage one focuses on answering the question: What does TCF mean for my firm? We have already looked at some of the issues firms need to consider in this context, and will come back to some of them in more detail in part two of this feature in a future issue.
Stage two is gap analysis. This involves mapping any disparities between where a firm is now on TCF and where it believes it should be going.
The FSA has developed guidelines to assist in this process, based primarily on product lifecycle.
Gap analysis should cover: product and service design; financial promotions and advertising, sales and advice; information and services provided after the point of sale; complaint-handling procedures, culture and behaviours, and management information.
The third stage is action planning. In deciding how to address any gaps identified, firms are expected to look at the following areas: prioritising tasks, securing resources and accountabilities, defining measures, deciding what management information is required, and establishing necessary monitoring processes.
Stage four is implementing and monitoring. Whether as part of a specific TCF initiative or of a more general action plan, management should take responsibility for tracking progress, making changes, monitoring outcomes and delivery, and identifying remedial action.
In the second part of this feature we will begin reviewing in detail the various areas to be analysed within this model - based on the FSA's product lifecycle framework. IT
' Ian Jerrum is managing director of Searchlight Solutions. This feature is based on materials available on Searchlight's e-learning system Tick
Test yourself on TCF
Q1. The FSA intends to collect detailed management information on firms' TCF performance. True or false?
Q2. Where ARROW visits uncover specific TCF problems, the regulator will be looking to satisfy which two key objectives?
Q3. In addition to respecting their rights and requirements, staff need to take account of what other key factor in their dealings with customers?
Q4. The FSA's TCF Model consists of how many main stages?
Q5. Name three tasks firms need to address at the Implementing and Monitoring stage in the FSA's TCF Model.
Answers
A1. False.
A2. To establish what remedial action the firm will put in place and to provide redress for affected customers wherever appropriate.
A3. Their level of understanding.
A4. Four.
A5. Any three from: tracking progress, making changes, monitoring outcomes and delivery, and identifying remedial action.
