‘Treating Customers Fairly’ (TCF) has been the industry ‘buzz phrase’ for some time now and one of the Financial Services Authority’s (FSA) first and most favoured principles-based pet projects. You can’t move for the FSA, lenders and brokers referring to the culture of TCF and the importance of embedding it into business.
The ongoing work that the FSA is doing to assess how well TCF has embedded itself into the industry will continue up to the December 2008 deadline and will now include a recently announced shift in the FSA’s focus. Its intention is to see how well TCF has filtered down from senior to middle management levels. While the FSA fully believes the responsibility for creating a long-term TCF culture within a business lies squarely with senior management, the FSA has noted a decided gap between senior management aspirations and customer experience.
Closing the gap
Speaking at the FSA Summer school at St John’s College, Cambridge, Sarah Wilson, TCF and insurance sector leader for the FSA, says this gap must close by the deadline and businesses will be expected to demonstrate it has done so. To that effect, she says the FSA will integrate the TCF culture framework of a business into its ARROW risk assessments and thematic work. This will include spending more time talking to middle management and staff to assess how well the TCF ‘visions and values of the senior management translate into fair consumer outcomes and to consider the potential risks that might exist towards delivering these outcomes’.
Wilson adds: “Firms are already required to have systems and controls that deliver compliance with the regulatory system, so the second challenge to senior management is to ensure that management information measures whether they are delivering TCF – and then, naturally, to act on it. Indeed being seen to take an interest in and act on such measures will itself have a cultural impact in many firms.”
A logical step
Such a move by the FSA is seen as a logical step. Indeed, Colin Snowdon, chief executive of Wave, says: “Anyone who wasn’t expecting that to happen was fooling themselves. If the FSA talks to middle management, it will expect them to understand TCF.”
Snowdon adds that while there is always the potential for TCF to have not filtered down the ranks, it is dependent on the business. He explains: “What’s the point if it just floats around the board room? It will only translate into action when it is acted upon by middle management.
“Inevitably, when you move over to a principles-based approach, it will take time. The industry likes the idea of principles, but then tends to complain when there are no hard and fast rules, especially having started with rules and MCOB. It can be hard to implement TCF, particularly when you get down to smaller businesses without compliance officers to read all the information and talk to the FSA. This is not a criticism of smaller brokers, but inevitably smaller businesses will find it harder.”
Thomas Reeh, chief executive of blackandwhite.co.uk, adds that the question of whether TCF has reached the middle and lower staff is a one that needs to be put to every business. He says: “The bigger the business, the bigger the challenge to get the message across to the whole of the company. For us, we have TCF champions right across the board to do so. Yet, as long as a company can see the senior management living and breathing the principles, it will happen.”
Assessing companies
He notes that principles-based regulation extends much further than the old rules and that the FSA uses three particular words when it assess companies: feasible, plausible, and reasonable, i.e. is it plausible that the client can pay back this mortgage? Reeh explains that such words have far-reaching implications and extend much further than the rules ever did. He says: “It’s becoming much more evident how far reaching they are and it’s becoming more of a challenge to see whether we are meeting the principles. As a business, we have to sink a lot further than under the rules and are very active about recording customer satisfaction.
“Senior management can put in the high level TCF implementation, but it is those at the coal face that live and breathe it. It comes down to the culture of a business as much as anything. It’s about those that put consumers at the heart of their thinking and for that to be encouraged by senior management. It needs to happen at a lower level.”
Certainly, it seems that it is in middle management that, potentially, TCF has greater meaning, as greater contact with customers will be found the further down the staff hierarchy you get. This renewed focus of the FSA should be seen in a positive light by those in the industry, as without middle management getting in on the TCF act and embracing the ethos, it won’t get very far. TCF is, and should be, a whole-of-company policy, not just because the FSA calls for it, but because customers ought to be able to expect it.
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