FSA publishes progress report on fair treatment of customers

This reviews the progress firms have made in implementing the FSA principle requiring the fair treatment by firms of their customers and considers the next steps to build on improvements made and to address shortcomings.

The FSA recognises that the industry has made improvements in recent years, but further progress needs to be made for consumers to be treated fairly throughout the lifetime of retail financial products.

As part of its research, the FSA carried out a pilot study with six of the largest retail groups to review their procedures at various stages of the product life cycle. The main findings were:

Senior managers said they were committed to the fair treatment of their customers and could see the benefits this could bring in terms of increased profitability. However there were varying degrees of mismatch between these stated intentions and the systems and controls that firms have in place to deliver fair treatment;

Firms did not always include assessment of risk to the customer or of customers' needs in the product development process or in assessment of the target market;

Firms did not have sufficient controls in place to mitigate the risk that the way in which sales forces and advisers are remunerated could have an influence over the sale of the product to the consumer;

Whilst some improvements have been made in complaints handling, quality varied between products and firms. Firms also failed to use complaints data effectively as management information or to identify trends from complaints;

Management needed to collate and monitor information in a way which would help them identify whether their customers were being treated fairly.

Over the coming year the FSA will undertake targeted supervisory work on fairness issues to build upon the pilot study. This work will take place between September 2004 and March 2005 and will be extended to include a number of medium sized and smaller firms.

The FSA will also establish a Consultative Group made up of representatives from the industry, consumer groups and the Financial Ombudsman Service. This group will examine what treating consumer fairly means and how firms can develop a better understanding of what makes for good or bad practice.