The Financial Services Authority’s (FSA) ‘Treating Customers Fairly’ (TCF) initiative continues to demand the time and resource not just of the regulator itself but all those firms involved in financial services.
Should we be surprised by this? Not really, as it was always planned this way. TCF is ongoing and is here to stay. If anyone doubts that, they should look at the recent enforcement fines issued and note that ‘failure to treat customers fairly’ is often cited as a factor in the action being taken.
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To be fair to the regulator it has provided frequent updates on the initiative itself although, by its own admission, it has perhaps not been good at communicating what it expects of firms.
Deadlines are all well and good, but what do firms need to do to meet them? The ‘TCF Progress Report’ marked another step along the road towards firms ‘embedding’ TCF, although the headlines from the report will not have made comfortable reading for small firms – a large percentage of which were deemed to have failed to implement TCF.
Jumping to conclusions
The temptation with any FSA report or thematic review is to jump to immediate conclusions after only a cursory reading of the ‘headline’ results. As the trade body for brokers, it is important that AMI delves a little deeper into these reviews and pulls out the pertinent information that members can use in a practical sense to aid their compliance.
Now that the dust has settled following the report, there is one area where smaller firms especially may be in need of further guidance – that is the collection, and use, of management information as a tool for effective implementation of TCF. The FSA believes management information will show senior management just how effective their TCF practices have been – in this regard, they will show what is and isn’t working.
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In essence, the FSA has said that ‘good firms’ must have management information to prove they treat their customers fairly. The problem for firms is identifying the management information necessary to do this and then being able to collect it. The FSA believes that, since firms should already be collecting management information anyway, a further pulling together of specific TCF management information should not be difficult.
But, for small firms in particular, this is not as easy as it sounds. Indeed, one of the key challenges that FSA has identified for firms is understanding what management information is appropriate for the particular size and nature of the firm. This is why AMI is working with the FSA to develop a list of suitable management information that firms should have.
Satisfying the regulator
In the meantime, firms should think about the overall management information they already collect and whether this is enough to satisfy both themselves and the regulator. For example, to satisfy management information requirements firms should know everything about their clients. Why were clients advised to undertake certain actions? Why were particular deals selected for particular clients? How satisfied were those clients with the recommendation and the service provided? Were there any complaints? What was the root cause and outcome of the complaint?
Firms should also be able to collate their split of business. For example, how much buy-to-let/self-cert/non-conforming business does the firm do? What is the split of business between fixed and variable products? How much business does the firm place with individual lenders? The question is whether this information can be easily accessed and if it is being viewed by those who are able to use it to demonstrate the firm’s direction of TCF travel? This is information that a firm should hold, but can it be presented at a firm level or adviser level?
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In the collection of this information, broker firms should also be aware of the differences between ‘hard’ and ‘soft’ management information. ‘Hard’ management information is all about the numbers; it’s the number of cases completed, the number of complaints received, etc. ‘Soft’ management information is achieved through, for example, verbal reports and compliments. So, a firm can pick up its ‘soft’ mortgage information through conducting staff surveys, gaining customer feedback and opinion, and implementing management training days. Through this, management should be able to ascertain how embedded TCF is in the firm’s overall psyche.
Difficulty
In terms of TCF, the FSA wants senior management to distinguish between the client’s satisfaction with the service and whether that client has been treated fairly. The FSA says many firms were unclear whether they were capturing fairness or satisfaction.
This is a particular difficulty and one the FSA has provided information on in last year’s ‘Management Information Cluster’ report. In this document, the regulator provides some positive examples of the collection and use of management information for TCF purposes – it looks at how this may be achieved in the following areas: strategy, culture, product design, Financial Promotions, advice, information after the point-of-sale, complaint handling, and the reporting process.
You need management information to understand your firm’s current position, where it has come from and where it is going. The FSA is requesting that firms conduct the same exercise for TCF work – there is information available on how best to do this and, rest assured, AMI will be adding to this in the near future.
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