The guidelines, which follow on from consultation with the industry, are a response to the industry’s request for greater clarity on the responsibilities the regulator’s ‘Treating Customers Fairly’ (TCF) initiative places on product providers and distributors alike.
However, having read the document, many will still be scratching their heads and wondering if the FSA commissioned Lewis Carroll to write it, as some of the language could have come straight out of Alice in Wonderland. The premise is simple enough. Product providers and distributors need to know what they should be doing to comply with the regulator’s TCF initiative and the FSA set out to help. Where firms’ responsibilities begin and end has become much more opaque since the move to principles-based regulation.
The new guidance now aims to set out the responsibilities through the life cycle of a product or service. Firms have been advised to consider their product design, marketing and selling, and post-sale service and complaints handling. But against what benchmarks are they to be measured?
Sarah Wilson, director responsible for the TCF initiative, said: “A customer should receive the same fair treatment whether their product or service is provided and distributed by one firm or several. To ensure this happens, each firm in a chain should review carefully their responsibilities under the FSA principles – whether they are due to another firm or directly to the retail customer.”
Fantastic. This is what the industry has been crying out for. On closer inspection, however, things are not as clear as Wilson would have us believe. Take this example from the policy statement:
‘The statement is an example of principles-based regulation where we set out high level standards and outcomes. Firms will need to exercise judgment in interpreting how these apply to them. If, for example, a distribution model used by a firm does not fit squarely into the model in the DP, that does not mean that the DP does not apply to, or is not appropriate for, that firm. The onus is on the firm to interpret the DP in a way that makes sense for its particular circumstances and market conditions to achieve the desired outcomes, whether that firm provides services or products.’
And again: ‘What a firm has to do to meet the requirements of a principle will depend on the circumstances, including the riskiness or complexity of the product or portfolio, who the firm is dealing with – another firm or a customer, for example – and the financial sophistication of the target market. Firms should bear all of these factors in mind in order to interpret the requirements of the principles in a way that is proportionate.’
So there you have it. Clear as mud. Although we have been furnished by new guidelines it still all boils down to interpretation.
And the problem with interpretation is that it can be misinterpreted in a different way from that intended by the author of the articles.
Simon Burgess
Managing director
British Insurance
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