Amid the flurry of communications on ‘Treating Customers Fairly’ (TCF), it is interesting to step back and consider just where the lines of responsibility lie between lenders, brokers and clients.
The TCF regulations set out high level responsibilities for providers (lenders) and distributors (brokers) through the lifecycle of a product or service. They also provide some guidance on the responsibilities consumers should bear themselves.
The relationship between the lender and broker is important in ensuring that the customer is treated fairly throughout their experience.
It has been said that providers and distributors have been less than enthusiastic about totally embracing the new regime, but I believe that TCF is a real wake-up call for those businesses that fail to service their customers in the best way.
In an ideal world the customer should believe there is no barrier to receiving fair treatment from his broker in terms of advice and service.
Similarly, when dealing with the broker, the lender must ensure he can fulfil his duties by providing good service and information. Unfortunately, we all have examples where the relationship has broken down between lender and broker, resulting in the customer feeling he has not had a great experience.
Everyone has now had the opportunity to look at their own responsibilities. To some companies, this legislation is a great opportunity to challenge existing processes that have been in place for some time.
To others, it could be construed as a barrier and an additional irritation. Whichever camp you see yourself in, the bottom line is that you must comply with the TCF requirements or face the prospect of quite severe penalties.
Considering responsibilities
In considering the provider responsibilities, each is linked with a specific principle. For example, provider responsibilities include:
- Identifying a target market when designing a new product.
- Stress-testing products and service, such as who it is and is not suitable for. This is coupled with proper risk management controls.
- Providing information to distributors and customers which is clear and not misleading.
Lenders and brokers both need to work in close partnership and some lenders have only recently taken an increased interest in forming partnerships with those distributors who operate to the highest standards of compliance.
As an example, it is worthwhile noting the definition of a distribution channel for a non-conforming mortgage product. The lender must use due care and diligence in deciding whether it should distribute only through non-conforming specialists and/or make it available for advised sales.
It must also ensure that the information communicated is clear, fair and not misleading. The theme of due care and diligence threads itself throughout the TCF recommendations and we must be able to demonstrate that we have acted in such a manner.
A different emphasis
The distributor responsibilities have a different emphasis. After all, they are responsible for giving customers service and advice.
Far more importance, it seems, is allocated to the broker/client relationship than the lender/broker relationship and quite rightly so as it is the customer the FSA is trying to protect. Distributors are responsible for:
- Understanding the provider’s information and considering whether to distribute the product.
- Fully considering the customer’s needs so that a product can be correctly matched. This involves the selection of a lender exercising due skill, care and diligence along with TCF.
- The post-sales service is consistent with what the customer had been led to expect.
A review of brokers’ practices included the assessment of affordability and self-certification mortgages and the clear conclusion was that some firms were not properly establishing needs or judging the plausibility of claimed earnings.
Financial Promotions have also been under scrutiny. Effective systems and controls must be in place to manage risks of Financial Promotions.
Also, when passing on a Financial Promotion published by a provider, the distributor must act with due skill care and diligence in establishing the information complies with the requirements.
Lenders and brokers should work together to ensure this is the natural outcome, but I wonder how many would check each other’s promotions to ensure that is the case?
Another aspect of Financial Promotion, and one that is easy to forget, is business done through the internet. At the end of November, the FSA confirmed findings from another review on how promotions were handled over the internet.
The FSA concluded that some 25 per cent of the 77 websites visited were difficult for customers to navigate or find key information.
The ultimate test
The ultimate test for lenders and brokers on whether they are living up to their responsibilities is to keep revisiting the six customer outcomes that the FSA has developed and ask themselves where they stand on them.
If firms can genuinely demonstrate that they are delivering on the declared outcomes then they should be able to rest easy.
It is worth reminding everyone that the FSA expects all of us to have proper management information systems in place by the end of March 2008 to demonstrate that we are achieving each of these outcomes.
The consumer role
So far we have focused on lenders/providers and brokers/distributors, but this is not to suggest that consumers themselves do not have a role to play.
The Financial Services and Markets Act 2000 states that the FSA’s consumer protection objective should have regard to ‘the general principle that consumers should take responsibility for their decisions’. Although not actual requirements, FSA-sponsored panels have agreed that consumers can help protect themselves by:
- Engaging as actively as possible in the process, and reading the materials provided.
- Asking questions where they feel uncertain.
- Using cooling-off periods to consider whether to go ahead.
- Thinking about their financial position, and considering the possible impact of changes.
- Complain if they receive unfair treatment.
The question asked about responsibilities and the line drawn between the lender, broker and client. It is clear that one goes hand in hand with the other.
Each has clearly defined roles but if one becomes a weak link then TCF cannot be achieved. Are we confident that we are taking care, skill and due diligence in establishing our distributor partners are operating TCF?
Just as importantly, do our distribution partners take the same amount of care in establishing the provider is up to the job?
As a friend of mine once said, ‘it all changed from being engaged to being married’. This analogy I hope gives the right message. The customer experience lies at the heart of what we do.
Those of you who took your marriage vows realised you were entering a more serious phase of your life, just as firms are with TCF.
