The question “Treating customers fairly (TCF) – where now?” really breaks down into three parts. First, we need to remember what has already taken place, next we need to take a look at what the FSA has said will happen next, and then we need to decide what we should be doing to deliver TCF consistently to our customers in future.
A good starting point to review the recent history of the TCF initiative is the FSA’s July 2006 paper entitled “TCF – Towards fair outcomes for consumers”. In this document we find the whole essence of TCF distilled into six consumer outcomes. By now, we should all be familiar with these six TCF outcomes, but it’s worth briefly summarising them as follows.
Consumers are confident of finding a TCF culture within financial services firms; products and services are designed for specific target consumer groups; clear information is provided before, during and after the sale; advice is suitable; the products and services are what consumers have been led to expect; and there are no unreasonable post sale barriers to receiving the original product benefits.
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The July 2006 publication also set out the four stages by which firms should have progressed to the point where they are satisfactorily delivering the six outcomes. These are: awareness, strategy and planning, implementation, and embedding. Since July 06 the first of these two stages should have been accomplished, with firms being aware of the TCF issue, and having made progress with gap analyses including plans to plug the gaps. A March 31 2007 deadline was set for firms to be “implementing necessary change in a substantial part of their business” in order to achieve the six outcomes.
Fast forwarding to May 2007, at this point the FSA published a progress report on TCF that concentrates more on the implementing and embedding stages. “Implementing” is explained as allocating resources and responsibilities; developing plans and processes; and creating capability, and “embedding” is defined as following up on implementation; continuous monitoring of TCF performance; and commitment to maintaining standards in the future. As has been widely reported, out of a sample of 659 small directly authorised firms only 41% were considered to have met the deadline, with 52% of financial advisers and 45% of general insurance advisers meeting the deadline – but only 22% of small mortgage advisers.
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Annex 1 of the progress report sets out the key cultural drivers within organisations that the FSA believes are likely to have a significant influence on the behaviours of management and staff and therefore on consumer outcomes. If you have not come across the concept of “key cultural drivers” before, then take a note of them for the future, as I believe we are going to hear a lot more about them as the TCF initiative rolls on. The key cultural drivers are set out in familiar FSA fashion as opposing examples of good and bad practice – in this case termed “indicators” and “contra indicators”. In the suitable example for small firms, there are six key cultural drivers: leadership; business planning; controls; internal communications; recruitment, training and competence; and reward.
Taking these in turn, the indicators for “leadership” are that managers are able to articulate what TCF means for their firm and that this principle is central to the behaviour and values of the firm. Against “business planning”, the indicator is that when management make key business decisions, the impacts on TCF are always assessed, and for “controls” the indicator is that management ensures that day to day activity is monitored to assess whether TCF is being consistently applied.
The indicator for “internal communication” is that management gives out clear messages to staff and can demonstrate that these messages have been understood. This is followed by recruitment and training, where the indicators are that positive behaviours and attitude towards TCF are key criteria in the selection of staff, and that proof can be produced of effective training and maintenance of staff behaviours with regard to delivery of the TCF consumer outcomes. Finally, under “reward”, the TCF indicator is that the reward structure is transparent and reflects quality rather than quantity.
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Regarding timings for follow up work on TCF, the FSA has set a new deadline of December 2008, by which time all firms will be “expected to demonstrate to themselves and to us [ie, the FSA] that they are consistently treating their customers fairly and . . . show that they are delivering, in particular, the six TCF consumer outcomes.” Take note of that key word “demonstrate”, because I will return to it later.
Given that, according to the FSA, 78% of small mortgage advisers were falling short of the required standard for TCF at 31 March this year, there is a lot of ground to make up by the 31 December deadline. The good news is that there is now a real focus by the regulator on communicating – particularly to small firms – what TCF is and what they must do about it. In May this year, the FSA’s TCF web pages for small firms were updated to include the results of the progress report and they now contain a solid body of information designed to help smaller firms achieve satisfactory levels of TCF.
This web-based TCF information can be found in the Small Firms section of the FSA site, under “general information”. There are five sub sections: What is fairness?; What you need to do; Progress against the 31 March deadline; Next steps; and Help available. Under the first of these, TCF is explained as not just achieving customer satisfaction, but covering every aspect of the business including (among others): training to ensure quality of advice; providing clear and easy-to-understand customer information; ensuring customers get the right advice and product; and putting things right if they go wrong.
Under “What you need to do” there are three key issues. These are, first, firms having appropriate processes in place to satisfy themselves that they are delivering TCF – including management information on advice given, products sold, and complaints. Next, senior management must be able to describe how TCF fits into the business and how behaviour within the firm takes account of the needs, acceptance of risk, level of understanding and rights of their customers. Thirdly, firms need to have investigated the gaps in delivering TCF in their business, and to aid this process there is a link to the FSA’s TCF Self Assessment Tool. This is a set of searching questions that firms need to address about their own way of dealing with customers and running their business under the headings of: management responsibilities, strategy and reporting; sales and marketing; and after sales customer care.
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The “31 March deadline findings” section summarises the May 2007 progress report and reminds small firms about the main issues identified by the survey, which are: the insufficient monitoring of advice to make sure it is suitable; inadequate complaint handling procedures; and lack of adequate management information on advice given, products sold and complaints. There are also links through to examples of good and poor TCF practice. The “Next steps” section sets out timetables and offers links to roadshow details and booking facilities, and the “Help available” section gives access to full reports and discussion papers on TCF already published, including sections on the quality of advice work published in January 2007
If I were asked to summarise in three words the most important thing for small mortgage and GI firms to concentrate on to meet the December 31 deadline, I would paraphrase a much quoted piece of political rhetoric and say “evidence, evidence and evidence”. The regulator is very careful not to make rules about the sort of records that must be kept, insisting that firms must have in place TCF systems that are appropriate to their own business model. However, any mortgage and GI firm that already has compliant advice, sales, customer follow up, complaints, and promotions processes in place should already be generating a large volume of documentation, so TCF evidence should be easy enough to produce.
Perhaps the one vital step still needed is to make the connection between the day to day processes/records and the six TCF outcomes. It would do no harm to take another look at the TCF self assessment tool (or even a first look, for some of those firms that did not make the grade at 31 March) and work out which parts of your firm’s documentation can be produced as evidence to answer the 23 questions. If there are any for which no documentation can be found – it’s high time to start plugging those gaps.
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