Any lingering doubts over the Financial Service Authority’s (FSA) commitment to monitoring behaviour in the mortgage market have surely been dismissed over the last few weeks with the successful enforcement actions against a number of intermediary firms.
While those found guilty were active primarily in the non-conforming market – an area that has been viewed with suspicion for a while now – it should have also sent a warning shot across the bows of all mortgage intermediary firms that regulation is here to stay and the FSA are now focusing on your industry.
It should come as no surprise that a regulator which operates under a risk-based methodology should focus so strongly on the mortgage market, given that this type of financial product is the most ubiquitous and that market failure can lead to the ultimate customer detriment – the loss of the family home.
The interesting point within all the cases was the use of breaches of principle as the foundation for the actions. This clearly shows that the FSA’s move away from prescriptive rules to a more principle-based regulatory regime will be a prominent feature of how it plans to supervise firms in the future, and the cornerstone for this will be its ‘Treating Customers Fairly’ (TCF) initiative.
A lack of progress?
The FSA has emphasised on numerous occasions the importance for firms to embrace TCF. However it would appear that firms continue to fail to meet the regulator’s expectation on progress.
It is safe to assume now that firms that do not address TCF within their business immediately will face tough action and that the FSA will be increasing activity in this area over the next 12 months.
The FSA issued a deadline for all firms to have completed their work on TCF and to be able demonstrate adherence to their plan through management information March 2008. From my discussions with intermediaries, there is clearly much work to be done for this deadline to be met.
The main reason for this lack of progress is that the industry has struggled to understand exactly what TCF means and how it impacts on their daily business and their customers. There has been too much focus on trying to identify a standard approach across the board, whereas the real solution should be bespoke to the individual business.
Problems in transition
By adopting a principles-based approach, the FSA has been able to set out the outcomes that it expects to see without dictating how firms meet them. To clarify, the six outcomes in question are:
- Outcome one: Consumers can be confident that they are dealing with firms where the fair treatment of customers is central to the corporate culture.
- Outcome two: Products and services marketed and sold in the retail market are designed to meet the needs of identified consumer groups and targeted accordingly.
- Outcome three: Consumers are provided with clear information and are kept appropriately informed before, during and after the point of sale.
- Outcome four: Where consumers receive advice, the advice is suitable and takes account of their circumstances.
- Outcome five: Consumers are provided with products that perform as firms have led them to expect and the associated service is both of an acceptable standard and as they have been led to expect.
- Outcome six: Consumers do not face unreasonable post-sale barriers imposed by firms to change product, switch provider, submit a claim or make a complaint.
I am sure many of you will look at the outcomes above and say, ‘we already do that, and if we didn’t then our clients would leave'
As I’ve mentioned, every business is different, if only in marginal ways. Therefore every firm’s approach to TCF should be specific to them and not merely an ‘off-the-shelf’ solution. The FSA want to see that TCF has been carefully considered by a firm and that it sits firmly within the core of the culture of the business.
There are any number of training packages or ‘consulting tool-kits’ available to firms looking to meet their TCF obligations but while these can be useful aids, they should not be seen as providing the complete solution – it is essential that senior management create their own plan and strategy for TCF and can demonstrate to the FSA how they have reached their decisions on how to satisfy the six outcomes and also demonstrate that their firm adheres to it.
Significant activity
The next 12 months will see significant activity in this area and Sarah Wilson, the FSA’s director for TCF, made it clear at the TCF conference earlier this month when she said: “We have recently announced an enhanced strategy for supervision of small firms, which will include a large-scale series of structured visits or telephone assessments to test the quality of management and progress towards embedding TCF. This further contact will enable us to identify more quickly those firms which are not meeting regulatory standards.”
For firms still not engaged in the TCF process, perhaps the acronym should stand for ‘Take Cover Fast’ as the regulator means business.
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