I was going to start this column by saying ‘as you know, the Financial Services Authority’s (FSA) ‘Treating Customers Fairly’ (TCF) deadline is now upon us.’ Unfortunately, research recently undertaken by Mortgage Next shows that an awful lot of small firms do not know about this deadline.
In February we undertook a study of 50 small directly authorised (DA) firms to find out how aware they were of the FSA deadline for reaching the implementing stage of TCF and what progress they were making towards it. Unfortunately, the results showed only 6 per cent of respondents were aware of the March deadline and, what’s more, most said they were happy to rely on existing paperwork to prove they were properly implementing the initiative.
I have to confess that this came as something of a shock. Within a few days the Association of Mortgage Intermediaries (AMI) published its own survey results, which showed that among all of its members, both large and small firms, only 48 per cent were either at the implementing stage or were actively embedding TCF in their businesses. Which means more than half could miss the deadline.
Going wrong?
Something is clearly going very wrong with small firms. Rob Griffiths, associate director at AMI, said in a recent article in MI: “We believe this shows the need for the FSA to look at the way it engages with smaller firms. The message is either being lost or simply not picked up and we have called upon the FSA to look again at its resources with regard to small firms and the information channels it uses to get its message across.”
I couldn’t agree more. I can understand that dealing with thousands of small firms is a daunting challenge for the FSA which, like most organisations, has finite resources. I cannot understand, however, why the FSA doesn’t utilise to greater effect those organisations which are well placed to provide small firms with the helping hand they so desperately need. I’m referring to networks and clubs.
Networks and clubs are structured to deal with small firms. It is their raison d’etre. The FSA needs to recognise the value that networks and clubs can offer in helping to get the message across, because the information gap being created by the FSA is clearly causing problems.
Having surfed the FSA website, I can understand why some small firms have struggled. For example, the FSA says in its TCF guide that it has ‘produced a range of materials, available on our website, to help firms assess what the principle of TCF means for their business. The material does not provide specific guidance but identifies examples of good, and in some cases not so good, practice to help with those assessments’’
I suggest that, in the light of our research, the FSA does need to provide specific guidance, because simply making information available is not enough. It’s a bit like providing a student with all the text books but then leaving them to get on with it themselves. To pass exams students need tutoring and exactly the same principle goes for brokers. If the FSA’s review in April shows that brokers have fallen sort of the desired standard, I suggest it needs to consider whether it should be doing more to help facilitate the teaching of brokers.
Carrot and stick
At the moment, the only inducement that the FSA appears to be giving brokers is via the good old ‘carrot and stick’ routine. As far as the carrot is concerned, the FSA has said: ‘Where senior management successfully show an appreciation of what is required by TCF we can look, for example, to make our regulation more arms-length. We are less likely to take enforcement action where the firm has considered the implications of TCF for its business, where senior management have played the role we expect of them in relation to TCF, where a firm has made a genuine attempt to deliver on what TCF means for it, and where there has not been significant actual – or risk of – consumer detriment.’
Now to the stick. The FSA has stated that enforcement action will be taken against individuals if it is felt that senior management has failed in its responsibilities. The FSA has also said that it will take action on the basis of a breach of principle alone, whether or not there has also been a breach of other rules. It says that it expects to take more of this type of action in future, to cover areas of TCF not covered by the rules.
The message to brokers is clear enough – show us you can run your businesses responsibly and we’ll leave you alone. However, get it wrong and we’ll be all over you like a bad rash. Will this work? We’ll soon know.
Interestingly, I have read comments made by some firms in which they complain that lenders have not done enough to help brokers implement TCF. In fairness to lenders, a number have provided support by sponsoring the development of facilities such as online TCF information sites. Go to www.tcfinfo.co.uk, which provides a wealth of practical information about implementing TCF. It contains easy to read information, case studies, tips, tools and a checklist. If you’re having a last-minute panic, this is a great place to start.
I believe TCF could well be a crunch issue for small DAs. If, after the deadline has come and gone, the FSA finds widespread evidence that a large number of brokers have fallen short of the desired standard, then something needs to be done.
Is the FSA going to start handing fines out like confetti? Or will it take a more practical approach and encourage firms to seek support from networks and clubs? I know which option I favour.
