‘Treating Customers Fairly’ (TCF) was never supposed to be a quick, catch-all solution to the issue of customer service and support within the mortgage market, and indeed since its introduction it has continued to evolve – giving many firms a real reality check.
In March 2007, the Financial Services Authority (FSA) extended the deadlines due to the number of firms that had not achieved satisfactory implementation of TCF within their businesses. The deadline for intermediaries for the full embedding of TCF has now been extended to December 2008.
At the heart this extension was the appreciation by the financial services regulator that while there was a genuine desire on the part of most firms to adopt TCF, management in many cases had not taken sufficient steps to embed TCF into the heart of their businesses. It also identified the constant need to not only state that a TCF policy is in place but that it can also be demonstrated to be a real part of the business.
A cultural issue
In its July 2007 progress report on TCF, the FSA confirmed its belief that TCF was a cultural issue. It said: ‘It is only through establishing the right culture that senior management can convert their good intentions into actual fair outcomes for consumers.’
The regulator believes that the problem is a lack of real understanding as to where TCF should sit within an organisation rather than a problem with omission or deliberate ignorance of the initiative.
In the same report, the FSA went on to say: ‘As firms will be aware, TCF is one of our priorities and, to be effective, they should be making it an integral part of their business culture. While we identified in our May 2007 publication that an encouraging number of firms were at the ‘implementation’ stage of their TCF strategy, further progress is needed to reach the embedding phase. We now expect to see firms taking action to ensure a consistent delivery of fair consumer outcomes – to do this, firms need to consider their culture.
The culture of an organisation drives the behaviours of its management and staff and their actions, which in turn will determine the outcomes for consumers.’
Main outcomes
It might be worth reminding ourselves that the criteria for assessment are based on six main outcomes, which are:
- Consumers can be confident that they are dealing with firms where the fair treatment of customers is central to the corporate culture.
- Products and services marketed and sold in the retail market are designed to meet the needs of identified consumer groups and are targeted accordingly.
- Consumers are provided with clear information and are kept appropriately informed before, during and after the point-of-sale.
- Where consumers receive advice, the advice is suitable and takes account of their circumstances.
- 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.
- Consumers do not face unreasonable post-sale barriers imposed by firms to change product, switch provider, submit a claim or make a complaint.
Major weapons
One of the major weapons that firms are being encouraged to use more is management information. Along with the report on progress issued in July, the FSA also saw fit to issue a separate briefing on the use of management information. It is abundantly clear from the focus just how important the regulator sees the proactive use of management information if TCF is to be an integrated part of the business of every regulated firm.
The note is explicit as to how important management information is considered to be and deadlines when this is to be achieved. It states that firms must ‘have the appropriate management information or measures in place to test whether they are treating their customers fairly including by delivering the six TCF consumer outcomes – firms should be working on this now in order to meet the March 2008 deadline.
The management information demonstrates to the firms and to us that they are consistently treating customers fairly and delivering the consumer outcomes – firms have until the end of December 2008 to do this. There are processes in place that monitor the management to enable the right people to take action – this will become business as usual’.
Smaller firms which rely on more manual forms of feedback will need to ensure that they have adequate procedures in place to document the ways in which they can demonstrate how the raw data of the business can be translated into positive proof that TCF is imbedded. Small firms, especially those with typically less than five mortgage intermediaries, are still failing to have adequate documentary evidence that TCF has been fully addressed. In its study, the FSA reported that properly constructed risk and gap analysis, written policy and a planned programme for TCF were the main missing ingredients in many highlighted cases.
General improvement
The good news is that the overall evidence is that the industry has experienced a general improvement in brokers’ processes which has been documented by both the FSA and the Association of Mortgage Intermediaries. However, bearing in mind the mutual benefit that would be gained, it is odd that there is not more openness which includes sharing of information by mortgage lenders.
Policing firms
There is much to be gained when there is evidence that some of the bigger players have weaknesses in their TCF policies. On the surface they may be able to demonstrate that they have robust policies and procedures in place, but if you dig beneath the surface they would soon fall apart. In this respect, the question that should be asked is how does the FSA police lenders that fall into these categories?
For smaller intermediary firms, the implementation and embedding of TCF are of greater concern. The question of resource is underestimated for small firms and this is highlighted in a number of areas. Smaller firms are still not clear on what the financial services regulator really expects in respect of TCF, even though the FSA has published a small firms toolkit. Some small firms still appear to be having difficulties with knowing where to go to find the necessary information to address what the FSA is requiring firms to do with regards to TCF.
Greater burden
Of course, ignorance is not a defence but the fact remains that the resource burden of compliance is greater on small firms. Larger firms are able to set up internal compliance departments, capable of much of the donkey work. For smaller firms this is not an economical alternative but in order to stay in business, smaller firms are going to have to consider using fully qualified outside consultancy firms in order for them to maintain their position as being truly compliant, particularly as the industry embraces principles-based regulation.
The biggest challenge for all mortgage lender and intermediary firms under the new regime is to be able to interpret the guidelines in such a way as to meet the regulator’s requirements without a rulebook approach. Smaller firms are going to be much more vulnerable in this respect and by the time the next deadline arrives in March 2008, many smaller firms might have well decided that directly regulated independence has too high a price to pay.
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