Primetime TV’s sports-based laugh-fest, A Question of Sport, includes the ever-popular round called ‘What Happened Next?’ In this round, the contestants are shown a clip and invited to tell Sue Barker/David Coleman/David Vine (depending on which TV channel you’re watching it on) what unexpected event occurs after the action is paused. So, for example, if the clip is of Wimbledon, the answer will always be: (a) a ball boy or line judge is invited to play a shot by the tennis player; (b) a ball boy or line judge is hit in the head with a tennis ball by aforementioned player; or (c) a bird lands on the court and Ilie Nastase pretends to play a shot while flapping his arms like the bird. Genius.
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This is hilarious stuff I’m sure you’ll agree, and the sort of tom-foolery that has been tickling the nation’s funny bones for nigh-on 100 years. After all, we all love the unexpected and will generally hang on to find out an ending, even if it’s the conclusion to a particularly lame sports clip with Ally McCoist barking away like an obese Scottish terrier.
Will we ever tire of seeing what happens next? Probably not, as it’s human nature to be inquisitive and no one likes to go away with only half the story told. Which is why possibly the most interesting part to the Financial Services Authority’s (FSA) 31 March ‘Treating Customers Fairly’ (TCF) deadline has yet to be divulged – namely, what happens next? It’s all well and good telling firms that they must have ‘implemented TCF in a significant part of their businesses’ but what happens when that deadline has passed? How will FSA deal with those firms it considers not to be at that implementation stage? Remember it is not just brokers that are expected to be going through the phases.
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Tackling TCF
With the deadline here, the FSA has once again been using speeches from senior staff to outline its work and how it might tackle those firms that it deems to be unengaged with the TCF initiative. Sarah Wilson, director, retail firms division, made a speech this month reiterating the FSA’s commitment to all things TCF and outlining what might happen next.
Wilson outlined how integral TCF has become to the FSA’s ongoing work and how seriously it takes firms’ breaching principle six: ‘A firm must pay due regard to the interests of its customers and treat them fairly’. In just the past 12 months the FSA has issued financial penalties in 15 cases which involved the breach of principle six. In the fines it has issued with regard to poor payment protection insurance (PPI) sales practices, six of the nine cases involved a TCF breach.
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Key to the FSA’s expectations around TCF is the existence of ‘joined-up thinking’ throughout the firm. In other words, the FSA expects all levels of the firm from ‘front of house’ to back-office to management to have bought into the TCF principle. This is the reason why the FSA has focused so much of its energy on firms’ senior management – the belief is that without senior management establishing and driving TCF throughout all levels of the firm it will never be fully embedded in the business. This is why we hear so much about TCF as a cultural issue, one that ‘needs to be driven from the top’.
Wilson also outlined the FSA’s ongoing work with its six consumer outcomes it wants to see improved by firm’s utilisation of TCF practices. The regulator intends to make ‘periodic assessments’ of how far the industry has ‘travelled’ in terms of delivering these outcomes.
Assisting firms
For TCF to deliver what the FSA expects of it, there is an acknowledgement that firms will require guidance material ‘that assists firms in understanding where they stand’. One of AMI’s key concerns with the move to a more principles-based regulatory regime is the extend to which small firms can remain compliant. Larger firms should have the time, resource and compliance departments to ensure they not only comply with the principles but also benefit from the move. Unfortunately, small firms are not in this position, and since the majority of broker firms are classed as small, we must question whether principles-based regulation is ‘suitable for all’. At present, we remain unconvinced. Firms are just coming round to regulation by prescribed rules and the FSA is now expecting them to slip comfortably into principles. It is another burden that we will have to contend with.
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But, back to the deadline itself and what does come next? Wilson said that TCF is a supervisory priority and firms who are relationship-managed are being measured as part of their ARROW visits. For smaller firms, the FSA conducted a qualitative survey of 700 firms along with visits. It is this work that will allow it to form a view on ‘approximately what proportion of firms are meeting the deadline’.
For those firms who are judged not to have hit the deadline, Wilson said the FSA ‘will consider a range of supervisory tools’ including ‘the creation of risk mitigation programmes that place relatively little reliance on senior management action, and the use of skilled persons’. Enforcement action with regards to TCF is more likely where ‘a firm has not responded to indications that there are problems, has failed to identify shortcomings and to develop a strategy to deal with them, where there has been a serious breach of principle six or other relevant principles, or where there has been significant actual or potential consumer detriment’.
The FSA is prepared to give firms time if they are moving along the TCF ‘path’ – indeed there is a recognition that embedding TCF will take time. But firms must show willing and dedication to this process. What happens next? It really is up to you.
