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Game on

The Treating Customers Fairly implementation deadline is nearly upon us and brokers have an important role to play, says Christine Toner

After much hype, the deadline for the Financial Services Authority’s Treating Customers Fairly initiative is nearly upon us. On March 31 the initiative takes effect, but do brokers understand the standards they need to meet by then? And more importantly, do they understand the consequences of failing to do so?

In it’s July 2006 report entitled Treating customers fairly – towards fair outcomes for consumers, the FSA set a target for the minority of firms that were lagging behind the rest of the industry in terms of implementing TCF standards. The regulator said that it expected all firms to have reached the implementation stage of their TCF work in a substantial part of their business by the end of March this year.

The FSA identified four high level stages for all firms – basic awareness of TCF, strategy and planning, implementation and embedding.

It explained that its definition of a firm at the implementation stage is when it is “developing plans and processes, allocating TCF resources and responsibilities and creating capability among its staff.”

But as revealed in Mortgage Strategy last week, a poll of 50 small directly authorised intermediaries conducted by Mortgage Next has revealed that only 6% are aware of the FSA’s deadline for implementing the TCF regime in their businesses.

Worryingly, it also found that the majority of brokers believe their existing documentation will be sufficient proof that they are implementing TCF correctly.

Does this mean brokers are unprepared for the initiative? Apparently not, according to Kevin Paterson, sales director at Park Row Associates, who says that his firm at least is on course to meet the deadline and is well aware of the implications of not doing so.

“We are under no illusions that the FSA is not serious about ensuring that firms have TCF firmly embedded by the deadline and we are working hard to ensure this happens,” Paterson says.

“We have established a TCF working party and action plan that applies across the business. The working party was formed under the chair of a nominated TCF champion who has nothing to do with compliance and primarily involves the various heads of department. It then seconds anyone else the chair deems necessary.”

Paterson says the intention of the working party was to “formulate a TCF thermometer”. This drove a detailed action plan with “deliverable deadlines”. The plan is assessed weekly.

“But TCF has now permeated the business to a point where every meeting, whether it’s a board meeting or a strategy meeting, includes a TCF agenda item and all decisions are challenged from a TCF perspective as a result,” says Paterson.

“It’s difficult to quantify the cost of preparing for the initiative but it’s safe to say that not doing it would have ended up costing us a lot more.”

Similarly, Simon Jones, a director at Savills Private Finance, claims his firm is well on its way to meeting the deadline.

In fact, contrary to industry fears about lack of preparation, it seems that many firms have been implementing TCF in their processes for some time.

Darren Pescod, managing director of The Mortgage Broker, says its systems have been adapting to TCF since inception”All our promotional material is clear and easily understood,” he says.

“It is checked by our network’s compliance department and is always looked at by a non-mortgage expert to ensure that the message is not misleading. Our compliance fees are approximately 150 per seller, per month.”

“We keep paper files with copies of applications, electronic records of all emails that are sent and record notes when talking to clients on our customer relationship management system.

“Our CRM system has probably cost us 400 per person but it was needed long before TCF and helps with the general running of the business,” he adds.

Pescod says his firm gives incentives to sales and administration staff to do their jobs with a high degree of TCF taken into consideration.

For example, he says his admin-istration team gets a 10 bonus each time clients mention them in the firm’s customer satisfaction survey, ensuring that the team always has clients’ best interests at heart. This system costs us around 200 a month,” he says.

Meanwhile, Drew Wotherspoon, marketing and communications director at John Charcol, says the TCF deadline has presented no big problems for his firm as it has been consistently working towards implementationof the initiative across all areas of its business for some time.

“We have had an open dialogue with the FSA which has provided us with positive feedback on our progress and we are confident that we meet the requirements,” he says.

Brokerage Brentchase Financial Services also appears to be on track. Sales director Mike Fitzgerald says the deadline is being taken seriously and his firm has had several meetings to discuss the implications of TCF, with training courses planned for the next few weeks.

“We have given all the information we could find to advisers and asked them to look at how they could improve the way they treat customers,” he says.

“We will have a meeting with everybody and exchange thoughts. Once this has been done we will be able to see how we can improve our TCF strategy as a group.”

Fitzgerald says monthly meetings, held to discuss how his firm is improving its TCF approach, will also help.

“It’s difficult to determine cost,” he says. “Time is our most important commodity so we will only be able to quantify how much this has cost us in several months’ time.”

Lenders’ progress seems less positive, with many brokers feeling that they are not being offered the support they need to meet the regulator’s TCF standards. Paterson goes as far as to say that lenders are not supporting brokers.

“I am not aware of any lender even talking about the subject of TCF with us, let alone offering help,” he says.

“Equally, I have seen scant evidence of any lender building and communicating a meaningful TCF programme for the benefit of its customers in which you’d have thought we could have a major part to play.”

Similarly, Pescod says The Mortgage Broker has not had any contact from lenders in terms of TCF, while Fitzgerald adds that lenders are not doing enough to promote understanding of the initiative.

“I do not think that lenders have stretched themselves in helping the public and brokers understand TCF,” says Fitzgerald. “Perhaps more will be done in the coming months.”

Conversely, Jones says lenders have been willing to offer support to Savills.

“Serious time and resources have been allocated to this and lenders have been happy to share their thoughts with us,” he says.

Jeff Knight, director of marketing at GMAC-RFC, refutes the criticism and says his firm has always supported brokers and will continue to do so.

“We always ensure we work with our brokers and packagers across all areas of business,” he says.

“With regard to TCF, it is no exception and will be supporting them in a number of ways, including the provision of a guide to each product on our website to help with assessment of product suitability. We are also working with our sales team to increase its awareness of TCF issues and to ensure it can communicate company policy on TCF matters effectively.

“If brokers are saying they want more from lenders then lenders should respond accordingly and work together towards a common goal,” he adds.

Bill Dudgeon, managing director of DB Mortgages, says brokers are given support in understanding the FSA’s initiatives but stresses there are limits to what lenders can do.

“We work with some of our packaging partners in areas such as ensuring the literature we jointly produce is accurate, appropriate and understandable,” Dudgeon says.

“But it should be emphasised that we do not go out to brokers to help them meet the deadline coming up of the end of this month.”

Alan Cleary, managing director of edeus, agrees that lenders are restricted in the amount of help they can offer.

“Lenders are not permitted to overstep their regulatory responsibilities,” he says. “The responsibility lies with each firm.”

Cleary says that all brokers should be referring to the FSA’s website and using the factsheets from the Association of Mortgage Intermediaries to help them understand their responsibilities under the TCF initiative.

Lenders have their own FSA requirements to deal with. The FSA recently published Discussion Paper DP06/4 dealing with the provider and distributor relationship. This paper indicates that providers and distributors of financial products have differing but interlocking responsibilities for TCF and need to work together to help avoid detriment to consumers.

Frank Eve Consulting started the TCF Lender Forum in June 2006. Eve says it was started as a result of a shared desire by mortgage lenders to offer brokers a single, neutral and practical source of information on TCF.

“As a result of the FSA discussion paper the environment has changed, and the emphasis on lenders to be seen to help but not be responsible for brokers has increased,” says Eve.

“By pooling resources, the forum should be able to offer introducers impartial, timely and effective supp- ort in this important area. This is esp-ecially important as FSA inspections of mortgage firms looking at implementation are bound to increase.”

Lenders failing to meet the FSA’s requirements could find themselves on the receiving end of a fine like GE Capital Bank which, in January 2007, was fined 610,000 for failing to sell payment protection insurance properly and for failing to treat its customers fairly.

The regulator found that the lender failed to have adequate systems and controls in place for selling insurance including PPI.

And, as Mortgage Strategy revealed in last week’s cover feature, the FSA has fined a range of companies for similar issues. The City watchdog refuses to comment on whether the number of fines it had issued in recent years has prompted the TCF initiative. But whatever the reason, most intermediaries are pleased with the plans.

“As the FSA starts to turn away from a rules-based system, the TCF initiative will help clients and brokers alike,” says Fitzgerald.

“The principle of TCF is needed to improve the public’s perception of certain sectors of the financial services industry. This may help to cut complaints and boost the take-up of necessary financial products.”

Pescod says the deadline is necessary since some brokers are still not playing by the rules.

“There is a need for the TCF initiative because unfortunately, not all businesses operate with the same ethics and morals. TCF has been designed to provide a framework for this,” he says.

“An easier path would have been for the FSA to investigate companies that get lots of complaints. If certain companies are constantly getting complaints there has to be something wrong with their procedures.”

In April, the FSA will assess the industry’s progress on TCF implementation and publish summary results. It will also explain its approach to firms that fail to meet its target.

Factors that will be taken into account will include how well the FSA knows and understands the issues for individual firms, and reasons for any delays. The report will outline how concerned the FSA is about the scope for consumer detriment.

It will be interesting to see if the FSA’s initiative has the desired effect of protecting customers. What’s already clear is that a key determinant of the success of the initiative is the extent to which brokers implement it in their businesses.

But according to Fitzgerald, education for clients as well as brokers is key.

“All the initiatives in the world will fall by the wayside unless the public is better educated, he says.

“This process should start in schools. Many people leave school without a clue about financial matters, turning up years later at lenders and brokers in a position whereby the advice and paperwork given to them goes over their heads.”

The TCF challenge rests with consumers brokers and lenders alike. It’s up to brokers to play their part.•

Brokers must do the work and hit the deadline
Rob Griffiths is associate director at the Association of Mortgage Intermediaries

In the great scheme of things, you may not think the FSA’s TCF implementation deadline is that big a deal. After all, many brokers are thinking TCF is a principle not a rule and that the deadline is unenforceable. And if you believe some recent research from Mortgage Next among smaller directly authorised intermediary firms, some brokers are unaware of the TCF deadline altogether. I sincerely hope that you are not one of the oblivious brigade.

Thankfully, research we recently undertook revealed a more positive picture of our membership – brokers not only know there is a deadline but are working through their TCF initiatives to make sure they hit it. This is important. We have tried to make sure that not only are our members aware of TCF but also that they have help to ensure they meet their responsibilities.

For those who are still in the dark with regard to the deadline, let me enlighten you. One of the FSA’s Principles for Business reads: “A firm must pay due regard to the interests of its customers and treat them fairly.” The move towards a principles-based regulatory regime has thrust principles such as this into the spotlight and the one quoted, Principle 6, has been the standard-bearer for the FSA’s intended move.

The FSA has called on firms to engage with the TCF initiative and, by March 31, ensure they have “implemented TCF in a significant part of their business”. At a core level, TCF is about analysing a business to ensure that all areas have customers’ needs at heart.

The initial step for firms should have been to conduct a TCF review. We have helped member firms look for TCF gaps with a number of factsheets, particularly A guide to developing TCF. This provides a gap analysis tool with which firms can plot and highlight areas where they can improve. Following a review, firms should have formulated a list of areas where changes could be made and, importantly, senior management should have empowered staff to make those changes. This is effectively the implementation phase that the FSA wants to see firms reach by the end of March.

Our message is to continue engaging with TCF. Yes, time is short. And yes, your resources may be stretched, but there could be benefits to your business which come out of a review and the changes you implement as a result of it. You could find that a slight process tweak makes a world of difference.

And remember, TCF does not end with the FSA’s deadline. It’s an ongoing commitment required by the regulator and firms that do it correctly now will find it easier to continue doing it in the future. If we have learned anything about this regulator, it is its capacity to censure and fine companies not committed to its rules and practices. Ensure that your firm is not added to this list. Do the work and hit the deadline.

TCF should spell trust and satisfaction for better informed borrowers
Brian Murphy is head of lending at Mortgage Advice Bureau

Borrowers are set to benefit greatly from the FSA’s Treating Customer Fairly initiative, not because the industry will be better regulated but because it will offer consumers more confidence when dealing with lenders and brokers.

This is not to say that there has been a lack of confidence in the past or a mistrust of the industry, rather that the new process will ensure information is correctly captured and applied. A simple checklist will ensure that all the information that needs to be conveyed is collected and checked off.

There are no new regulatory responsibilities but instead requirements meant to ensure business is done in a way that helps customers get fair treatment.

This does not mean that customers are no longer expected to make decisions or take responsibility for themselves. Borrowers will still be expected to be completely honest with brokers and lenders – how else can correct decisions be made? The improvements will, however, put them in a position to better understand the process and ensure that they receive the best product for their circumstances, regardless of which broker or lender they visit.

Brokers and lenders that already operate thorough sales processes should not have to change much. The primary responsibility will come down to product providers to offer the correct products for borrowers at the right prices, and provide clear information.

So what can borrowers expect and how will TCF affect them? The ball is in their court.

Firms will have to make the fair treatment of customers a priority. This means more thorough searches for mortgages that are best for customers, greater reliance on sourcing systems, reviewing existing clients’ deals to the same level as new clients and implementing clear sales processes.

All products will be designed to meet the needs of borrowers and targeted accordingly. This will ensure a clear sales process that will involve a thorough fact-finding exercise. All information presented to borrowers must be clear and concise before, during and after the sales process.

The information must also contain no small print that is not explained in detail. For example, exit fees should not be increasing during the life of mortgages and exit penalties may have to show they are not discriminatory, for example, higher fees for sub-prime loans. Distributors must give customers all the information they need to make suitable decisions and follow this up with after-sales service that meets expectations.

Borrowers’ situations change and sometimes they need to change products. In this regard, the TCF initiative highlights that there should be no unreasonable after-sale barriers if borrowers want to change their products, move to other providers, submit claims or even make a complaint about how they have been handled.

TCF is not meant to be a list of rules that makes it harder for brokers and lenders or create a uniform level of service, with the FSA having sign-off on what consumers should be sold. It is a way of creating a more open process whereby borrowers can be sure they are receiving the best deals for their circumstances and therefore have no trepidation when applying for mortgages. What will the initiative mean for borrowers? Trust and satisfaction.

Website provides information for brokers
Bernard Clark is spokesman for the Council of Mortgage Lenders

What can lenders do to help intermediaries meet the Financial Services Authority’s requirement to implement the TCF initiative?

If reports in Mortgage Strategy are correct, many firms still have a lot to do even though the FSA’s deadline is the end of this month. Time is not the only issue for intermediaries. For small firms, resources and costs and even having a clear understanding of exactly what they are supposed to do are big concerns.

There must be no confusion about the respective regulatory responsibilities of product providers and distributors. Lenders do not want to be drawn into a position where they are perceived to be responsible for telling intermediaries how to comply with the requirements or how to manage client relationships to deliver good quality advice.

But there could be benefits in lenders helping intermediary firms, particularly smaller ones, to understand their obligations. Poor compliance, even by a small number of firms, can damage the reputation of the whole industry as we have seen in numerous mystery shopping exercises since Mortgage Day. It is therefore in the collective interests of lenders for intermediaries to demonstrate their commitment to the principles of TCF and good sales practices.

We have hosted a series of workshops to help our members gain a better understanding of the TCF requirements. All lenders are working towards ensuring they provide clear information about their products to intermediaries. Individual lenders are hosting roadshows and offering other services to help intermediaries get a clearer understanding of TCF.

An example of a successful initiative has been lender-sponsored website, dedicated to helping intermediaries. This was set up last year by eight sub-prime lenders and Frank Eve Consulting to provide a readily accessible reference point for distributors on best practice in TCF. It is used by several thousand intermediaries.

Information is already provided in a user-friendly format, but this could be extended to cover the particular TCF needs of market segments such as sub-prime, equity release and first-time buyers. And through sponsoring the website, lenders send a positive message to consumers and the FSA about their commitment to maintain and enhance fairness in the mortgage market.

There are a number of obvious benefits for intermediaries. Practical help should encourage firms engage more effectively with the principles of TCF, helping poor firms to raise their standards and protecting good ones that have already invested time and effort in TCF compliance.

Mystery shopping exercises will be much less likely to unearth systematic regulatory failures by small intermediary firms dabbling in niche markets and consumers should benefit from a transparent sales process and be more confident about the advice they receive from intermediaries.

The CML is therefore discussing with lenders how the use of the website mentioned above could be expanded across the industry as soon as possible. Watch this space.


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