Understand how TCF will affect you

A recent speech by Clive Briault of the FSA should help firms better understand their obligations when it comes to treating customers fairly, says Bill Warren

I first wrote about Treating Customers Fairly at the beginning of July – the month in which the Financial Services Authority published its Progress and Next Steps document on the subject. Since then the subject has gained a great deal of momentum, to say nothing of column inches, as part of the FSA’s stated aim to move to a more principles-based approach to regulation.

The most recent information is contained in a speech given by Clive Briault, FSA managing director retail markets, to a TCF conference in early October. The points made in this speech should help authorised firms to better understand what is required of them to comply with the principles of TCF.

The first important point is that TCF is not, according to Briault, “some vague notion we invented last week”. It is already one of the FSA’s 11 Principles for Business and forms one of the four pillars of the FSA’s retail agenda.

The aim is to encourage the provision of clear information to customers and clients who will then be able to make informed decisions and shop around for the best financial services products to suit their needs.

The emphasis is on results and the FSA is looking to measure the success of the TCF initiative by the difference it makes to the consumers of financial services products and services. We are reminded that the FSA is not going to define what constitutes TCF. Instead, its approach is to challenge the senior management of firms to work this out for themselves.

Thankfully, the speech also contains some practical thoughts about how firms can assess whether their own business practices treat their customers fairly. In addition, there is a useful ‘myths and realities’ section that aims to dispel some common misconceptions about TCF.

The main piece of practical advice is that senior management should begin by thinking about TCF in terms of product life cycle stages. These include product design, target markets, marketing and promotions, the sales and advice process, sales force remuneration, after-sales processes and complaints handling.

As this covers about everything that happens in the life of a mortgage product, the main message is to make sure that every part of the cycle has been examined and brought up to scratch.

The next important stage is to carry out a so-called gap analysis to see which areas of the business are not meeting TCF obligations and then put in place plans to address any shortcomings together with systems to measure and track progress.

Take the example of an insurer dealing with 50 to 60 complaints per year from customers whose claims have been successfully rejected. The insurer analyses the complaints carefully and discovers that the policyholders were unaware that false information given when the cover was taken out would invalidate the policy. Once this fact is printed on application forms in large red letters, complaints drop to almost zero.

Concerning the myths and realities, these come under seven sub-headings. First, TCF applies to all regulated firms irrespective of their size or the complexity of their dealings with customers or clients. Second, some firms may already meet the standard but no firm should be complacent and fail to conduct a gap analysis. The FSA points out enforcement action is unlikely to be taken against firms that have genuinely considered TCF and tried to address their own shortcomings. Third, TCF is not about being nice to customers or customer satisfaction levels. Fourth, TCF is not about exempting customers from taking responsibility for their own decisions. Next, TCF is not about new rules, obligations and checklists but about interpreting existing requirements. Sixth, TCF is not about forcing all firms to follow the same bureaucratic process or about the generation of additional, unnecessary management information.

And the last point is perhaps the most significant when it comes to the future shape of mortgage regulation, as it concerns the FSA’s move toward a more principles-based approach to the way it tackles its regulatory obligations. In the next couple of weeks I’ll take a closer look at the FSA’s 11 Principles for Business and how they apply to the mortgage sector.