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Three definitions of what’s fair are unfair

Our industry has some difficult issues to face right now. Liquidity remains sparse and lenders continue to chop and change their products and criteria.

We’ve also got a regulator with an agenda made up of its Treating Customers Fairly regime, thematic work and moves towards principles-based regulation.

And this is before we consider the wider European environment or consider the implications of a slowing economy, reduced house price inflation and tighter finances for many.

So with a backdrop as challenging as this, I have been surprised to note the lack of cohesive thinking on the part of the regulators.

While the Financial Services Authority, the Financial Ombudsman Service and the Financial Services Compensation Scheme are all founded in legislation beyond their control, I worry about how they interpret certain aspects of their work.

There are about 441 homophones in the English language – words that sound the same but have different meanings. At least if we spell them differently we can identify their semantic differences.

But what happens when we have one word spelt exactly the same way but with three interpretations?

‘Fair’ is the word that seems to be going through the semantic rough and tumble with the regulators.

The FSA’s definition of fair under TCF seems to revolve around consumer outcomes and needs to be evidenced by management information. MI must show that the TCF initiative is embedded in brokers’ businesses. But is this the same ‘fair’ as the FOS’ ‘fair and reasonable’ approach to resolving the complaints made by consumers?

Not really. I am aware of firms that have passed FSA visits and TCF assessments with flying colours only to lose cases with FOS.

So either one of the regulators is confused or they interpret the word fair differently. Ironically, this doesn’t seem terribly fair to me.

Finally, we have the FSCS’ definition of fair. Its role is to resolve complaints and compensation for firms in default, providing a high quality compensation scheme that is efficient and fair.

So given the FSCS deals with firms that are in default and therefore not covered by FOS, one would assume that its ‘fair’ would be equivalent to FOS’ definition.

Unfortunately not. The FSCS works on a more legalistic basis than FOS, so that leaves us with a third definition of fair.

I’m not sure it makes that much of a difference how many definitions of fair we have but transparency and understanding is important.

Firms must remember that neither the FSA nor FOS are all-encompassing regulators in their own right.

To run a robust business they must pay attention to all stakeholders and all the potential interpretations of the regulations.

Getting your FSA box ticked but leaving yourself open to censure by FOS is all too easy to do.

Fortunately, help is at hand thanks to our support. We help our members see the wider regulatory picture and to build robust, compliant and fair mortgage businesses.


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