Tools of the trade

Over half of small firms are yet to implement the treating customers fairly principle, but with another deadline looming and regulatory fines on the rise it is vital that they get their act together. Emily Perryman finds out how firms can meet the FSA’s requirements

Treating customers fairly (TCF) breaches now feature in 40% of fines imposed by the Financial Services Authority (FSA), according to recent research by law firm Reynolds Porter Chamberlain. Despite this, many small firms are failing to make sufficient progress in implementing the principle while others are simply turning a blind eye.

The FSA issued a deadline of March 31, 2007 for firms to have implemented the TCF principle in a substantial part of their business. But a recent telephone survey of 659 firms by the regulator found that just 41% of small retail firms had met the deadline. This included 52% of financial advisers and 45% of general insurance intermediaries. Firms were found to have inadequate complaint handling procedures, insufficient advice monitoring and a lack of appropriate processes to enable the firm’s management to satisfy themselves that they were treating customers fairly, for example through the use of records on advice given, products sold and complaints.

The regulator subsequently set two new deadlines, stating that by the end of March 2008 firms are expected to have appropriate management information or measures in place to test whether they are treating their customers fairly and by December 2008 all firms are expected to be able to demonstrate that they are consistently treating their customers fairly. The FSA said it was “concerned about the slow progress made by the small retail firms” and that the majority who missed the deadline did so because of “slow progress” rather than failing to engage with TCF at all.

Speaking at a conference for financial advisers recently, Stephen Bland, director of small firms at the FSA, warned that it was a misconception that small retail firms could escape the regulator’s attention.

“We are sending a very clear message that small retail firms are not under the radar. Our regulatory approach is based on giving help to firms who run their businesses while treating customers fairly and endeavouring to do the right thing, but coming down hard on those who don’t,” said Bland.

The FSA does not give a definition of fairness, but it says that TCF is about placing responsibility on a firm’s management, rather than its compliance officers, to deliver fair outcomes for consumers “whilst offering you the flexibility to deliver these outcomes in the way which best suits your business”. It is something that needs to be included in all relevant business decisions going forward and be regularly reviewed.

“TCF is wider than compliance with our rules. Rules cannot cover every possible situation so it is about firms working within the spirit of the rules and asking themselves whether compliance with specific rules is always sufficient to deliver the fair treatment of customers,” says the regulator.

Andy Milburn, IFA market manager at progress from Royal Liver, an insurer, says TCF is not about being nice to customers, nor is it about improving customer satisfaction. Neither is it about requiring all firms to offer the same levels of service, nor is it about inventing checklists for firms to comply with. Instead, it is about providing training for staff that ensures the quality of advice, making sure the customer gets the right advice and product, and putting things right if they go wrong.

comments powered by Disqus