Treating Customers Fairly

Simon Morris – PartnerJean Price – Head of Retail Banking and Consumer Finance

5th February 2008

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Covering…

FSA’s agenda

What is TCF?

What should have been achieved so far

What needs to be done next

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FSA’S AGENDA

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FSA’S AGENDA

The move towards more-Principles based regulation

TCF must be an integral part of the business culture

Conversion of good intentions into actual consistent fair outcomes for consumers

Delivery of the six consumer outcomes

Senior Management involvement

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What does the agenda mean in real

terms?

No formal baseline

A “stealth rule”

– Not in the Handbook

– No consultation

– No cost benefit analysis

– A lot of guidance

Changes in business culture

Full engagement of senior management

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WHAT IS TCF

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WHAT IS TCF?

A series of values

That firms must apply

To generate overriding standards and

To deliver the six consumer outcomes

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What is the “series of values”?

Giving consumers the confidence that they are dealing

with a firm where fair treatment of customers is central to

the corporate culture

Marketing and selling products that are designed to meet

the needs of and are targeted at identified consumer

groups

Providing clear information and keeping customers

appropriately informed before, during and after sale

Ensuring that advice is suitable in all the circumstances

Providing products that perform as expected and good

service

Making it simple to switch product, provider or make a

claim or complaint

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“Series of Values”?

Also known to you and me as

THE SIX CONSUMER OUTCOMES

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But not just the Six Consumer

Outcomes…

Acting consistently

Acting contractually

Acting reasonably

Acting competently

Acting in accordance with the “fair treatment” Principles

– Principle 6: “A firm must pay due regard to the

interests of its customers and treat them fairly

– Principle 7: “A firm must pay due regard to the

information needs of its clients and communicate

information to them in a way which is clear, fair and

not misleading

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Applying the values

Must ensure that the six consumer outcomes are delivered

Must be fully embedded at all levels

Must cover every step of the consumer journey

Must be evidenced by good MI

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Generating Overriding Standards

Significant volumes of guidance from FSA on

what it considers to be appropriate standards in certain circumstances

For each firm to set its own standards

Gold-plating – pros and cons

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Achieving the six consumer outcomes

How are you doing it?

How are you evidencing it?

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WHAT SHOULD HAVE HAPPENED?

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What should have been done so far

Specific actions identified

Senior management engaged

Gap analysis performed

Action plan developed

Work well underway

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Specific actions identified

Reviewing and recognising what TCF means as specific actions covering the areas identified by FSA and those particular to the firm’s business

Considering all steps in the consumer journey

Dealing with legacy products

Allowing for strategic change

Managing conflicts

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Senior Management Engaged

“In short, we have given you as much space, and as much

explanation and illustration as you could possibly need. It is

now time for senior management commitment in firms to be

translated into action for consumers – we recognise that what

needs to be done varies considerably between firms and we are

keen to maintain dialogue; but you need to deliver.”

“We expect firms’ senior management to drive a TCF culture

that is reflected in the firm’s corporate strategy and applied

throughout each firm at all working levels.”

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Gap analysis

Has it been completed?

What did it show?

How was this information used to develop the

business plan?

Where is the evidence?

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The Action Plan

Have all the gaps been closed?

How did the action plan ensure that the end result would see the embedding of TCF into the

firm’s culture?

How did/will the actions taken result in delivery of the six consumer outcomes?

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Work well underway

Focus on the final TCF deadlines

31st March 2008 – appropriate management information or measures in place to test whether

treating customers fairly

31st December 2008 – must be able to demonstrate through MI that customers are consistently treated fairly

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WHAT NOW?

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FSA’s 2008 agenda

Demonstrate TCF by December 2008

Cultural change => tangible customer benefits

Focus on small firms

Emphasis on management information

Threat of enforcement action

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TCF – current dialogue

ARROW assessment

“What does TCF mean for you?”

“Show me”

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A key area – MI

MI = evidence for management

MI = words as well as figures

– Embedded – staff

– Design – process & testing

– Information – survey

– Suitable advice – review

– Performance – analyse

– Post sale – track

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Capturing the MI

Assurance/action - compliance and management4

Initial analysis - evaluate and elevate3

2 Reports generated – the flow of management information

1 Process stages - your workflow

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A key area -

Providers & distributors

Provider

– Determine market

– Stress test

– Monitor risks

– Chose distributor

– Train distributor

– Consider customer information needs

– Post sale responsibility

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A key area – culture

Challenge to senior management

Leadership – TCF central to management

Strategy – TCF integral

Decision making – TCF key factor

Controls & MI – attuned to TCF

Internally – TCF communicated

HR – TCF key element

Reward – depends on TCF

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What needs to be done by 31st March

2008?

Need to be able to produce evidence to demonstrate that you are consistently treating customers fairly

Not enough to have the processes in place –need to show that you have

Be ready for sampling – second quarter of 2008

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How can it be achieved?

Robust testing

Asking the right questions

Think about the questions FSA will be asking

Consider an independent review

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So what questions might FSA ask?

Common sense

From a consumer perspective

Not comprehensive

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Product design - 1

How do you identify target markets - can you demonstrate that you have undertaken qualitative research?

How do you assess the risks involved with innovative products?

What are your sign-off procedures and how is responsibility split between your marketing and technical teams?

What stress-testing do you undertake?

How do the results of that testing inform your decisions on product modification or alterations in target markets?

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Product design 2

How can you demonstrate that your product meets consumer needs?

Which stakeholders are involved in the design and build stages?

What are your systems and controls for ensuring that TCF is a core consideration when new products are designed or existing products are updated?

Have you considered exit strategies for withdrawal of products from the market and, if so, what are they and how do they protect customers?

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Distribution - 1

How do you communicate product expectations to your

distributors and ensure that they understand the

information you provide to them?

Do you have a process to prevent the distribution of

products in certain channels if your research points to a

lack of customer understanding of a product?

What is your process for obtaining feedback from

distributors on who is buying or being sold the product?

Do you use a platform to sell your products?

If so, how do you ensure that information is provided in an

appropriate way and in a timely manner?

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Distribution - 2

What is your process for monitoring whether

what is occurring in practice corresponds to (or deviates from) what you originally planned or envisaged for the distribution of your products or services given the target market?

What is the process for dealing with any deviation?

How do you assess the performance of the distribution channels through which you

products or services are being distributed?

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Advertising - 1

Who is responsible for ensuring that advertisements

comply with all relevant regulatory requirements and the

overarching requirement to treat customers fairly?

How does your advertising material make clear what the

target audience is and what the risks are?

How can you demonstrate that the pre-sale documents

are easily understood by the target market?

What work is undertaken to ensure that customers

properly understood the content of a promotion they relied

upon before making a purchase?

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Advertising - 2

How do you collate information in respect of complaints

received in relation to misleading advertisements?

How does this information highlight issues with particular

sales channels, demographic areas etc?

What actions are taken at a senior level as a result of

such complaints?

Where subsequent work concludes that advertising

materials did not meet the requirement to treat customers

fairly, what are your processes for recalling advertising

materials and contacting customers who may have relied

upon those materials when making a purchase?

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Selling - 1

How do you ensure that your customers receive clear information at point of sale?

How do you ensure that sales conversations give a complete and balanced description of

your products?

What are your reward strategies for staff?

How are you satisfying yourself that this complies with the requirement to treat customers fairly?

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Selling - 2

How will you show that your processes reduce the chances of mis-selling?

Do you carry out mystery shopping?

If so, how are the results of these exercises

feed back to senior management and how is action taken to resolves issues identified?

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Advising - 1

How do your internal processes for assessing the quality of advice demonstrate the delivery of the TCF outcomes?

What qualifications and experience are required before a person is permitted to carry out a

review to assess the quality of advice provided?

How do you make it clear to sales advisors that senior management fully support the TCF process?

How often is each advisor assessed and how many cases are sampled?

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Advising - 2

How does the sampling criteria ensure that you

are able to decide from the results whether a customer was treated fairly and that the product sold was suitable for the customer?

Who receives the reports of the sampling exercises and what analysis is undertaken of the results?

What is the detailed analysis designed to show, and how do you ensure that it meets this

objective?

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Post-sales - 1

Are you subjecting existing products to a retrospective

review?

How do your post-sales surveys encourage customers to

articulate their understanding of the benefits and risks of

the products and to comment on whether they have been

treated fairly?

What information do you collect regarding cancellations?

What detailed analysis of cancellations is undertaken and

how does that enable you to draw conclusions as to the

effectiveness of your TCF strategy?

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Post-sales - 2

What information do customers receive after sale and throughout the life of the customer?

How does this information meet the requirement to ensure that customers are provided with clear information and are kept appropriately informed

as to the performance of the product?

What is your process for dealing with customers where a product fails to perform as expected?

How do you assist a customer to switch from one product to another or to switch to another product provider?

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Complaints handling - 1

How can you demonstrate that your complaints strategy is an integral part of overall customer management strategy/TCF?

Are your desired outcomes clearly defined?

Is there clear visibility of complaints at Senior Management/Board level?

Who has ownership of complaints handling and how does the relationship between complaints handling and with compliance work?

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Complaints handling - 2

How is root cause analysis undertaken?

How can you demonstrate that key causes are addressed and actions followed through?

Can you show that complaint information is used by all parts of the business and fed into all parts of the value chain?

What MI is produced and circulated to senior management?

What does it show?

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Access all areas - 1

Who receives each management information report and why?

How often do those people meet to discuss the report?

How and by whom is the accuracy of the information verified?

What is the process for ongoing monitoring?

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Access all areas - 2

How do you evidence how you intend to act to remedy TCF concerns indicated by the report?

How is this cascaded to other parts of the business?

What evidence do you collect to show that, where required, action has been taken to resolve a TCF concern?

How do you ensure that TCF is fully understood by all staff?

How easy is for more junior staff to raise a TCF issue and ensure that it is escalated fast and to the right people?

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How will you respond?

The importance of embedding

Published policies

Employee interviews

Record keeping

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The Carrot…

“For those firms that rise to the challenge, where

senior management do drive change with great

energy ….. there will be a regulatory dividend –

supervisors have little reason to ask further detailed

questions if you produce and use well constructed

measures of your performance and they show a

strong story”

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And the Stick!

“But for those firms that miss the deadline and fail to

take their obligations seriously, our message is

absolutely clear – you will face more regulatory

intervention. As you know we already act where we

see significant potential or actual consumer

detriment, and we will increase the focus and

intensity of our supervisory work – increasingly

requiring the use of skilled persons; imposing

demanding risk mitigation plans with challenging

deadlines; and remediation work. And, of course, we

do and will continue to make use of enforcement.”

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What does FSA ask about?

FSA will want to assess

– How have you embedded?

– How have the gaps been closed?

– How are you performing under the T/T?

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FSA will want to see …

Tangibles

– Complaints

– Communications

– Product governance

Intangibles

– Management

– Staff

Governance

– Gaps closed?

– QA?

– Audit trail?

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And evidence of …

Workings of the TCF committee

– Minutes

– Communications

– Champion

– Resources

– Plan

– QA

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And if FSA’s unhappy …

Watch list

Greater supervisory contact

Referral to ENF