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Fair treatment

The objective of the FSA’s Treating Customers Fairly initiative is to ensure that customers’ best interests are embedded throughout any financial services firm’s business practices.

TCF is not just about being nice to customers. What it means in practice and how to achieve it is a decision for individual firms and their management, taking into account the structure of the firm, its operations, strategy and customer base.

Using the lifecycle of a financial product as a guide, the FSA has identified some key activities which can threaten the fair treatment of customers incouding product design, marketing practices, the sales process, information and customer support after the point of sale and complaint handling.

Some examples of how firms could build TCF into their business include: stress-testing new products from the customer’s point of view, clearly communicating the risks and benefits of new products, using after-sale surveys to test whether consumers have understood what they have bought and handling complaints fairly.

Consumers should be able to rely on the same high standards, regardless of the size of the company. The TCF principle is the same for all firms but delivering it may be different for smaller firms which tend to have a long-standing customer base and a high level of knowledge about their customers. However, this does not always mean their client’s needs are better understood.

There are some differences in the way that small firms meet their TCF obligations but management should still ensure they consider what TCF means for their business, and establish an appropriate culture for their firm, then they will be able to carry out a “gap analysis” to identify any shortfalls and address them.

This gap analysis does not mean smaller firms will have to undertake an elaborate TCF-focused review involving expensive consultants. But given the problems across the financial sector in recent years, it is reasonable to expect firms to take an objective look at how they do business and identify areas where operating standards need to be strengthened.

Putting customers’ interests first through TCF should be business as usual for firms. For example, management should ensure that advice is appropriate and timely for the particular sale, that due account has been taken of the customer profile and their needs, knowledge and attitude to risk have been assessed. Firms must also disclose information to their customers that comply with FSA’s rules.

Management should also consider whether their remuneration structure encourages the right kind of behaviour. Financial promotions must be clear, fair, not misleading and balanced.

Not many smaller firms have dedicated training functions, so it is important that staff have the right skills and competence.

Product providers should provide clear and relevant information about their products to distributors and it is equally important that distributors consider the information they are given. This is essential if products are to be explained adequately to customers and advisers are to be certain of their suitability.

Smaller firms need to attach the same importance to the fair and effective resolution of complaints as bigger firms which may have dedicated complaint-handling functions.

Because of their size, smaller firms are often closer to their customers and may be better placed to resolve complaints but they need to be aware of the potential risks when the person handling the complaint could have been responsible for providing the advice.

In this context, smaller firms should maintain adequate records of customer profiles and instructions on each stage of the sales process, as this will allow them to respond fairly when disputes arise and will help if they have to provide evidence to the Financial Ombudsman Service.

The FSA does not have regular contact with smaller firms but there are other ways it can communicate. For example, its Contact Centre and Firms Online system allows companies to submit returns, make applications and change their details electronically. It also holds roadshows where firms can ask questions. This will help smaller firms to have a good understanding of their TCF responsibilities and the issues they should consider in meeting them.

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