Nic Cicutti: Regulator deals death blow to TCF

Almost a decade ago, a new buzzword began to do the rounds within the financial services industry – TCF. Back then, my own online searches came up with the term “tactical combat force” to explain those three letters.

As it turned out, the FSA had come up with its own version: the far more boring “treating customers fairly”.

A week or so ago, the regulator announced it is scrapping a series of work-shops aimed at helping IFA businesses make sense of TCF. Actually, the news is more significant than that bland statement. If my interpret-ation of the move is correct, it signals the death knell for TCF in its current form.

After all, the roadshow “experience” was part of a concerted attempt to involve firms that were due to be formally assessed by the FSA in terms of how they were meeting TCF principles. The aim was to help them better understand the regulator’s requirements, work through case studies relating to their sector and discuss these issues with other firms.

It was only after the roadshow that firms then faced an interview with an FSA staff member. This included a discussion about leadership, business decisions, controls, recruitment/training and rewards, plus follow-up visits for up to one-quarter of the businesses assessed, lasting between half a day and a day.

But if you do away with the workshop – the initial part of the whole process – it becomes infinitely more difficult to put in place the remaining building blocks that come together to form the over-arching TCF architecture.

Ten years ago, I was ambivalent about TCF. For years beforehand, I had found myself wondering how it was that despite all these supposedly tough rules put in place by the FSA and its predecessors, very little seemed to be changing in terms of how advisers were dealing with their clients.

Although rules were deemed necessary precisely because so many advisers and providers are incapable of even the tiniest glimmer of understanding about how to treat their customers, catastrophic misselling and poor advice remained rife.

Many of the same mistakes were being made by providers and IFAs. Equally, many advisers themselves felt over-burdened by this plethora of difficult to understand rules they believed were designed merely to catch them out. Maybe something more linked to the direct experience consumers have at the hands of the industry would be more useful. If so, perhaps TCF was it.

On the whole, TCF has not worked as well as it might have done. Partly to blame is that the concept itself has always been seen as slightly nebulous

The problem is that, on the whole, TCF has not worked as well as it might have done. Partly to blame has been that the concept itself always risked being seen as slightly nebulous, even though the FSA’s website carries a wealth of information that ought to help small businesses.

The other problem was that there was always a separation between the stated aims of organisations and their practice. On the one hand, research by the regulator found senior executives were keen to support the notion of being fair to their customers and rightly identified the issue as critical to their future commercial success. On the other, practice often lagged far behind the reality. For example, in terms of product development, an assessment of customers’ real needs or the risk to them of certain products was not always automatically carried out.

As for complaint handling, some firms were turning down consumers’ complaints, yet the minute the individual concerned announced he or she would appeal to the Financial Ombudsman Service, the complaint would be upheld by the company.

Nor was effective use made of trend data from complaints, which would have helped ensure both that other similar complaints were treated fairly but also that the underlying cause of the problem could be investigated and prevented from happening in future.

This was all evident back then – and it would be fair to say many of the same problems bedevil the industry today. Look at all the examples where firms have gone bust in recent years after selling fiendishly complicated products investors did not understand and burdening IFAs with hundreds of millions of pounds worth of compensation payouts. Or where the FSA has fined banks and other institutions for failing to address complaints fairly.

In one of my more naive moments, I hoped IFAs and the industry as a whole would welcome TCF, if only with some initial scepticism. I assumed they would find it easy to differentiate themselves from other so-called distribution channels – and, in fairness, many of them did.

Additionally, the FSA repeatedly told the industry that in return for a far greater commitment to treating customers fairly, it was prepared to move towards principle-based legislation, raising the bar for advisers to a new level. Oh, and by the way, consumers would have benefited, too.

Yet it all seems to have faded away into nothing. The FSA seems to believe the retail distribution review will somehow take the place of TCF as the key pillar supporting its new regulatory structure.

I do not believe that for a second. Doing away with or weakening TCF actually means the RDR will lose one of its own main supports – not the other way round.

Nic Cicutti can be contacted at