Supermarkets may struggle to meet principles for TCF

Supermarkets and websites that sell financial products could struggle to comply with the principles set out by the FSA in its discussion paper on provider and distributor responsibilities unless they change their sales processes.

Released last week, the paper clarifies the principles of treating customers fairly. It says providers must take more responsibility for controlling how their products are sold and should design products for specified target markets.

In a speech setting out the FSA’s expectations, director responsible for TCF Sarah Wilson said: “Providers should design products for specified target markets. They may identify consumer types for whom the product is likely to be suitable or carve out consumer types for whom the product is not likely to be suitable.”

Sesame product manager Phil Hull says providers such as Legal & General, which sells protection products through Sainsbury, and Friends Provident, which is partnering with John Lewis to sell life insurance next year, will have to look very carefully at the arrangements they have with these direct sales channels.

He says providers which sell products through advisers have more control because they know the adviser has to comply with TCF and advise on product suitability.

But he says providers do not know what type of customer their products are being sold to through supermarkets or websites and whether their products are suitable for them.

He thinks one solution could be to bring Tesco, Sainsbury and other direct sellers under the TCF regime to ensure consumer protection.

The discussion paper also says the quality of distribution should be kept under review and a provider should consider whether a distribution channel continues to be appropriate for the product sold.

Wilson said: “Providers should assess the information needs of the distributor and, where their material is passed on, the information needs of consumers. This could include, among other information, details of the generic risks that the product presents and the target market. Account should be taken of the distributor’s likely level of knowledge and understanding.”

Hull says: “These comments do point towards almost implicit support of Money Marketing’s No Advice, No Protection campaign and re-emphasises that consumers may need to take advice.

“Providers have no idea what type of client their products are being sold to through these supermarket channels and providers are going to have to look carefully at these kinds of arrangements.”

Lifesearch head of protection strategy Kevin Carr says: “I suspect that the supermarkets are ignoring this discussion paper altogether and running scared. There is concern around the suitability of what the consumer is buying. Supermarkets and websites will struggle to implement these policies unless they are forced to change their ways.”

Friends Provident marketing and UK distribution managing director Simon Clamp says: “We have been in dialogue with the FSA about this. I do not think it fundamen- tally changes the position but it does add an extra degree of responsibility to the provider.”