FSA’s recently published business plan for the next year confirms the TCF supervisory messages it has increasingly emphasised in recent speeches. FSA has now embedded TCF compliance into its regular ARROW supervision framework. What does this mean for firms, and how concerned should senior management be about their personal responsibilities?  

Our recent mailing Treating Customers Fairly: Knowing it and showing it explains how we see three critical building blocks of a good TCF framework coming together to make a successful whole. In this article, Robert Finney, Brett Hillis and Emma Radmore look at FSA’s expectations of boards of regulated firms.  

What is TCF all about?

TCF does not mean simply ticking a series of boxes for compliance with FSA rules. Nor can the compliance department simply check that a firm embeds a TCF culture which meets FSA’s desired and well publicised outcomes. TCF is about everyone in a firm understanding their role in treating customers fairly, and delivering on that. It is about management ensuring these roles and the policies, procedures and practices of the firm result in fair treatment of customers.  

What must management do?

Clearly, management has a key role to play. It must lead from the front, drive through policies that embed TCF, and ensure the firm’s systems and controls support those TCF policies. FSA identified some time ago the important drivers of leadership, strategy, decision-making, controls, recruitment, training and competence and reward. It sees that the firms making the best job of TCF are those who have embedded the culture from the top.

When boards consider their role in TCF, FSA suggests they consider:

  • Reviewing and adapting business strategy: especially in times of financial difficulty, firms should look at their business models and assess whether their reactions to pressure might result in their treating policyholders unfairly (for instance, by imposing higher charges or changing incentive structures or terms and conditions);  
  • The role of committees: FSA is clear that TCF is a board responsibility. However, at times a board may reasonably ask for advice from a committee, or for independent advice;  
  • What they do with management information (MI) they receive: boards cannot just passively receive MI. They must absorb and challenge it, check they get the right amount of the right type of MI to get an accurate picture of what their firms are delivering to customers, and act on the messages that MI conveys;  
  • Rewards and incentives: especially in the current climate, the onus is on boards to make sure that neither executives nor advisers get rewards on purely financial grounds. FSA prefers remuneration policies that embody many elements and firms whose risk management policies recognise the inherent risks of incentives.  

TCF myths

FSA has been at pains to dispel various TCF myths. The most dangerous of these are:

  • FSA is less concerned about TCF than before. This is not true: FSA has stressed several times this year, and in its new business plan, that TCF issues form a major part of its supervisory framework;  
  • TCF is only about happy retail customers: no, TCF applies to commercial customers too, though firms can take a risk-based approach in delivering outcomes. But even in retail markets, TCF is not about customer satisfaction. Customers may be satisfied with what is in fact unfair treatment;  
  • TCF is project rather than process: again, no. TCF is not an exercise that is completed and the firm moves on. FSA stresses the fundamental ongoing importance of TCF in each firm’s culture and processes.  

Getting the TCF message right from the top

Boards of regulated firms can make or break a firm’s TCF culture. If they appreciate it, embed it and give it the focus and resource it deserves, their firms are well on the way to TCF compliance. Firms without full senior management buyin are unlikely to satisfy FSA that they have fully understood their obligations, and unlikely to reach the required standards.