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Treating Customers Fairly

Treating Customers Fairly. ILAG: 11.04.06. Key FSA principles. 6 To pay regard to the interests of our customers and treat them fairly 1 To conduct our business with integrity 2 To conduct our business with due skill, care and diligence

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Treating Customers Fairly

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  1. Treating Customers Fairly ILAG: 11.04.06

  2. Key FSA principles • 6 To pay regard to the interests of our customers and treat them fairly • 1 To conduct our business with integrity • 2 To conduct our business with due skill, care and diligence • 3 To take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems • 7 To pay due regard to the informational needs of our clients, and communicate information to them in a way that is clear, fair and not misleading • 8 To manage conflicts of interest fairly, both between our self and our customers and between a customer and another client • 9 To take reasonable care to ensure the suitability of our advice and discretionary decisions for any customer who is entitled to rely upon our judgement

  3. FSA Financial Outlook 2006 • Consumer confidence in financial products can also be eroded if consumers are not treated fairly throughout the life of a product. • We believe it is now more important than ever that firms analyse and test alternative assumptions, and that they invest appropriately in, and respond proactively to, effective stress testing of their key risks

  4. Clive Briault speech 20.03.06 • Senior management challenge & responsibility – put it at heart of the firm’s commitment to the customer • Evidenced in systems & controls, business culture, training & competence, remuneration, performance management – the right MI • Reflected in processes & strategy • Small firms self-assessment tool issued

  5. Some good examples of TCF (20.03.06) • Clear senior management responsibility & project processes • Product design involving customers & consumers & the thematic work (in PPI) • Mystery shopping • Improved post-sale information • Reduced emphasis on commissions & sales targets – more salary based, customer satisfaction inspired & appraisals – but still some taking no action • Training & internal communication promoting TCF • Improved claims handling – RCA; see recent thematic work – reacting to the problems with outsourcing • “Walkthrough” the customer experience • PPI - “poor selling practices and a lack of proper compliance controls”

  6. Provider responsibilities • Providers…”stand at the beginning of a chain of actions that leads to a product being offered to consumers. As such, they can alter the outcome for the consumer, and they need to consider whether their products are properly designed, targeted and tested, and whether they are providing clear and accurate information to their distribution chain about the nature of their products and the risks associated with them….I would also expect product providers to have a commercial interest in monitoring whether the end result matches their intention, for example by monitoring sales trends.”

  7. Next steps • Senior management to satisfy itself & demonstrate that TCF is being delivered in the experiences of their customers • Alert the FSA if the FSA teams do not perform accordingly • Supervision of firms will monitor and measure TCF developments • FSA deliver more cluster & thematic studies • Possible enforcement action – but not if a genuine attempt being made & there is no significant risk to consumers • Aware of industry concerns on interpretations of good practice and where responsibilities start & end; and of the role of the consumer

  8. FSA consumer research • Give the customer what they have paid for • Do not take advantage of the customer • Offer the customer the best product that you can • Do your best to resolve mistakes as quickly as possible • Show flexibility, empathy and consideration towards customers • Exhibit clarity in all customer dealings

  9. TCF survey • Online survey – 15.02.06 - 08.03.06 • Sent to members of Protect, ILAG & AMEI • Combination of self-select from multiple choice options & open ended questions • Personal opinions not necessarily the views of their Firms

  10. Dedicated in-house TCF Champion/manager Yes 60.3% No 39.7% Stage reached Awareness 26.3% GAP & Planning 29.0% Implementing 31.6% Embedding 13.1% How are Staff adapting to TCF? Confused 3.7% Hardly 12.7% Some extent 43.6% Great extent 38.2% Enthusiasm 1.8% Specific training in place? Yes 38.3% No 61.7% Results

  11. Top 3 GAPS • The major concern was around Product Design (including research), Development and Annual Reviews – 24% • 2nd came Communication issues, both internal & external – 18% • MI came 3rd – 16% • Others included legacy books & scheme terminations; corporate culture and the provider/manufacturer relationship

  12. Top 3 issues It was a lot closer in this respect: - • The availability of MI came top – 17.5% • 2nd came understanding what TCF is – 15.8% • 3rd the need for senior management support – 12.3% • 4th the relationship between provider and distributor 10.5% • Then a tie: - • Embedding issues – 8.7% • Consistency in interpretation, particularly from the FSA – 8.7% • Others included legacy books; corporate culture, outsourcing, telephone - sales, annual product reviews, remuneration, customer responsibilities and costs

  13. Top 3 fears • Misunderstanding what TCF is about came top – 26.5% • 2nd came business issues, primarily based on systems and controls and competitive disadvantage – 17.7% • 3rd a miscellaneous set – 17% • 4th the response and attitude of staff - 11.7% • 5th the use of hindsight and retrospective action - 9% • 6th= cultural issues - 6% • 6th= the press and consumerism - 6% • 8th= the provider/distributor relationship – 3% • 8th= complaints – 3%

  14. Fears - extracts • Are we doing the right thing? • Where will it end? • Reduce this to a formulaic process and in so doing, lose sight of the simple principles behind it • Regulation with hindsight • Retrospective action • Sustaining the current momentum • Excessive internal controls affecting business performance • Lack of ownership and buy-in • Difficult and costly to monitor old products - risk of problems on these products • TCF hi-jacked by ill-informed bureaucrats trying to justify their own existence • Internal compliance overkill • Competitive disadvantage from compliance with TCF • Ultimately against consumer interests • Stifles innovation

  15. Top 3 good practices • Good processes, featuring systems and controls came top – 20% • 2nd =came good senior management support – 17.5% • 2nd= came consumer/customer research – 17.5% • 4th= were cultural issues – 11% • 4th= was good communication pieces, primarily towards customers - 10.5% • Others included customer centric services and product development activities. • One respondent said “Value for money” and another “We have worked hard at becoming experts in our chosen field”.

  16. How did you identify your GAPS?

  17. Where do you get your info?

  18. Approved person Yes 21.3% No 74.5% About to be 4.2% Commercial opportunity Yes 74.4% No 25.6% Member of: - Protect 4% ILAG 59% AMEI 15% ABI 59% CML 15% FLA 4% Intermediary 7% Body Business details

  19. Business activities • Manufacturer/Insurer 74% • Intermediary 22% • TPA/Service Provider 19% • Consultant 7% • Interested Party 7% • Other 7%

  20. PPI market sectors • Personal Loans 22% • Hire Purchase 11% • Credit Cards 26% • Mortgages 22% • Stand-alone ASU 26% • Income/Bill Protection ASU 22% • Small Business Credit 7%

  21. Other sectors • PMI 33% • Cashplan 30% • Personal Lines 26% • Protection Life 63% • Critical Illness 56% • IPI 46% • Investments/Asset Mgt 33%

  22. FT 04.02.06 • “But the regulator also gave a brief update on its Treating Customers Fairly initiative which is quietly taking the financial services industry by storm. The FSA is just starting its compliance visits on member firms from banks and insurance companies right through to financial advisers. For the first time it will check how companies are reacting to its TCF rules. And by September, it will report back on how well companies are dealing with TCF.” • “But what is annoying the industry may actually be rather good for consumers. By failing to give firm definitions of what it means by “fairly”, the FSA is forcing companies to make their own interpretations. Companies that are strict with their definitions may end up doing more than they really need to but at least they will be able to rest assured that they are unlikely to face any recriminations from the FSA. “ • Robert Budden

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