Treating Customers Fairly

1

• Treating Customers Fairly
• 10th October 2007
• Manchester Insurance Institute
• Mike Cranny FCII
• Director of Create Solutions
• President of the Insurance Institute of
  Manchester

2
Content

• Introduction Principles Based Regulation
• TCF Your Progress and Update
• The New ICOB consultation

3
The Future Principle based
What the FSA say Changing the balance between
principles and detailed rules Greater reliance
on principles and outcome-focused, high-level
rules, and less reliance on prescriptive rules

4
The Future Principle based
What the FSA say Gives firms the flexibility
and responsibility to decide how best to run
their business while also delivering the
regulatory outcomes A different approach to how
we deal with you We will focus on indicating
where the minimum threshold of compliance lies

5
Why the move to principle based regulation?

• The FSA Say
• Prescriptive rules have not prevented mis-selling
• Principles are more durable in a quickly changing
  market place
• Small firms have told us they find it difficult
  to navigate and understand thousands of detailed
  rules
• Re-focus firms energy on the overall purpose of
  the principle, rather than the letter of the rule

6
TCF

• Treating Customers Fairly

7
Treating Customers Fairly

• Fed up of hearing about it?
• What progress have you made?
• Where you should be?
• What the FSA are doing?
• Enforcement?
• DEADLINES!

8

• Principle 6
• A firm must pay due regard to the interests of
  its customers and treat them fairly

9
Progress made what the FSA say-

• The following number of firms have successfully
  met the March 2007 deadline
• 37 major retail groups (93)
• 379 (of a sample of 436) medium-sized firms
  (87)
• 49 (of a sample of 66) wholesale firms where
  TCF is materially relevant (74)
• 273 (of a sample of 659) directly authorised
  small firms (41).

10
TCF March deadline

• March 07 deadline
• ONLY 273 of a sample of 659 small firms met the
  deadline.

11
March 2007 deadline

• The main issues identified from the survey were
• insufficient monitoring of the advice being given
  to customers
• inadequate complaint handling procedures and
• lack of appropriate processes to enable firm's
  management to satisfy themselves that they are
  treating customers fairly.
• Source FSA slides

12
Lack of Commitment?

• Where firms have missed the deadline, we
  believe that this points to a failure by, or lack
  of commitment from, senior management. This
  failure means that we can only place limited
  reliance on these firms senior management to
  deliver the right outcomes for their customers.

13
Consequences

• The FSA will increase the focus and intensity of
  our supervisory approach for these firms.
• They will take a targeted approach that will
  depend on the reasons why a firm failed to meet
  the deadline, and the scale of the task they face
  in filling the gap.
• They FSA say
• Our follow-up work is likely to have significant
  cost implications for these firms.
• ?

14
What they say

• For relationship-managed firms we will, for
  example, use tools such as requiring skilled
  persons reports, imposing demanding risk
  mitigation plans with challenging deadlines, and
  rigorously reviewing and monitoring progress

15
How serious is this?

• The FSA are taking action with small firms inline
  with their risk-based approach
• Their primary focus is to target those firms who
  pose the greatest risk to our objectives
• They are visiting every firm which has failed to
  engage with TCF (by end of June - date indicated)

16
How serious is this? The FSA say -

• If now, or as a part of future supervisory
  action, we become aware of significant actual or
  potential consumer detriment in a firm of any
  size that failed to meet the deadline, we expect
  to make a referral to enforcement.

17
The FSA may

• Refer on the grounds of senior management
  failings.
• They may vary the firms permission so that it
  cannot, for example, continue to conduct
  regulated business until it resolves the problems

18
Deadlines What the FSA say-
We believe it is essential that senior management
drive real change as rapidly as possible. The
March deadline helped to focus firms efforts on
TCF and generated momentum within the industry as
a whole. We now need to increase this momentum so
we have decided to set further deadlines.
19
Deadlines set by FSA

• By the end of March 2008 firms are expected to
  have appropriate management information or
  measures in place to test whether they are
  treating their customers fairly.

20
Business as Usual!!! (BAU)

• By the end of December 2008 all firms are
  expected to be able to demonstrate to themselves
  and to us that they are consistently treating
  their customers fairly.

21
Your progress

• What progress have you made?
• Questions to incorporate into your GAP Analysis
• Have you an action plan?
• Have you evidence?

22
What TCF isnt

• Being nice to customers or improving customer
  satisfaction.
• Requiring all firms to offer the same, or
  highest, levels of service.
• Inhibiting innovation, new products or the FSA
  deciding which products should be sold to which
  customers or at which price.
• Removing the customers responsibility for their
  decisions.
• Creating new detailed rules for firms or
  inventing checklists for firms to comply with.

Extract from FSA slides
23
Your aim

• Seek to make TCF an integral part of your
  business culture

24
Governance and Culture

• Define fairness in the context of your business.
• Who is responsible for ensuring TCF is an
  integral part of the firms thinking?
• What is the involvement of the Board with TCF?

25
Governance and Culture

• How are the senior management rewarded for
  demonstrating that customers are treated fairly?
• What practical differences would your customers
  have noticed or will notice as a result of TCF?
  (e.g. more information)

26
Strategy

• Have you undertaken a GAP analysis of TCF and if
  so what were the findings?
• Have there been barriers to change? - How did you
  overcome them

27
Systems, Controls and MI

• What are your key success factors with regard to
  measuring TCF within the firm?
• How are you intending to raise the awareness of
  your staff?
• What formal training will staff have on TCF? What
  is the format of this training and how is it
  evaluated?

28
Product Design

• How is the risk to the target customer sector
  assessed?
• What controls are in place to ensure customers
  are treated fairly and are not exposed to
  unsuitable or unidentified risks?
• Is TCF considered explicitly in the sign off
  process of new products?

29
Customer Service

• What root cause analysis is conducted on
  complaints?
• Is there any ongoing monitoring over the life of
  the product to check on its continued fitness and
  to identify new risks to consumers? (if advised
  sales)

30
Marketing, Financial Promotions and Distribution

• What systems and controls do you have in place to
  ensure TCF is considered in each of these
  processes?
• What methods do you use to assess the customers
  view on how they have been treated? (e.g.
  consumer surveys)?

31
Marketing, Financial Promotions and Distribution

• What overall differences will customers see as a
  result of the TCF programme?

32

• THE NEW ICOB RULES

33
The new ICOB rules
The consultation paper What are the
changes? Why the changes? When? To whom? How?

34
GOOD NEWSGOOD NEWSBAD NEWS
35
Good News!

• If you are already doing what you are supposed to
  , then you can carry on without making many
  changes next year!

36
Good News!

• The movement to fewer rules gives you freedom to
  run your business the way want to. (e.g If you
  dont want a recorded message on your telephone
  or dont want you staff saying authorised and
  regulated by the FSA.

37
Bad News!

• You will need hard proof that you are following
  the principles including TCF

38
The New ICOB refers to the Conduct of Business
Rules

• It doesnt affect other ways your business is
  regulated,
• for example
• SYSC
• CASS
• PRIN
• CON
• APER
• FIT
• GEN
• MI PRU
• TC
• SUP
• DISP

39
So what are the main changes?

• 2 Groups proposed

40
So what are the main changes?
All mixed use to be treated as Commercial
41
So what are the main changes?
42
So what are the main changes?
43
So what are the main changes?
44
So what are the main changes?
45
So what are the main changes?
46
So what are the main changes?
47
So what are the main changes?
48
So what are the main changes?
49
So what are the main changes?
50
So what are the main changes?
51

• Treating Customers Fairly
• Questions?
• Mike Cranny FCII
• Director of Create Solutions
• President of the Insurance Institute of
  Manchester