In 2004 the Financial Services Authority (FSA) became the governing body for the Financial Services Industry taking over from Mortgage Code of Business (MCOB) regulations. It marked the dawning of a new era in the industry as it so far has had implications on organisations including loss of money, substantial time & effort wasted & most of all it has brought confusion amongst a lot of companies.
Following the first two years of the FSA controlling the Mortgage Industry they have announced the Introduction of Treating Customers Fairly (TCF) principles commencing in March 2007 due to several investigations on firms which have shown that customers aren’t the top priority when it comes to firms. In anticipation of this the FSA has along with creating a new website to help organisations adapt, have produced a report on Treating Customers Fairly and how it is going to affect the smaller firms within the industry.
The report explains that firms “must pay due regard to interest of its customers & treating them fairly”, this has been a huge debating point within the industry as most feel they do enough to support customers needs ; that they are treated fairly already as without that they wouldn’t still be trading. The FSA has outlined that what they believe is going to improve the industry and have replied to those who have said that they haven’t done enough by stating
“The FSA has tried to clarify the responsibilities of providers & distributors. But when it comes to meeting broader TCF requirements, responsibility has to lie with authorised firms.” With the introduction of these principles it can be identified within the reports outlined that the bad reputation the industry has gained over the last few years involving high interest rates ; fees has become wide spread contributing to these principles being introduced. This viewpoint can be seen within the report as it has highlighted the “importance of building consumer confidence in the Financial Services Industry”.
Within the report the FSA have highlighted the key areas from their research they think need to be looked at ; have gone onto show examples of how organisations have been going wrong and the key issues in resolving them. The have placed emphasis on the key areas that need to be looked at, these are product design, disclosure, post sale ; remuneration strategy, there could be an issue at a later date as some organisations will only look at those outlined ; focus on them, maybe forgetting something simple or basic but deemed not TCF.
Product design is a key when TCF as it can effect several functions within small firms, although this is illustrated with the reports by the FSA, it doesn’t give a true reflection of how much, the implications include marketing strategy, developing product literature & training. Training can mean big change including spending time & cost on making sure employees understand complex products or procedures.
The FSA also emphasize the importance of not using Jargon and Financial wording as this can worry & confuse customers. This is important to any organisation as communication with its consumers is key, without this issues are missed and problems occur. Through illustrating how to use words to better effect including abbreviating & simplifying certain words it will help smaller organisations to relate to their consumers and in turn hopefully create a better relationship between them.
There is a belief in the industry that with the rising level of complaints, falling customer retention & an alteration in the balance of consumer spending in financial products, it is an obvious feature of TCF that post sale procedures have been highlighted to alert small firms. This is especially an area smaller firms need to look at as complaint could lead to fines which could lead to serious financial trouble.
Although it could mean wholesale change, strategically TCF could commercially be for the better. It’s going to directly effect capturing of new customers ; retention of previous ones. It brings the need for strong risk management ; could help strengthen reputation ; show that they can differentiate from other. A clear strategy can gear a company toward a future market ; help to become resilient, being better equip to deal with criticism or change. Management adopting these principles, using information management to their advantage organisations will be able to track the progress of TCF ; make sure if problems occur then they are prepared.
A key starting point for most organisations will be reviewing the literature that has been produced for them to make sure they are ready for the principles take effect; these include assessment tools, case studies ; guides. Although these are at items are heavy reading they are informative and a good indication of what’s needed, they can also be understood by all from management to a new comer as they are easy to understand & this will be a huge aid when implementing.
The FSA have setup training seminars & a website specifically designed for TCF, they want to make sure that if anyone has questions about TCF then they can be answered with the resources provided without causing problems. Although the principles have been given the date of March 2007 to take effect the timing of the principles has been questioned so closely after the Financial Services authority taking over. Although the FSA has seen the need that these need to be put in place it begs the question as to why the adequate research wasn’t done two years back when the FSA took over to prevent the confusion amongst organisations.
Monitoring TCF is a key criticism from small firms as there have been no procedures put in place to monitor the implementation. Whereas larger firms will be able to produce reports and show results overtime, within the smaller firms it’s going to be hard to adhere to the standards set, let alone show results and findings. An issue that is going cause small firm’s problems is the cost to implement new procedures ; put systems in place. Larger firms will have the resources to finance what they need to be compliant ; could even afford to assign specific people to implement. Cost is likely to impact on processing ; delivery costs, it will also be necessary for investments in infrastructure with behaviours in place. This may offer opportunities to develop efficiencies, for example, improved productivity ; information management.
The introduction of TCF confusion seems to have occurred regarding whether they are a define set of rules or whether they’re a set of ethical guidelines. The principles will bring tension between rules based & principles based, in some ways sitting at odds with its detailed & prescriptive rulebooks. This leaves many firms asking themselves whether practices are complaint or standards, which could lead to several firms slipping up due to not understanding. How come something that is supposed to be helping customers is causing so much confusion to so many?
Not paying full regard to these principles there is feeling that any organisation not found cohering will be punished severely with fines or potentially fatal consequences. Following the introduction to the FSA in October 2004 there was very little disclosure of what would happen if nay rules were broken, firms were left wondering the severity until the authority came down hard on them with severe fines, this is little help to management as it leaves them in trepidation as to what they can & cant do in some instances. In approach to the deadline several articles have been published questioning the preparation of smaller firms before the deadline on the 31st March. With only weeks to go it has been estimated that although 75% are looking to implement new procedures, only an astonishing 6% of small firms actual know the deadline date.