UK: Embedding Success - Treating Customers Fairly – An Evidence Based Approach

Last Updated: 21 June 2007
Article by Deloitte Financial Services Group

Most Read Contributor in UK, August 2017

"The case for a Treating Customers Fairly (TCF) initiative remains extremely clear to us… our supervisory work repeatedly uncovers problems on a scale that warrants serious thought and a determination on our part to deliver change."
Sarah Wilson, FSA, March 2007

Can you prove that you are treating your customers fairly?

The Financial Services Authority (FSA) continues to challenge the industry to improve monitoring and delivery of Treating Customers Fairly (TCF). The burden of proof is very much with senior management and there are now clear timescales to embed and evidence consumer outcomes. However, the challenges remain and embedding TCF is not easy. An organisation wide, structured and risk based approach that identifies and learns from key customer indicators is the answer.

Clearer consumer outcomes

The FSA are shifting emphasis from a rules-based approach to a more principles-based approach. At the forefront of this change is Principle 6: "Customers’ interests – a firm should pay due regard to the interests of its customers and treat them fairly".

TCF – a regulatory and brand priority

Under the TCF umbrella, the FSA have imposed a number of fines in relation to inadequate systems and controls, mis-selling and poor handling of complaints. The FSA will look to take enforcement action against firms where there is no genuine attempt to deliver on TCF and where there is significant risk or actual detriment to customers.

The FSA are not alone. The Office of Fair Trading, whose mission is to "make markets work well for consumers", is also becoming more proactive in compelling firms to deliver a better deal to retail customers. Ongoing investigations into banking and credit card charges are evidence of this. Parliament has also been vocal in this area, as evidenced by the Treasury Select Committee report into credit charges and marketing.

Senior management need to recognise the critical importance of improving their understanding of the relationships that their firm has with its customers. The potential benefits are clear:

  • Reduced risk to brand and reputation;
  • The commercial benefits which achieving a reputation for the fair treatment of customers in the market can bring;
  • Avoiding the management time and effort required to deal with external intervention by regulators.

The Measurement Imperative

"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. And by the end of December 2008 all firms are expected to be able to demonstrate to themselves and to us that they are indeed consistently treating their customers fairly."
Source: Clive Briault, FSA, May 2007

Increased external scrutiny – from both regulators and the media – and intense competitive pressures demand that retail financial services firms examine the way that they treat their customers.

Most financial services firms assert that they are already treating their customers fairly, but few have solid evidence to support such claims. Senior management will be held accountable – and only those that possess the Management Information (MI) that proves that they are treating their customers fairly can expect to have such claims taken seriously in the future.

Hard evidence, in the form of TCF MI, which is embedded in the business, is now essential. But with the FSA themselves having stated that "TCF is a cultural issue" what hard evidence can firms realistically be expected to provide? The FSA have made it clear that they will not issue detailed guidance in this area, so the firms themselves need to:

  • review their existing MI, map it against the six TCF consumer outcomes, and determine its usefulness for TCF reporting;
  • identify any gaps in TCF MI;
  • start new business initiatives, or adjust existing or planned business initiatives, to remedy gaps;
  • be prepared to seek to change culture, and to measure the changes – in the form of employee behaviours and customer outcomes; and
  • implement an ongoing "TCF measure, report, improve cycle" and TCF MI dashboards.

It is no longer just about firms being able to prove all the things they are doing in reaction to TCF. Rather, it is now vital that firms have adequate MI on the risks to, and delivery of, their TCF intentions. Firms must move from dealing with TCF to delivering it.

Embedding TCF – Changing Culture

Since the end of March 2007 firms have been expected to be in the TCF implementation phase, with the final of the four phases (embedding) soon to follow. However, embedding culture change takes time.

Firms should first identify those business activities where it is most important that changes take place in support of TCF. Once identified these "TCF Hot Spots" should then also provide the focus for the TCF MI data gathering efforts.

"Treating Customers Fairly is a cultural issue and needs to be driven from the top. So we look to senior management to lead the process and to ensure that high-level commitment to TCF translates to good outcomes for consumers ‘at the coalface’. We have found that weaknesses in a firm’s corporate culture can lead to poor quality outcomes for consumers."
Source: Sarah Wilson, FSA, March 2007

"Beyond implementation, most firms need to go further to reach the embedding phase of Treating Customers Fairly and thereby to deliver fair consumer outcomes consistently. This is, and will continue to be, a significant challenge for most firms, and requires sustained focus from senior management".
Source: Clive Briault, FSA, May 2007

Examples of TCF Hot Spots are:

  • Performance and reward: Making a decision on a complaint – complaints team incentivised in line with proportion of cases upheld by the Financial Ombudsman Service;
  • Recruitment and training: Explanation of product benefits and risks – training programmes effectively assess staff understanding of the application of TCF through formal testing;
  • Leadership: Line management direction in sales reviews – managers monitor sales advisers who are well below (or well above) sales targets close to the end of the month;
  • Controls: Executive decision making – senior managers review TCF MI in regular meetings and action any issues that arise.

By applying a focused approach that seeks to change employees’ behaviours at these "TCF Hot Spots" the embedding of the desired TCF culture can be achieved much more rapidly, and with greater longevity. Additionally this focus provides more opportunity to evidence the achievement of TCF outcomes for senior management and the FSA (in the form of TCF MI).

Embedding TCF isn’t easy but key success factors include:

  • Senior management buy-in – executives must listen to the "voice of the customer" and be convinced of the commercial benefits of doing so. There needs to be a common understanding of "what good looks like";
  • Accountability – key individuals must be accountable for each of the consumer outcomes and buy-in must be translated to action on the ground;
  • Measure the outcomes – map the FSA product lifecycle to business processes and to the consumer outcomes. Focus reporting on outcomes (not activities).

The future of TCF

As retail financial firms meet the challenges of competing in markets exhibiting slower growth and with more demanding customers they must focus on improving customer outcomes. Taking a formal, disciplined approach to customer risk and governance, such as using TCF methodologies, can help achieve this focus. Other benefits include brand protection from reputation damage, and the opportunity to prosper through attaining clear commercial benefits and building a competitive advantage.

The market is being challenged to focus on embedding TCF and to develop MI to support senior management’s ability to monitor against TCF outcomes. At Deloitte, our combined teams of regulatory advisory experts, MI specialists and human capital behaviour change consultants can help firms to:

  • build senior management TCF awareness and understanding;
  • develop TCF governance and control frameworks;
  • identify "TCF Hot Spots" – assessed in terms of risk of occurrence and value at risk;
  • to report on outcomes, develop relevant TCF MI that is also valuable to business areas;
  • define and build the technical MI solution, aligned to the wider MI strategy;
  • establish customer focussed cultures, including changing employee behaviours, especially at "Hot Spots".

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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