The FCA complaints data can read like the opening credits of a disaster movie: LIBOR rate rigging, Long term Care, Payment Protection Insurance miss-selling, product and fund churning, (are you already switching off yet), this results in an industry tarred with a brush that has seemingly painted graffiti all over the Treating Customer Fairly (TCF) principles.
What does the new data tell us?
The number of complaints made to financial services firms increased by 13% in the second half of 2017. A total of 3.76 million were received; an increase of 427,032 on the first half of the year. The complaints were shared among 3,072 firms, with the majority, 98%, received by just 222 firms.
As ever it's the few who have made life difficult for those who are TCF compliant.
Central to TCF is the organisation has to display a customer-centric culture, that defines, measures and manages fair treatment of its customers. The problem is TCF is structured on 6 regulatory led outcomes, dashboards are then created and a ‘tick-box’ exercise can be used.
This means that although TCF is an exercise organisations are doing, there is little or no buy in to the process and thus the desired outcomes are not owned by the organisation. This problem stems from 2 reasons:
- The TCF outcomes is a regulatory imposed directive
- The majority of industry participants are removed from the day-to-day client facing tasks and responsibilities.
Behavioural science tells us that if we do not instigate activity that we believe in or ‘own’, then there will be an element of rebellion or ‘rule following’ where we go through the motions without a firm buy-in or belief in the actions taken. This then leads to the ‘tick box’ mentality.
The answer is in a firm identifying, measuring and constantly improving their conduct and culture. If the TCF principles are applied and a fiduciary approach embedded into the firms client focused activities, then this can lead to high ‘buy in’ towards a constructive culture which will showcase good conduct through accountability and transparency.
So how can this be achieved?
- Evidencing TCF through Management Information (MI): The regulator defines MI as information collated during business activity and prescribes 4 principles for collecting good MI: 1. Accurate 2. Timely 3. Relevant 4. Consistent. There also are 5 steps prescribed for using TCF based data: 1. Seen 2. Challenged 3. Analysed and monitored 4. Acted on 5. Recorded
The key here is MI is not just about numbers, qualitative information such as commentary and subjective opinions or predictions are also key to quality MI
- Assessing Culture: The regulator offered 6 key drivers in their 2007 paper ‘TCF-Culture’, which they believe have a significant influence on behaviours of firms.
- Leadership: Ensuring senior management provide direction and a framework to monitor behaviour
- Strategy: Discipline to focus on TCF delivery
- Decision Making: Ensuring staff challenge when strategy conflicts with the 6 TCF principles
- Controls: Collecting MI using the able 4 principles
- Recruitment, training, competence: Ensuring the right people are in the right roles with the right skills
- Reward: Avoiding perverse incentives and linking incentive staff schemes with good TCF outcomes
Indeed this framework has been integrated by the FCA into their Firm Systematic Frameworks (FSF) risk-assessment process to help supervisors assess whether the drivers of firm behaviours are aligned to the deliver of sustainable fair customer outcomes.
- Make use of RegTech: In his BBA speech the regulator’s Director of Strategy and Competition, Chris Woolard, said that with ‘billions of pounds and large numbers of staff…dedicated to the business of regulation… we must ask ourselves if there is an easier, more efficient way for firms to fulfil some of their regulatory responsibilities’.
Thus with the rise of RegTech, firms can actually assess their MI and conduct which in turn can benchmark them against the high standards TCF and the FCA handbook sets in ensuring good consumer outcomes.
A move to accountability (think SM&CR) Transparency (think MiFID II) and self regulation (think RegTech) will not only mean advice firms are complaint but also will gain competitive advantage.
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