Firms must intensify efforts on Treating Customers Fairly, warns FSA

A survey of 96 firms, comprising most of the large retail groups and a sample of other firms with business relevant to the retail market, found that most firms had missed the March interim deadline already.

The Treating Customers Fairly (TCF) initiative aims to bring about a change in firms' behaviour towards customers. It required firms to have management information in place to test whether they are treating their customers fairly by March. By the end of December they must be able to demonstrate that they are consistently treating their customers fairly – though the FSA believes that approximately 20% of the sample firms are no longer capable of meeting that deadline.

FSA Director Sarah Wilson said that having appropriate management information (MI) or other measures in place puts firms in a position where they can measure the quality of the outcomes they are delivering for consumers.

"These results show that adequate MI is not yet fully in place in the firms assessed – it does not mean that they are treating their customers unfairly," she said. "However, we now expect all firms to maintain their momentum and to undertake a significant amount of further work to meet the December deadline of demonstrating that they are consistently treating their customers fairly."

According to a report on the FSA survey, failures ranged widely from those who "just missed" meeting the required standards, through to firms that are now facing investigation and possible enforcement action on the grounds of potential or actual consumer detriment. 

Despite the disappointing results, the FSA believes that "with very substantial, continuing effort" approximately 80% of the sample firms are still capable of meeting the final December target.  "All firms that failed to meet the deadline on time have received a strong message that urgent progress is needed", the report states.

TCF outcomes

The March deadline was intended to focus firms' minds on how they would assess their performance against the six 'TCF outcomes' for consumer customers:

1. Consumers can be confident that they are dealing with firms where the fair treatment of customers is central to the corporate culture;
2. Products and services marketed and sold in the retail markets are designed to meet the needs of identified consumer groups and are targeted accordingly;
3. Consumers are provided with clear information and are kept appropriately informed before, during and after the point of sale;
4. Where consumers receive advice, the advice is suitable and takes account of their circumstances;
5. Consumers are provided with products that perform as firms have led them to expect, and the associated service is of an acceptable standard and as they have been led to expect;
6. Consumers do not face unreasonable post-sale barriers imposed by firms to change product, switch provider, submit a claim or make a complaint. 

Good and bad practice

The FSA found that those firms that met or very nearly met the required standards in March tended to be those where senior management played an active role in setting out what the firm needed to do.

These firms had built the fair treatment of customers into their commercial strategy and in many cases tied it into individuals' personal objectives, backed up by effective training and assessment schemes. They also tended to be more proactive in obtaining customer feedback and acting upon it.

Firms that simply claimed that they "always put customers first" often assumed they were treating customers fairly but could not always show how they knew this, the report said. In many cases, firms failed to realise how much work was required to implement TCF measures and simply left it too late. Others swamped senior management with information that had not been properly analysed.

Many firms reported on their TCF processes but did not give enough thought as to whether these were really measuring the fair treatment of customers. They might, for instance, be able to show that all customer complaints were answered promptly, but not whether the way they responded to complaints was fair.

Many took great pride in high levels of customer satisfaction but their customer surveys were not always asking the right questions. Firms should not confuse satisfaction with fairness, warned the FSA.

"Underlying questions being asked were nothing to do with fairness," said the report. "For example, ‘was the branch clean when you walked in?’."

Even where customer surveys were focused more on fairness, the FSA observed that "they asked questions that customers were unlikely to be able to answer effectively. For example, ‘were you satisfied you had all the risks properly explained to you?’."

Next steps

The report says that by the end of the year, firms must be able to "demonstrate that senior management have instilled a culture within the firm whereby they understand what the fair treatment of customers means; where they expect their staff to achieve this at all times; and where (a relatively small number of) errors are promptly found by firms, put right and learned from". 

Firms must be able to measure their performance on TCF issues and show that they act on the results, be able to demonstrate that they are delivering fair outcomes to customers and have "no serious failings".

The FSA plans a report on the December deadline in September 2009.  After that, the TCF initiative will end and treating customers fairly will become part become of firms' normal compliance regime.