TCF - unfair to brokers?

Last week, the FSA gave a mixed report on the insurance industry's efforts to implement its treating customers fairly (TCF) regime. A month after the expiry of the regulator's first deadline for implementing the TCF principles, the FSA's review exposed a mixture of satisfaction that senior management was taking TCF seriously, but disappointment that only 41% of small firms achieved the March deadline.

The FSA announced a new deadline of December 2008, by which time it wants to see firms consistently treating their customers fairly.

But as the market digested the FSA's finding, brokers criticised the TCF regime. Some told Insurance Times that the principles were too vague and that more precise regulations were needed, while others said prescriptive rules would be bordering on a "nanny-state".

Some brokers even argue that those who find the TCF regime difficult to implement are not using common sense because the principles are not "rocket-science".

Mike Williams, operations director at UKGI, which provides compliance support to about 250 brokers, says many brokers had issues with the TCF principles. He says that brokers contacting UKGI still need further guidance and help to comply with the regime.

Williams also says a number of his members feel that the FSA has tried to fix something which did not need fixing in the first place.

"They [brokers] say we have always treated customers fairly. We exist to look after, represent and act in the best interests of customers. So it really is a sort of hammer to crack a nut approach which appears to have been adopted by the FSA," he adds.

One major gripe, according to Williams, is the lack of actual examples, templates or sample documents showing how the principles should be adopted in their business.

"But the FSA says no, no, no. Not us. We just make the rules. It's for you to implement it in your business," Williams says.

The TCF principle forms part of the 11 FSA principles and TCF is further broken down into six consumer outcomes. These include the fair treatment of customers being "central to the corporate culture" and consumers not facing "unreasonable post-sales barriers imposed by firms to change product, switch provider, submit a claim or make a complaint".

Lyndon Wood, chairman and chief executive of the Wales-based commercial broker Moorhouse Group, agrees with Williams and thinks further guidance could be given by the FSA, especially in relation to how it measures a firm's success in implementing TCF in its organisation.

"This would give brokers a better understanding as to the extent it must implement change within the business and the amount of work and money needed to implement such regulation," he says.

Longer-term goals

Although Wood says that around 90% of its TCF objectives are being met, he explains that its TCF implementation strategy includes longer-term goals, which will take time to apply.

Wood points out that smaller firms often do not have the resources of larger insurers or brokers and that change must be phased in slowly to ensure costs are managed appropriately.

"TCF would appear to be a continual process of improvement that the organisation must manage," he says.

Wood welcomes the December 2008 deadline and adds: "This deadline is certainly more realistic and will allow time for cultural as well as long term plans to be implemented."

“We have no concerns, certainly among our members that they are mistreating customers. Brokers have to treat their customers fairly otherwise they wouldn't have a business

Steve White, Biba's head of training and compliance

He predicts that the speed at which organisations implement the changes will vary greatly. "This is going to be hard to measure and therefore affect the ability of the FSA to enforce disciplinary measures."

Other brokers argue that too much guidance on the TCF regime could have a detrimental impact on creative entrepreneurialism.

A compliance officer at an established broker says anything more than the 11 FSA principles would be bordering on a "nanny-state", which would mean the FSA dictating what can and cannot be done.

He says the pendulum can go too much one way, but the TCF principles strike the right balance.

"What the FSA is basically saying is make sure you have procedures and work processes in place to make sure customers' interests are at the forefront of everyone's mind."

The compliance expert stresses that if the FSA has to give "chapter and verse" on what brokers have to do, it would be wrong. He adds that compliance is not rocket-science and that brokers should just use their common sense.

"Once you've cut through the flowery language, red-tape and gobbledegook, basically TCF is treating customers how you would want to be treated. My mother taught me that when I was a child," he says.

Steve White, Biba's head of training and compliance, agrees and says that no one wants an FSA step-by-step guide on to how to comply with the regime.

"That stifles individualism and entrepreneurialism. We are all more comfortable in an environment where the FSA tells us where we need to get to, but doesn't hold our hand and tell us step by step how to get there," says White.

He adds that it is difficult for the FSA to provide any more guidance because the TCF principles apply to the whole of the financial services sector.

The FSA's latest report also says that those firms which did not meet the deadline demonstrated a lack of commitment by senior management.

Not fully implemented

White responds to this by saying that the FSA does not say that those failing firms are treating customers unfairly. He says that all it shows is that those firms have not fully implemented their TCF plans.

He adds: "We have no concerns, certainly among our members that they are mistreating customers. Brokers have to treat their customers fairly otherwise they wouldn't have a business."

White says that compared to other sectors brokers are doing better at implementing the FSA's TCF regime.

Biba has information on its website to help brokers, which includes a self-assessment tool. And in the autumn, the trade body plans to hold seminars on the subject. IT