Lessons from the TCF pioneers
The Financial Services Board (FSB) is adamant their Treating Customers Fairly (TCF) regime is not a ‘copy and paste’ from the similarly named Financial Services Authority (FSA) legislation. They do however admit that there is no point in re-inventing the
UK-based financial services firms have had years to get to grips with the legislation, which was introduced some six years ago. Instead of fretting over possibly inappropriate overlaps between the two regimes, local insurers should therefore be engaging with UK companies to learn as much about their TCF implementation experience as possible. Reinsurer RGA showed some initiative in this regard by inviting their Regional Legal Counsel, Charlene Rodeman, to share the UK TCF Experience with attendees at the RGA Customer Seminar, held 1 November 2012.
The UK-financial services industry’s journey to a fairer consumer landscape started at the turn of the century. High profile scandals rocked the UK insurance industry with the result the FSA came into being in 2000. “There was a lot of scandal that was really damaging to the insurance industry at the time,” said Rodeman. “The new regulator wanted to impress on government and consumers that it was ready and able to protect their interests”. Industry stakeholders spent years debating an appropriate response to miss-selling and other unfair practices before the FSA made TCF part of their business plan, eventually rolling it out in 2006.
The crystal ball of outcomes-based regulation
One of the best ways for UK-based insurers to keep up with their regulator was to peruse the numerous documents, discussion papers and guidance notes disseminated over that period. “I urge you to pay close attention to any policy document or guidance notes from the FSB, because these contain the clues as to what the regulator is going to focus on,” said Rodeman. “These communications are carefully prepared and distributed to the community to provide a heads up as to what they are looking for”.
TCF is a robust response to abuses in the financial services sector. It focusses on the philosophical and cultural shifts that firms must make to ensure fair treatment of their customers. “The six TCF outcomes are therefore philosophical and cultural outcomes,” said Rodeman. “If you pick them apart you will find out what the regulator expects you to focus on despite it not being a rules-based system”. Firms must ensure that the TCF ‘look and feel’ begins at board level and filters through to every area of the business. Fair treatment of customers must be in place at every step in the business process too. It is also important that companies document these processes and be sure that they can provide evidence that the documented processes are in fact carried out.
The feedback on UK TCF is slightly ambiguous and it seems as if commentators struggle to offset the good against the bad. “TCF was one of the best things, and one of the worst things ever to hit the UK insurance industry,” noted Mick James, UK Business Development Manager… Another Business Development Manager, Mark Johnson added: “TCF was the single best thing the FSA has ever done, but also the most abused”.
A dozen ‘top tips’ for a smooth TCF implementation
What does this mean? “TCF was great for the companies that already had a strong culture in practice, because they were already doing things the right way,” observed Rodeman. But even ‘good’ companies suffered as employees used TCF to block innovation. “There may be a bit of push and pull while people get to grips with what the legislation is all about,” she said.
The best advice for South African financial services firms is to consider the wise words from Ken Hogg, ex-FSA Director of Insurance: “TCF should not prove to be an onerous challenge for firms that put customers at the heart of their business”. In the same breath he warns never to underestimate the ability of a regulator to be over zealous in its implementation of a sensible concept. How can you ensure that your TCF implementation runs smoothly? Based on the UK experience Rodeman suggests the following:
1. Consider engaging an experienced professional consultant to help you identify any gaps in your current environment;
2. Understand your company’s current culture and ensure that fair treatment of customers is central to the corporate culture from the top down;
3. Make sure culture gets promoted from the board level throughout the firm;
4. Ensure that the products and services that you market and sell are designed to meet the needs of your identified consumers, and target them accordingly;
5. Make sure that remuneration for sales rewards quality, not just volume;
6. Review product materials and brochures to ensure that they are clear, correct and concise;
7. Make sure that your customers are kept appropriately informed before, during and after the point of sale through well written letters;
8. Review all contracts and also consider amending intermediary or agent contracts (and any other relevant agreements) to ensure adherence to TCF;
9. Produce and use excellent management information and reports;
10. Revisit your post-sales process and make sure that your complaints process is easy to follow;
11. Work collaboratively with regulators; and
12. Make sure that all levels of your organisation have knowledge of, and can describe, your culture and philosophy for treating customers fairly.
TCF goes hand-in-hand with discipline and professionalism
TCF is not about creating a satisfied customer. “It is possible that someone is entirely satisfied with their purchase based on cost and other factors, when it is not the right product for them in the long run,” warned Rodeman. Other misconceptions around TCF are that every firm must offer identical levels of service and that consumers will not be required to make their own decisions...
The bottom line is that the fair treatment of customers should already exhibit in you business culture and processes… In the words of an ex-CEO of HSBC: “TCF is an obvious and sensible way to do business, but it takes ruthless discipline in product and process design, plus an investment in professionalising both sales and customer service”.
Editor’s thoughts: An interesting take-out from Rodeman’s presentation was that no UK firm (to date) has been prosecuted for non-compliance with TCF. This could indicate large buy-in from UK-based financial services firms, difficulties in enforcing outcomes-based legislation, or both. Whatever the case, TCF is here to stay. Is your firm ready for a 2014 implementation of TCF? Please add your comment or send it to [email protected]
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