Treating Customers Fairly - Practical Applications & Employee Advocacy May 2008
23/05/2008 by: Joanne Smith, Managing Director, The Consulting Consortium
It is nearly a year now since the Financial Services Authority (FSA) published two significant papers on Treating Customers Fairly (TCF); the first was TCF – Culture with an accompanying sister paper “measuring outcomes”. Since then, human and financial resource has been directed by firms towards addressing TCF within their businesses. So has it made a difference?
Clearly the results are mixed and despite the passing of time FSA are still expressing concern that firms are not doing enough to demonstrate TCF in their operations. This is not a comment reserved for small firms but applies across the entire financial services industry.
In the July 2007 paper, the FSA stated that “Treating Customers Fairly is a cultural issue. The culture of a firm drives the behaviours of its management and staff and their actions, which in turn will determine outcomes for consumers.”
The deadline for producing Management Information (MI) to support the six key TCF outcomes has now passed and firms should now be in a position to use the MI to identify necessary improvements in their operations and demonstrate that they are consistently treating their customers fairly.
The first TCF outcome is that consumers can be confident they are dealing with firms where the fair treatment of customers is central to the corporate culture.
Firms will undoubtedly be producing significant MI to their Boards to demonstrate TCF and over the next few months the reporting and content will be refined. Whilst it is relatively easy for firms to provide MI to demonstrate the remaining 5 TCF outcomes, culture encompasses them all and more.
FSA outlined 6 key drivers within their culture framework:
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Leadership
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Strategy
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Decision Making
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Controls
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Recruitment, training & competence
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Reward
With respect to each of these drivers, the FSA has given useful examples of positive and negative culture indicators so why are firms still struggling?
One possible issue is communication. Good communication and consistency of message between the staff at the coal face and senior executives are essential to making a difference.
Most firms have created TCF policies supported by executive level management which have been explained in detail to all staff and are backed up with colourful posters on TCF around the business. TCF is now an agenda item for management meetings where MI is used to facilitate discussion. TCF has been added to job descriptions, induction training programmes and as a result staff at all levels now recognise what TCF means, and when a process or document is not meeting the standards required.
Despite all of this, there are still conflicts within businesses that are damaging their ability to truly treat customers fairly.
Whilst areas subject to MI will be transparent, the question arises of what happens when staff identify a practice which their training would lead them to believe is not TCF. This in turn leads to a series of issues relating to senior management awareness of the issue, actions taken and the explanation to staff of any delays in resolving the issue. If this process of communication and solution is not smoothly managed, there is a significant danger that the TCF culture will flounder.
There are many potential blockages to communication and it is clear that the following issues are amongst those most likely create conflicts within firms and lead to further problems.
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Workload
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Legacy system constraints
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Impact on productivity
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Impact on profitability of a product line
The common factor is of course money or more specifically the size of the budget allocated by the business for achieving TCF standards. In the current financial climate the pressure firms to restrict expenditure and cut costs is increasingly intense and managers are under pressure to deliver savings on existing budgets. Some firms may even be under pressure from FSA to improve their capital position so this will conflict with any budget required for resolving issues identified by staff.
Management also have budgets and targets to meet and it is not uncommon for management bonuses to be aligned with the achievement of these targets. In the event that a TCF issue is identified managers need to consider that the likelihood of additional budget being made available to ensure it is addressed and balance this against the potential impact on their own remuneration. The prospects of securing support from senior managers who are also under pressure to cut costs must also be considered.
Meanwhile, if the TCF issue raised requires an IT system change, managers must also consider the likelihood of an upgrade being approved. Even minor system developments can be costly and indeed for some legacy systems the availability of resource is limited. It may be easier all around to ignore the issue than to attempt to resolve the IT challenge, although this can often mean a manual ‘work around’ which itself impacts resource and productivity.
Failure, however, to act on TCF issues raised by staff will ‘muddy' the TCF message and cynicism will quickly set in. It is essential, therefore, to ensure that all TCF issues are collated and logged and that key data within the log forms part of the TCF MI reported to the Board. The log should include all actions that are being implemented, costs, and time frames for resolving the issues.
One means of practical application may be for the business to appoint a network of TCF 'Champions' across the business who are enthusiastic about applying the rules and willing to take on the responsibility to identify issues and then discuss amongst themselves practical solutions for presentation to senior management.
Drawing on this expertise and enthusiasm from across the business bring with it the accompanying benefits of increased communication and understanding between business areas, the opportunity to share ideas and syndicate best practice and a means of bridging the internal communications gap between the boardroom and shop floor.
There's therefore no specific need for such champions to be drawn from a particular level of the organisational hierarchy, it's more a case of who has the willingness to assume and deliver on the responsibility rather than the most appropriate job title.
Ultimately, it is important to keep in mind that ignoring issues is not an option whatever the cost. It is also essential to secure employee advocacy of TCF by communicating back to the ground floor what is being done to identify issues and devise solutions.
About The Consulting Consortium
Founded in 2000, The Consulting Consortium is a regulatory consultancy which provides advice and guidance on activities regulated by the Financial Services Authority and, in particular, the application of the FSA's regime on financial services products.
With offices in London and Bradford, The Consulting Consortium's consultants offer innovative, fully FSA compliant and long term solutions to client's individual regulatory scenarios. The Consulting Consortium's sister company, TCC Recruit, specialises in recruiting staff for regulatory compliance, risk and corporate governance positions.