News & Articles

Everything is Fine or How To Raise £22.6m In A Year

4th Jan 2009
Lee Werrell

Simply call yourself the Financial Services Authority (FSA) and come down with a heavy hand on all and sundry who have shown, even after this time, that they really should not be trading.

Nearly fifty penalties have been enforced for £22.6m including thirty eight persons prevented from working in the industry, over one-hundred firms disallowed from operating financial services. The level of fines is over 4 times the 2007 amount and the second highest annual total recorded, falling short of 2004 £24.8m record.

Forty eight fines is spread across a multitude of sins, with 2 convictions for insider dealing and other issues including mortgage fraud and the mis-selling of payment protection insurance.

Fines relating to payment protection insurance mis-selling have provided nearly half of the grand total, including Alliance & Leicester's £7m fine for "serious failings" in its telephone sales practice. More recently, Egg Banking plc was fined £721,000 penalty on tenth December for serious failings in its sales of credit card payment protection insurance.

The FSA has, however, come under fire for being too heavy-handed at times, such as its November 1.12m fine for "serious failings" in AWD Chase de Vere Wealth Management´s pension transfer, pension annuity and income withdrawal business.

Of course, a way to avoid fines and breaching the principles for business is to ensure you evidence the steps that you have taken and acted upon any lessons learnt from feedback or process evaluation. This Treating Customers Fairly (TCF) sidea may, of course, be easier said than done as the industry is generally in disarray about what this means.

Treat your customers fairly. This is what the regulator has been building on for over four years now, with the aim being for firms to make sure they are putting customers at the heart of their business. Once this area has been addressed, this is expected to increase consumer confidence in the financial services industry coupled with the not too dissimilar aims of the Retail Distribution Review.

The FSA has created a set of six consumer outcomes, designed to help financial services providers translate the TCF concept into practical terms.

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 market 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 customers 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 both 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.

Isn't that simple business sense? Normally you would think so, but after pensions, endowment, split caps and payment protection insurance mis-selling scandals it would be hard to find a Joe Public who will have confidence in the company or companies they may be dealing with to genuinely believe their interests are of paramount importance to the company.

TCF is to have been embedded by the end of December last year and will now be part of a firm's Arrow visit from the beginning of 2009. Firms will have 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 errors are promptly found by firms, put right and learned from. Furthermore, firms must be appropriately and accurately measuring performance against all customer fairness issues materially relevant to their business and be acting on the results; be demonstrating through those measures that they are delivering fair outcomes; and have no serious failings.

But if firms are still struggling to understand what the FSA wants them to do, then they may face enforcement action if they fail to act swiftly. They should seek expert review and assessment.

The fundamental requirement of all compliance remains that it should be appropriate and proportional. Due to the vast array of financial services operational models within a similarly dazzling spread of business types, one can hardly expect the FSA to come up with a prescriptive rulebook for a specific firm or even a specific sector. Interpretation and application are the responsibility of the compliance function with the approval of Senior Management. Whereas there are numerous recipes and optional ingredients, nobody is going to tell you how to cook your soup, you have to do that to your own local taste.

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Lee Werrell FInstSMM MSI is the Owner and Principal Consultant of CEI Compliance Limited, a Compliance Consultancy. CEI provide a broad range of expertise having worked with governance, risk and compliance functions for a number of years.