A market study published by the Financial Conduct Authority (FCA) has concluded that around six million customers ended up paying high prices and are not getting a good deal on their home or motor insurance. It is estimated that customers are paying on average £200 too much on premiums.
As has been evident in recent times, the FCA is continuing to scrutinize a number of industry practices, whilst issuing fines to firms failing to comply with regulation and becoming a key driver for change in the way firms treat their customers.
Role of the FCA
There are a number of strategic goals which the FCA is aiming to fulfil; these include protecting customers, enhancing the integrity of the UK financial services industry, and promoting healthy competition between financial services providers within the best interest of customers.
For firms, promoting a culture of compliance isn't just about meeting regulatory obligations and avoiding substantial fines. It's about raising your reputation in a competitive market based on the relationships that you build with your customers.
So which scenarios should firms consider wherein their conduct is subject to compliance and can affect their relationship with customers?
Dealing with Vulnerable Customers
As revealed by the market study conducted by the FCA, one in three customers who paid high prices showed at least one characteristic of vulnerability, such as having low financial resilience or capability. Protecting vulnerable customers has always been a key priority for the FCA. The FCA's approach is based on the principle that firms do the right thing for the customer. The FCA's Principles for Businesses require firms to treat customers with vulnerabilities fairly and to communicate with them in a clear, fair and non-misleading way.
The industry is responding well with a survey revealing that 94% of firms reported that the issue of vulnerable persons is being treated quite seriously or very seriously by their business.
Handling Customers' Complaints
In June this year, we wrote about how poor complaints handling was costing firms within financial services, who paid out £2.75bn to compensate unhappy customers. Unhappy customers are also more likely to switch providers in a competitive market and leave bad reviews that can affect firms' reputations.
To prepare for complaints from customers, firms must have a robust complaint handling process so they can deal with unhappy customers as per the guidelines set by the FCA. When the complaint process has been exhausted and failed to resolve the customer's complaint to their satisfaction, the customer has the option to refer the complaint to the FOS – which could result in compensation awarded to the customer.
This means that firms must focus on alleviating the effect of customer complaints while ensuring compliance with the FCA regulation and keeping the complaint from being referred to the FOS.
Treating Customers Fairly
In recent times, the reputation of the Financial Services industry has taken a hit because firms have put profits before customer needs. Examples include mis-selling customer policies such as PPI or writing and publishing misleading policies.
The FCA requires that customers should be treated fairly at all times, especially when dealing with any firm who is regulated and authorised by them. Any firm found not to be treating its customers fairly can be subject to heavy financial penalties. The formal requirements laid down by the FCA are guided by six key Treating Customers Fairly (TCF) principles and include explicit and implicit guidance on the fair treatment of customers.
The FCA also recommends using customer feedback to help identify areas where firms and their advisers are or are not treating customers fairly and therefore areas where improvements are needed.
How can we help?
Training your staff to understand the significance of FCA regulations around dealing with customers is vital not only for compliance but also key in maintaining good relationships with customers.