The UK financial services firms contribute hugely to our economy, so we must be able to trust them. The primary objective of the Financial Conduct Authority (FCA) is to regulate and manage the conduct of these firms to ensure that customers are treated fairly. They supervise over 59,000 firms, using their '11 Principles for Business' as criteria to measure and regulate each company's conduct. These are standards of conduct that all firms must follow to meet regulatory obligations. The FCA uses two key measures: Treating customers fairly (TCF) and training competence (T&C).
What is Principle Six?
All Principles for Businesses are important, but Principle Six is the most important value relating to treating customers fairly. It states that: 'A firm must pay due regard to the interests of its customers and treat them fairly'. According to the FCA, the purpose of this is to help financial services providers understand that customers' interests must be at the heart of how they run their business.
Businesses can refer to the FCA's 'Six Consumer Outcomes' when implementing and monitoring their adherence to Principle Six. These outline the service levels that financial services firms are expected to provide in their practices and procedures to treat customers fairly.
Consumers can be confident that they are dealing with firms where the fair treatment of customers is central to corporate culture. Treating customers fairly makes good business sense and can increase employee and customer retention rates, reduced complaint levels and an enhanced reputation.
Products and services marketed and sold in the retail market are designed to meet the needs of identified consumer groups and are targeted accordingly. Businesses can achieve this by:
- Identifying the market and customers that the product or service will be suitable for.
- Periodically reviewing what is happening in practice, and how this corresponds or deviates from what was planned. For example, reviewing complaints and claims management information.
- Collecting and analysing information to assess the performance of the distribution channels (such as the internet or branch office) used for your products.
- Taking action where you have concerns.
Consumers are provided with clear information and are kept appropriately informed before, during and after the point of sale. For example:
- Before the sale: All financial promotions should be clear, not misleading. Information, such as exclusions or limitations, must be prominent and easy to understand. This means you should avoid small print or jargon. Product features must also be effectively communicated to customers through your distribution networks.
- Point of sale: Point of sale information should be clear and help customers to understand the product they are buying. It should help them to decide if it meets their requirements.
- Post-sale: Post-sale information must make consumers aware of product performance, and opportunities to act at certain points in the product lifecycle. It must also advise of any changes in the terms and conditions.
This Outcome is relevant to businesses that provide advice and recommendations: Where consumers receive advice, the advice is suitable and takes account of their circumstances. An example of how service can be tailored to a customer's specific needs might be advice given that considers how the products or services fit with their needs and risk appetite.
Consumers are provided with products that perform as firms have led them to expect, and the associated service is of an acceptable standard. There are several ways that you can achieve this, for example:
- Senior management should regularly review your products to ensure that they continue to meet the needs of their target audience.
- You should also ensure that you have an effective procedure in place for handling customer feedback. High numbers of claim repudiations and complaints may indicate that this outcome is not being achieved.
Consumers do not face unreasonable post-sale barriers imposed by firms to change product, switch provider, submit a claim or make a complaint. Your customers should be able to change products or switch providers without having to pay excessive penalties. Your Complaints Policy should also ensure that it's not difficult for consumers to make claims or to complain when something goes wrong. Handling complaints fairly is not just about processes and time limits; it's equally important that you have a positive and practical attitude to receiving and resolving them. Complaints are a valuable source of feedback and can be an early warning of failures in service delivery and the way you handle feedback can enhance or damage your organisation's reputation.
Why is it important?
To comply with the FCA's regulations, businesses must ensure that customers' best interests are at the heart of everything they do. This means that for every product or service, your company should consider how well the six outcomes are delivered throughout the sale journey. If a customer believes that they've been treated unfairly, the business risks significant reputational and financial losses. If the customer is vocal about their poor experience, the company's sales might diminish even more. Actively engaging with treating customers fairly means that they're more likely to feel appreciated and valued by the business, which increases customer loyalty. This also contributes to positive brand reputation, as a satisfied customer might well refer your service to their friends and family.