The U.K. Financial Services Authority today warned retail firms that if they do not treat their customers fairly, they will face tougher enforcement or more detailed regulation. However, the FSA said it prefers a more principles-based approach.
In a speech to the British Bankers’ Association’s Annual Retail Banking Conference set out the retail agenda of the FSA and detailed how the organization is seeking to make retail markets and services work more efficiently and effectively. It focuses on the three key elements of an effective retail market: capable consumers; clear and understandable information available for consumers; and soundly managed and well capitalized firms who treat their customers fairly.
On the subject of how customers are treated by firms, Clive Briault, managing director of Retail Markets at the FSA, acknowledged that some improvements have been made. “Despite these improvements, we remain concerned about the treatment of consumers of retail financial services, including in retail banking. We have seen cases of firms developing products without assessing which consumers these products are likely to be suitable for, which consumers they are not likely to be suitable for, and how the products are likely to be sold and advised upon in practice. We see reward systems that incentivize sales forces and branch staff to deliver volume targets without any measurement of the suitability and the quality of those sales. And we continue to see cases of poor complaints handling,β he said.
The FSA is looking to the senior management of firms to build the principle of treating customers fairly into their firms’ culture, day to day operations, and for firms to consider fair treatment of customers at each stage of the product life-cycle.
“Looking ahead our approach will depend on the behaviour of firms. If firms do not embrace the principle of Treating Customers Fairly we will reconsider how best to achieve the fair treatment of customers, be it through the introduction of ever more detailed rules or tougher enforcement action,β Briault said. “But we would much prefer not to have to introduce ever more intrusive regulation as a means of countering the poor treatment of customers. This would not be the best interests of either firms or consumers.β
“We would therefore much prefer to see fewer detailed rules, and to rely more on an intelligent, thoughtful and effective implementation by firms of the high level principle that they must treat their customers fairly. We see a payback for firms from this in both market-based success and less intrusive, and therefore less costly, regulation,” he noted
The FSA has set up a Consultative Group, which involves industry and consumer groups, and will be helping firms to understand what constitutes the fair treatment of customers through a series of good practice case studies that can be used as form of benchmark guidance.
Briault concluded, “We realize that an approach based on high level principles rather than detailed rules will be challenging but we believe this is the right direction for you (firms), and for us, to go.”
In Canada, the BC Securities Commission has attempted to introduce a more principles-based approach to securities regulation. However, the BC government recently postponed implementation of the new rules, which was expected later this month.
U.K. regulator tells banks to treat customers fairly
FSA concerned about the treatment of consumers
- By: James Langton
- November 23, 2004 November 23, 2004
- 15:10