Britain’s Financial Services Authority says its latest research shows that retail financial firms fall short in their efforts to give retail clients a fair deal.
In a pilot study, the FSA reviewed the procedures of six of the largest retail groups in Britain at various stages of the product life cycle. It found that:
- senior managers said they were committed to the fair treatment of their customers and could see the benefits this could bring in terms of increased profitability. However, the systems and controls firms actually have didn’t match these intentions;
- firms did not always include assessment of risk to the customer or of customers’ needs in the product development process or in assessment of the target market;
- firms did not have sufficient controls in place to mitigate the risk that the way in which sales forces and advisors are remunerated could have an influence over the sale of the product to the consumer;
- some improvements have been made in complaints handling, but the quality varied between products and firms. Firms have also failed to use complaints data effectively as management information or to identify trends from complaints, and;
- management needed to collate and monitor information in a way that would help them identify whether their customers were being treated fairly.
The regulator says that during the coming year it will undertake targeted supervisory work on fairness issues to build upon the pilot study, which will be extended to include a number of medium sized and smaller firms.
The FSA will also establish a consultative group made up of representatives from the industry, consumer groups and the Financial Ombudsman Service to examine what treating consumers fairly means and how firms can develop a better understanding of what makes for good or bad practice.
The FSA has been a leader in trying to ensure fair treatment of retail clients. In Canada, the Ontario Securities Commission is attempting some of the same things through its proposed Fair Dealing Model.