Financial services confused over TCF

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LONDON – Only 16% of financial institutions feel their Treating Customers Fairly (TCF) project had been substantially completed, and 15% claim no project had been initiated or is planned at all. There is also significant confusion in the market over who is affected by TCF. These are the startling findings of a poll conducted at a recent breakfast seminar hosted by Protiviti and attended by the UK Financial Services Authority (FSA).

Firms displayed polarised views of the value of the TCF initiative in the context of wholesale/institutional business. Some 37% of companies represented felt their TCF work would positively result in benefits to their businesses and strengthen their reputations. On the other hand, 53% did not consider TCF would generate any additional value to the firm or its customers. Most of these were firms who said their business was with corporate/institutional clients or high-net worth/private banking clients and that they had no or negligible retail business.

Sarah Wilson, director of the FSA’s Treating Customers Fairly initiative, attempted to clarify the principles relating to the wholesale market. “Principle Six (under which ‘a firm must pay due regard to the interests of its customers and treat them fairly’) applies to all ‘customers’, defined in the Handbook – broadly – as clients who are not eligible counterparties. While this can encompass a wide range of entities, the TCF initiative, being risk-based, is primarily concerned with retail clients.

“Firms – or business lines within firms – that are never involved directly with end retail clients are outside the usual scope of our TCF initiative where their actions do not have a material impact on the outcome for end-retail clients. We would not normally, as a part of the initiative, be assessing such firms or business lines for evidence they are treating their customers fairly; and indeed in some such cases Principle Six does not apply. But they would of course need to meet, and have systems and controls to secure compliance with, their regulatory requirements – for example Principle Two: due skill and diligence, Principle Three: management and controls, and Principle Six if relevant,” she said.

Jonathan Jesty, a director in Protiviti’s financial services industry practice, said: “There has undoubtedly been some confusion among institutions over the extent to which the TCF initiative applies in the wholesale market, and the FSA’s clarifications of their expectations and the specific examples Sarah gave at the seminar were welcome. Some firms operating in the wholesale markets might feel they can simply opt out of TCF, but this is not an option. Instead, they should analyse what it means for them, based on their business model and the FSA’s principles-based approach.

“For well-run firms with no retail business and no involvement in retail ‘products’, the impact might be very light indeed and the regulatory risk low. For others it might well be an area of regulatory risk that has not received sufficient management focus, particularly during the recent period of market turbulence. This might have both exacerbated risks to end investors and at the same time distracted management attention towards other pressures. For these firms, there may be considerable work still to complete and management assurance to establish before the end of the year.”

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