1. TCF: The Way Forward Nausicaa Delfas Head of Department FSA Freshfields client seminar 26 March 2009

2. Key messages TCF remains a high priority within FSA’s retail strategy Our supervisory approach will be more intrusive –this applies to conduct as well as prudential issues Market conditions pose particular risks to fair outcomes for consumers We will continue to take decisive action where we find actual or potential consumer detriment –including against senior management

3. Expectations of firms - 1 Regulatory obligation: –Principle 6: “a firm must pay due regard to the interests of its customers and treat them fairly” Also relevant: –Principle 2 (conducting business with due skill, care and diligence); –Principle 3 (taking reasonable care to organise and control affairs responsibly and effectively with adequate risk management systems); –Principle 7 (client information needs); and –Principle 9 (suitability of advice and discretionary decisions for customers).

4. Expectations of firms - 2 We have defined six consumer outcomes, explaining what we want TCF to achieve for consumers: Outcome 1: Consumers can be confident that they are dealing with firms where the fair treatment of customers is central to the corporate culture Outcome 2: Products and services marketed and sold in the retail market are designed to meet the needs of identified consumer groups and are targeted accordingly Outcome 3: Consumers are provided with clear information and are kept appropriately informed before, during and after the point of sale Outcome 5: Consumers are provided with products that perform as firms have led them to expect, and the associated service is of an acceptable standard, and as they have been led to expect Outcome 4: Where consumers receive advice, the advice is suitable, and takes account of their circumstances Outcome 6: Consumers do not face unreasonable post-sale barriers imposed by firms to change product, switch provider, submit a claim or make a complaint

5. Expectations of firms - 3 In collaboration with the industry, we have designed tools to help firms to self audit: –Explained the product lifecycle and (following consultation) issued guidance on Provider/Distributor Responsibilities, covering responsibilities where there is more than one firm involved in the retail chain –Established a culture framework to help firms to identify for themselves why good senior management intentions might not be translating into consistently good outcomes for consumers at the coalface –Produced case studies and reports on good and poor practice including on management information focussed at measuring outcomes/delivery of TCF, and not process

6. Expectations of firms - 4 As stated in June 2008, we expect firms to have: –Embedded TCF into their culture –Appropriate MI which measures outcomes, which is operational and acted upon –Fair outcomes which are consistently delivered –No serious failings In short: –Consistently good delivery of fair outcomes –Have right culture (including MI) to ensure such delivery is sustainable

7. What firms might expect of us - 1 Assessment approach now embedded within ARROW - it comprises: –Assessment of outcomes –Assessment of culture (including MI) Detailed feedback in line with other ARROW results Separate TCF score in ARROW letter

8. What firms might expect of us - 2 1.Assessment of outcomes: We will form our view of a firm’s delivery of the TCF outcomes through analysing the following evidence: –that firm’s management information (where we believe it to be robust); –our own direct testing of the consumer experience (for example through call listening, file reviews, and reviews of consumer communications); and –examination of any other relevant, up-to-date evidence (such as the results of recent thematic work). Pre assessment questionnaire Specialist teams

9. What firms might expect of us - 3 2.Assessment of culture (including MI) Culture framework 2007 – cultural drivers: –Leadership –Strategy –Decision-making –Controls, including management information –Recruitment, training and competence –Reward Points to note: –Boards, role of NEDs –Style of FSA assessment – interview staff at all levels down to coalface

10. What firms might expect of us - 4 Management information: Points which we have found tended to work well: –Combination of ‘top down’ and ‘bottom up’ analysis –Set challenging internal standards

11. Examples of Action Taken Examples include: –On issues where the FSA has previously publicly expressed an interest and the firm has failed to recognise or fix the issue; –Where firms which continue to struggle to develop their MI; –Against firms which fail to build TCF into their corporate culture; and –Instances where senior management in firms are not exercising their responsibilities appropriately

12. Conclusion Aim is for firms to achieve and continue delivering good consumer outcomes Senior management has to place fair treatment of customers as central to corporate culture We remain very focussed on assessing TCF/conduct issues Will continue to take decisive action where necessary