14 TCF

Question 1

Who is responsible for satisfying TCF requirements and who regulates compliance with TCF? (2)

Answer 1

The board and senior management is responsible for satisfying TCF requirements. Compliance is regulated by the FCA.

Question 2

List the elements involved in effective delivery of TCF. (8)

Answer 2

Effective delivery of TCF requires ensuring that a firm:

1. Needs of customers are identified as part of process.
2. Financial capabilities of customers are understood.
3. Advertising and other communication is clear, fair and not misleading.
4. Balance is maintained between increasing sales and not exposing customers to inappropriate risks.
5. Measures, Monitors, controls and reviews the risks arising from products for both new and existing customers.
6. Stress tests are done for possible risks to the firm arising from its retail business.
7. Control functions are in place.
8. Management information, timely and effective is used to monitor effectiveness.

Imagine the sections on Customers/Sales (3pts) on the left and Risk (3pts) on the right linked by the balancing point and above all of this is the MI point.

Question 3

List the six consumer outcomes defining what the FCA wants TCF to achieve for consumers. (6)

Answer 3

1. Consumers can be confident that are dealing with firms where the fair treatment of customers is Central to corporate culture.
2. Products are Designed to meet the needs of customers.
3. Consumers are provided with clear information and are kept appropriately informed before, during and after the point of sale.
4. Where consumers received advice, that advice is suitable and takes account of their circumstances.
5. Products perform in the manner consumers have been led to expect and service standards are at the level consumers have been led to expect.
6. Consumers do not face unreasonable post-sale barriers imposed by firms to change product, switch provider, submit a claim or make a complaint.

Question 4

Summarise the specific legislation that expands on the concept of TCF for with profits business. (3)

Answer 4

COBS Section 20.2 contains rules and guidance on treating with profits customers fairly, including target ranges for payouts relative to unsmoothed asset share.

COBS Section 20.3 contains rules and guidance on the PPFM.

COBS Section 20.4 contains rules on communications with with-profits policyholders, including the reporting of PPFM compliance.

Question 5

List factors to consider in addressing any TCF issue. (6)

Answer 5

1. Contents of any sales literature, adverts, promotional material, illustrations, projections, policy docs and PPFMs.
2. Payouts and MVRs relative to the past and the industry.
3. Reasonableness of changes to the terms of reviewable contracts.
4. If a firm is demutualising, whether an appropriate value has been placed on the future profits that are being sold.
5. PRE for SVs, options, guarantees and other situations like mortgage endowments.
6. Whether any proposed course of action is sound and prudent.