Topic 8 - Fair and ethical outcomes for customers Flashcards
What are the FCA’s 11 principles for businesses in their principles based approach
- Integrity
- Skill, care and diligence
- Management and control
- Financial prudence: a firm must maintain adequate financial resources.
- Market conduct
- Customers’ interests
- Communications with clients
- Conflicts of interest: a firm must manage conflicts of interest fairly
- Customers’ relationship of trust
- Clients’ assets: a firm must arrange adequate protection for clients’ assets
- Relations with regulators: a firm must deal with its regulators in an open and co-operative way
What is COBS 2.1 and what does it expect from firms
- Rule in the FCA handbook
- Expects firms to ‘act honestly, fairly and professionally in accordance with the best interests of its client
What did the Fair Treatment of Customers used to be called and who was in charge of it before the FCA
- Treating Customers Fairly (TCF)
- Run by FSA
The FCA’s view of the Fair Treatment of Customers is essential for
- Operation of an efficient retail financial services market
- Promoting consumer confidence
- The principle must be taken on and supported by senior managers in big firms
- The way customers are treated is important in the acquisition and retention of market shares
Who does the FCA make very clear has ultimate responsibility for Fair Treatment of Customers principle
- Senior managers
What are the 6 outcomes that FCA expects Fair Treatment of Customers to achieve
- Customers can be confident that they are dealing with firms where the fair treatment of customers is central to the corporate culture.
- Products and services marketed and sold in the retail markets are designed to meet the needs of identified consumer groups and are targeted accordingly.
- Consumers are provided with clear information and are kept appropriately informed before, during and after the point of sale.
- Where consumers receive advice, the advice is suitable and takes account of their circumstances.
- Consumers are provided with products that perform as firms have led them to expect, and the associated service is both of an acceptable standard and as they have been led to expect.
- Consumers do not face unreasonable post-sale barriers imposed by firms to change product, switch provider, submit a claim or make a complaint.
The FCA said that Fair Treatment of Customers should be considered at every stage of a financial product’s life cycle, including
- Product design
- Sales and marketing
- Advice
- Selling and administration
- Post-sales (claims and complaints handling)
The FCA believes leadership is central, and good leadership demonstrating clear visions of fair treatment is a better culture for the firm. What aspects does the FCA expect a firm to have built into their culture
- the firm’s commercial strategies to be consistent with fair treatment of customers;
- demonstrate the active involvement of senior management in terms of engagement and driving change throughout the business;
- demonstration that senior management have instilled a culture around fair treatment of customers means, expect staff to achieve this at all times
- the fair treatment of customers is written into personal objectives and rewarded at all levels within the company;
- the firm listens to, and acts on, feedback from customers.
When was the new consumer duty started
- July 2021
What is the overall aim of the new consumer duty
- To enhance consumer protection
- Provide more rules and guidance to some other related areas
What does the new consumer duty say it will potentially add to the FCA
- A new 12th principle of business
- Consumer duty - A firm must act to deliver good outcomes for retail customers
The new consumer duty will be based on 4 outcomes, which are
- Communications equip consumers to make effective, timely and properly informed decisions about financial products and services.
- Products and services are specifically designed to meet the needs of consumers and sold to those whose needs they meet.
- Customer service meets the needs of consumers, enabling them to realise the benefits of products and services and act in their interests without undue hindrance.
- The price of products and services represents fair value for consumers
What does the FCA define culture as when talking about a firm in the industry
- “The habitual behaviours and mindsets that characterise an organisation”
In relation to corporate culture, what are the 4 key drivers the FCA have established to cause harm to consumers
- Purpose
- Leadership
- Approach to rewarding and managing people
- Governance
What is the chapter of the FCA handbook where rules on conflict of interest for firms providing services is covered
- Systems and Controls (SYSC)
What is meant by conflicts of interest when talking about SYSC
- When a firm, employee or someone with an element of control over the firm affects their ability to act in the best interest of the consumer
What are some examples of conflicts that could appear under the SYSC chapter of the FCA handbook
- is likely to gain financially, or avoid a financial loss at the customer’s expense;
- has an interest in the outcome of a service or transaction carried out for a customer, which is different from the customer’s interest in the outcome – recommends an inferior or less suitable product because the provider pays higher commission
- has an incentive to favour the interest of another customer over the customer’s interests;
- carries on the same business as the customer;
- will receive an inducement (other than the normal fee or commission) from someone other than the customer to provide the service. For example, holiday or other reward
What should a firm create to avoid confusion with conflicts and methods of resolving them
- Written conflict of interest policy
What are the 2 main offences when talking about market abuse
- Insider dealing
- Market manipulation
What is the definition of money laundering
- Filtering proceeds from criminal activity through a series of accounts or other products to give it apparent legitimacy
