In anticipation of the Conduct of Financial Institutions (COFI) Bill and Conduct of Risk Return (Omni-RR) reporting, we have intensified our focus on Treating Customers Fairly (TCF) outcomes in our financial service provider (FSP) audits since last year.
While our clients are making significant progress in preparing for the new legislation and outcomes-based reporting, our audits have revealed common challenges and areas of uncertainty that FSPs continue to face.
TCF and outcomes-based reporting reinforced
COFI aims to bolster TCF within the financial services sector, requiring FSPs to use data to demonstrate fair customer outcomes through regular Omni-RR reports to the FSCA. To support our clients in this transition, we have enhanced our audit approach by incorporating a stronger emphasis on TCF. Moreover, our evaluations also include a qualitative, outcomes-based testing element to gain deeper insights into how FSPs measure their TCF outcomes.
Through these enhanced audits, we have identified several key areas of concern for FSPs in relation to COFI and Omni-RR. These include challenges in data collection, understanding TCF reporting requirements, and utilising complaints data for root cause analysis and corrective action. Addressing these issues is crucial for FSPs to ensure a smooth transition to COFI and demonstrate compliance to the FSCA.
Five areas of Concern
- Data collection: Many FSPs face challenges not only in collecting and recording data but also in understanding what data needs to be reported in their Omni-RR reports to demonstrate TCF outcomes. Additionally, there is uncertainty among FSPs about how to integrate this data into their business processes to address underlying issues and promote fair client outcomes.
- Using customer complaints and feedback: Under COFI and Omni-RR, merely conducting customer surveys or recording complaints is insufficient. FSPs will be expected to use this data to conduct root-cause analysis to identify underlying issues and implement solutions to improve TCF outcomes.
- Proactive complaint management: Currently, FSPs tend to address issues only when they escalate into serious complaints. COFI will require a proactive approach, expecting FSPs to prevent complaints from becoming serious by reporting and addressing all complaints, irrespective of the seriousness, to allow for root cause analysis and implementation of corrective action.
- Understanding your client base: FSPs often fail to adequately segment their client base, which is crucial for determining product suitability. Without a clear understanding of their clients, FSPs cannot ensure that their products meet client needs effectively.
- Integrating TCF into your operations manual: Although many FSPs have operations manuals, our audits have found that some FSPs are unsure how to include TCF in their business policies and procedures. Including TCF strategies in these manuals is essential for improving outcomes and ensuring compliance with COFI requirements.
Five possible solutions
- Develop a comprehensive business view: Ensure your FSP has a clear and up-to-date understanding of your business, clients, services and products. This comprehensive view is essential for enabling appropriate business data collection and analysis.
- Identify key risk indicators and business metrics: Set out your market conduct indicators and key business metrics. Identifying these indicators is crucial for monitoring your compliance with TCF and understanding the areas that need attention.
- Establish measurement and monitoring processes: Specify how you will measure and monitor key risk indicators. This should include outlining proactive steps for taking corrective action when necessary. Regular monitoring ensures that potential issues are addressed promptly and effectively.
- Prioritise a TCF culture: Make cultivating a TCF culture a priority within your business. This involves training employees, empowering them to make decisions, and fostering an environment where fair treatment of customers is a core value.
- Enhance root cause analysis skills: Ensure that key personnel responsible for monitoring key risk indicators have a strong understanding of root cause analysis. This skill is critical for identifying underlying issues and implementing effective solutions to improve TCF outcomes.
Be proactive and reap the benefits now
Taking proactive steps to address the areas of concern mentioned above will significantly help FSPs prepare for the upcoming legislative changes and ensure a smooth transition. When Omni-RR comes into effect, FSPs that effectively collect and report the necessary data in their reports will be viewed as low risk by the FSCA, while those who fail to do so will be labelled as high risk and are more likely to attract regulatory scrutiny and audits.
Moreover, implementing these solutions can also yield immediate benefits. For instance, FSPs that efficiently collect data on complaints and use this feedback to improve their business processes will likely see higher client satisfaction. This, in turn, can lead to better client retention and increased referrals.