A flawed initiative

In the financial services world, timing is everything. As the first of the Financial Services Authority's two deadlines arrives for its Treating Customers Fairly initiative, it is unfortunate that the regulator's authority has been dented by news of how inadequate it was in overseeing Northern Rock.

The FSA has banged the TCF drum louder than ever recently. It announced plans to monitor some 3,000 financial advisers, insurance and mortgage brokers this year, plus a further 8,000 during 2009 and 2010. The regulator also threatened stiffer penalties if the TCF guidelines are not met.

"Firms that miss the deadlines will face more regulatory intervention," the watchdog warned. "We have a range of regulatory tools at our disposal and in appropriate circumstances we will consider enforcement action."

As the FSA has reminded us regularly, after March 31, all brokers must be able to demonstrate that all of their TCF reporting is in place. Stage two, which takes effect from December, will require evidence to show that the business is immersed in a "TCF culture".

How these tests will be met has still not been made entirely clear. If the initiative achieves its aims of improving consumer protection and confidence in financial services, the additional costs and burdens TCF imposes on brokers may be worth it.

Unfortunately, it looks as if the outcome will instead be one of more time devoted to paperwork with little or no benefit to the consumer. Brokers attest already that insurers have gone into overdrive, insisting that every last compliance box is ticked.

Paradoxically, the TCF regime could result in less choice for consumers. If administration becomes too great a burden, small and medium-sized brokers will either sell up to bigger competitors or exit the industry. Has the FSA considered this unintended outcome? You would not want to bet on it.

David Quick, managing director, CETA.