FCA investigate six firms for concerns over treatment of longstanding customers

As part of their wider industry-wide initiative, the FCA have completed in September 2017 a thematic assessment of how longstanding customers were treated by firms in the life assurance sector. The assessment included a review of the treatment of closed-book customers against four high level customer outcomes:
• Does the firm’s strategy and governance framework result in the fair treatment of closed-book customers;
• Do the firm’s closed-book customers receive clear and timely communications about policy features at regular intervals and key points in the product lifecycle that enable them to make informed decisions;
• Does the firm give adequate consideration to, and take proper account of, fund performance and policy values in a way that ensures it treats its closed-book customers fairly and proportionately; and
• Are the firm’s closed-book customers able to move from products that are no longer meeting their needs in a fair and reasonable manner.
A total of eleven firms were included in the thematic review. The eleven firms varied in size, type and business model with the aim of capturing a representative picture of the sector as a whole. Included in the eleven firms were firms closed to new business, consolidators and firms that are still writing new business but also had closed-books within their business. One of the purposes of the FCA’s review was to gain an understanding of the levels of exit and paid-up charges being incurred by long-standing customers, and firms’ behaviour in applying those charges. We found that even where customers are aware of these charges, the impact these charges can have on the returns customers receive can be significant and they may present barriers to customers shopping around.
The FCA have observed that “The practices at some firms appear to have been poor. We have particular concerns regarding how some firms communicated with their customers about exit and/or paid-up charges. We are now doing further work to understand the reasons for these practices, whether customers may have suffered detriment as a result and, if so, how widespread these issues are.”
The review resulted in the FCA launching further investigations into the practices followed by some firms including Scottish Widows, Prudential, Countrywide Assured, Old Mutual and Abbey Life.
The FCA have summed up their expectations from firms in relation to longstanding customers across all sectors as “Given the long-term nature of closed-book products, it is vital that customers are treated fairly and given the right information on an ongoing basis in order to help them make important financial decisions. We expect all firms with closed-book customers to take into account the findings we have published today and ensure they are treating their closed-book customers fairly.”

FCA concerned by Consumer Credit firms’ handling of complaints

Jonathan Davidson, Director of Supervision at the FCA has written a Dear CEO letter to all consumer credit firms. The letter stresses the importance of complaints handling by stating that “firms’ attitudes to complaints are a strong indicator of their culture and whether they have customers at the heart of their business. Those firms that care about their customers and want to do better recognise that complaints are an opportunity to identify and rectify failings and strengthen relationships with their customers. Conversely, those firms that consider complaints as a nuisance and do not take them sufficiently seriously are unlikely to have a culture that leads to positive customer outcomes”.

Mr Davidson also highlighted the main areas of concern to the FCA as:
• A failure to provide to customers the required information about the Financial Ombudsman Service – this included failing to provide details of the complainant’s right to refer to the ombudsman if they remain dissatisfied
• A failure to provide a clear explanation, to the complainant, of the outcome of the complaint and why this outcome had been reached
• A lack of management controls in place to analyse and remedy any root causes of complaints or systemic problems

Firms are required to publish appropriate information regarding their internal complaints handling procedures and refer complainants to the availability of it. They also need to provide information about the Financial Ombudsman Service on their website. (DISP 1.2.1R). The letter advises that almost half of firms’ websites that were reviewed by the FCA failed to include the required references to the Financial Ombudsman Service. In a quarter of websites there was either no information on how to make a complaint and no signposting where to get this information from, or it was very hard to find. The FCA also observed that where published procedures were available for review, there was often a lack of basic information such as when complaints would be acknowledged or final responses issued.

The FCA are also concerned that nearly a fifth of firms appear to be still operating ‘two-stage’ processes where there was a further internal escalation if customers were dissatisfied with the outcome of their complaint. Mr Davidson has reminded the firms that the two stage complaints procedures were no longer permitted by the FCA rules and have been replaced a few years ago.

A significant proportion of firms had failed to carry out a root cause analysis on their main cause of complaints. Where they had there were few examples of such analysis resulting in other customers who had not complained, affected by the same issue, being identified, and where appropriate, provided with redress.

The FCA have asked firms to review how they identify, record and deal with complaints as well as how this is communicated to customers, particularly taking into consideration the above areas. Mr Davidson has also reminded all firms that they must be able to evidence their compliance with the applicable regulatory requirements. The letter makes it clear that, “in any future contact we have with your firm we may ask for evidence of such compliance, including details of any review you have carried out on your complaints handling arrangements following this letter. Where we find serious failings we shall consider referring such cases to our Enforcement division for formal action to be taken”.

FOS analysis of regulated complaints data

The Financial Ombudsman Service has published its latest six-monthly complaints data (up to June 2017) relating to banks, insurers and other financial businesses. The figures show that the ombudsman took on a total of around 170,000 new cases in the first six months of this year.
This represents a 13% increase in complaint figures when compared to the previous six months and reflects rises in almost every product sector as summaries in its report as below.
• Almost two thirds of the complaints received in the first six months of this year came from just 10 businesses
• Complaints about banking and credit have increased by 12% to around 47,000 and within this consumer credit complaints are up by almost a fifth to nearly 15,000, and
• PPI continues to be the most complained about product with almost 90,000 complaints, making up over half of all complaints to the Ombudsman service.
Most of the businesses named in the complaints data for the first time operate in the consumer credit sector. The average uphold rate (where the ombudsman found in the consumer’s favour) for all businesses over the six-month period was 36% and ranges from 3% to 79% across the individual businesses.

FCA ask firms to address financial needs of older consumers

The FCA have published a paper in September 2017 to provide an overview of the financial needs of the older consumers, how they make decisions, what products and services they need and whether they are able to access them. While acknowledging that there is no ‘one size fits all’ solution, they have found some particular issues and access barriers that are more relevant for older consumers.

The paper sets out the key findings and outcomes from the FCA’s Ageing Population Project and their strategy for mitigating the potential harm arising. It is intended to:
• Help firms to identify and understand the specific needs, characteristics and preferences of older consumers
• Encourage sustainable change by helping to create an environment that delivers good outcomes for older consumers. This could be through firm, regulator and consumer actions (recognising the extent to which this is realistic, particularly for those who are vulnerable)
• Challenge financial exclusion
• Ensure firms proactively recognise the potential vulnerabilities associated with older consumers and act with appropriate levels of care
• Encourage firms to consider the issues posed by demographic change, and take steps to mitigate potential risks or harm to older consumers

The FCA believe there are risks that older consumers’ financial services needs are not being fully met, resulting in exclusion, poor customer outcomes and potential harm. Consumer groups have highlighted examples of poor customer service and potential access barriers in a number of retail sectors.

The FCA have stated that issues appear to be driven by a range of interrelated root causes, which include policies and controls that are not designed around consumer needs and unintended consequences of retail product and service design. The FCA have therefore, asked firms to take the following steps when designing their products and services:

• Understand and anticipate the current (and future) needs and circumstances of older customers in their target markets
• Take older customers’ needs into account when developing distribution channels, and customer support for older consumers, or other vulnerable groups, and
• Involve older and vulnerable consumers in testing and product design at concept stages

Insurance Conduct of Business Rules set for an overhaul

Following a review of the Insurance Mediation Directive, the EU Commission began a process to revise the IMD. Its replacement, the Insurance Distribution Directive (IDD) entered into force on 23 February 2016. The new provisions are required to be implemented in the UK and other member states by 23 February 2018.

The FCA published the near final rules, in a policy statement PS 17/21 in September 2017, for implementing the provisions of the IDD. The new rules cover the following areas and will replace the provisions of Insurance Conduct of Business Sourcebook (ICOBS).

• Application of the Directive
• Professional and organisational requirements
• Complaints handling and out-of-court redress
• Changes to conduct of business rules (for non-investment insurance contracts)
• The regulatory regime for Ancillary Insurance Intermediaries (AIIs)

Based upon the feedback received, the FCA are going ahead with implementing the draft rules set out in their earlier paper, CP17/7, with the following changes:

• In ICOBS, the FCA have revised their guidance on the choice given to customers on how they receive information.

• FCA have also included guidance on the means of providing information on renewal to customers who took out their policy before 23 February 2018.

Among other measures, the IDD requires all insurance intermediaries/ distributors and their employees to have the appropriate knowledge and ability to perform their roles. This is required to be supported by a minimum of 15 hours of continuing professional training or development (CPD) on an annual basis. The IDD sets out at a high-level the areas of knowledge and ability which employees should possess, including minimum product knowledge and knowledge of the claims process.

FCA’s Factsheet for firms providing financial/ pension information and advice to employees

The FCA have provided helpful guidance to all firms, in a Factsheet published in September 2017, to clarify as to what they can do in relation to providing certain financial advice including for work pensions to their employees without the need to be authorised for the related regulated activity.

The FCA rules under the Financial Services and Markets Act (Financial Promotion Order) require that any material that promotes a particular financial product needs to be issued by someone authorised by the FCA or approved by an authorised firm. This includes promotional material in any format. However, there are certain exemptions which allow an employer to promote a pension scheme offered in the workplace. For example, providing information to employees on the merits of participating in an occupational pension scheme, which is not a stakeholder pension scheme or a workplace personal pension scheme, is not caught by the restrictions on promoting financial products as the employees are not acquiring investments. In respect of stakeholder pension schemes or workplace personal pension schemes, where firms simply communicate factual information, for example that staff have the option of making a switch from one default fund to another default fund with no additional element of invitation or inducement, this would not be regarded as a financial promotion.

However, where the factual information is presented in a way which also seeks to promote the pension scheme, encourage a switch, or persuade individuals to join it, then it could constitute a financial promotion and would need to be approved by an authorised firm unless one of the exemptions applies. There are many types of scheme that firms should be able to offer their staff such as stakeholder, occupational or group personal pension schemes, and different rules and exemptions may apply to the different types of schemes.

In general, specific exemptions set out in the FCA Handbook and the Financial Promotions Order allow an employer, or service providers contracted by employers, to promote the following products to staff in certain circumstances.

• employee share schemes;

• certain insurance products (e.g. life assurance, critical illness, medical, dental and income protection insurance);

• staff mortgages provided certain conditions are met*; and

• staff loans offered to employees (for example travel card loans)

(*Articles 72D and 72E of the Financial Promotions Order 2005. FCA Handbook – PERG 8.14.40)

Further information detailed in the Factsheet are available through the following link: