1 INTRODUCTION
Treating Customers Fairly (TCF) is the practical realisation of one of the FSA’s core principles: “A Firm must pay due regard to the interests of its customers and treat them fairly.”
Catalyst Investment Group Limited (“CIGL”) operates a policy of openness and transparency, managing any identified conflict of interest without prejudice to the interests of our clients. CIGL adheres to well-defined internal policies and procedures, which relate to all members of staff throughout the company. By placing the fair treatment of customers as the focal point of CIGL activities it is intended that the expectations of the FSA will be exceeded as the company strives to incorporate the standards expected. These TCF standards and culture are as important to Executive Management as they are to all other members of staff and the TCF culture flows from the Executive Management and down throughout the rest of the company in the all the day to day activities of the company. TCF is equally as important as other business needs and is considered alongside business needs at all times.
2 THE SIX TREATING CUSTOMERS FAIRLY OUTCOMES
The FSA have defined six consumer outcomes expected from a firm in the course of Treating Customers Fairly (TCF). These will be used as the FSA monitors TCF against the life cycle of each product.
Outcome 1: Consumers can be confident that they are dealing with firms where the fair treatment of customers is central to the corporate culture.
Outcome 2: Products and services marketed and sold in the retail market are designed to meet the needs of identified consumer groups and targeted accordingly.
Outcome 3: Consumers are provided with clear information and are kept appropriately informed before, during and after the point of sale.
Outcome 4: Where consumers receive advice, the advice is suitable and takes account of their circumstances.
Outcome 5: 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.
Outcome 6: Consumers do not face unreasonable post-sale barriers imposed by firms to change product, switch provider, submit a claim or make a complaint.
3 MANAGEMENT INFORMATION
The FSA believes that firms should have implemented a TCF culture and consider how the different parts of the business influence delivery of the six consumer outcomes listed above. A deadline of December 2008 was set for all firms to show they are able to demonstrate that they are consistently treating customers fairly.
In order to meet this requirement to demonstrate that CIGL are treating customers fairly CIGL will need to use Management Information (MI) or other appropriate measures proportionate to the size of the business. An interim deadline of March 2008 was set to encourage firms to focus on and make progress in this area.
CIGL have appropriate MI or other such measures in place, which includes developing responsibilities, processes, controls and standards, to test whether they are delivering the TCF consumer outcomes. CIGL need to be able to provide evidence to demonstrate that the desired outcomes are being delivered.
3.1 Principles of Good Management Information
Management Information covers any information collected during any period of business activity. The information may concern customers, staff, calls, visits, meetings, sales, opinions, parts of a process, predictions etc. All information relevant to a firm, from whatever source, can be described as MI.
Good MI will enable management to make informed business decisions. MI should be:
- Accurate – the correct numbers with any commentary contributed by the right people.
- Timely – sufficiently available to enable managers to act.
- Relevant – displaying what a manager can directly influence or something that they may need to escalate to facilitate the necessary action.
- Consistent – consistent on a period-to-period basis to allow managers to spot trends and make sound decisions.
3.2 Key Elements of Good Management Information
Good Management Information should:
- focus on how successfully CIGL is delivering the TCF consumer outcomes rather than measuring processes as this is unlikely to be enough to demonstrate delivery of TCF outcomes.
- indicate the status of CIGL’s TCF initiatives.
- in many cases simply require the expansion of existing MI to include extra analysis to enable firms to demonstrate delivery of TCF outcomes, as opposed to the creation of substantial amounts of new information.
- distinguish between fairness and customer satisfaction, as customers can be satisfied with unfair treatment and dissatisfied with fair treatment.
- measure performance and identify potential risks. Such as the presentation of information to help management see a pattern and make a decision.
3.3 Measuring and monitoring the success of Management Information
The necessary measures can be divided into two variables:
- a standard – the level of performance that the firm decides demonstrates that it is treating customers fairly and delivering the TCF outcomes; and
- a result – how they performed against the standard.
3.4 The Five Steps
TCF is considered the responsibility of senior management; however, taking action to deliver TCF is the responsibility of everyone at CIGL. It is important that the FSA can see evidence that the MI is used by the right people and in the correct manner.
Using MI should include the following five steps, so that the MI is:
- seen – an appropriate level of management receives, understands and reviews the MI
- challenged – anomalous or unexpected results are challenged
- analysed and monitored – the right messages and conclusions are drawn from the data
- acted on – where appropriate, actions are taken to remedy the situation, to investigate further and to follow up on those actions
- recorded – records are made of what is done and information is subsequently gathered to enable the success of those actions to be assessed
i. Seen
MI must be reported to the level of management to whom it is relevant.
Where there is a risk of local actions being taken to remedy systemic failures without the organisation recognising them as such, then some higher level MI is required. Local management would need to:
- Observe MI that led them to believe that a particular outcome was not being met;
- Act to remedy the particular problem at a local level; and
- Communicate to senior management details of action taken and any wider risk to delivery of fair outcomes for customers.
ii. Challenged
Managers are expected to challenge the content of MI. This may involve:
- Challenging the reasonableness of numbers against their expectations or experience.
- Asking internal audit to review the information that feeds into a report on which they rely.
- Reviewing and sense-checking information on a sample basis and satisfying themselves that the numbers are correct.
Management would also be expected to consider the substance and quality of the MI. Considering whether:
- The MI is still relevant to the goals of the firm?
- There is another report that would provide more appropriate MI?
- A one-off exercise could be performed to demonstrate that it is comparable to another potential measure of an outcome?
Challenges should be performed with the TCF consumer outcomes in mind; careful design of processes can align MI with outcomes.
iii. Analysed and Monitored
MI needs to be analysed critically, with a focus on the quality of the TCF consumer outcomes. In general, CIGL should aim to avoid using the absence of poor results as a sign that the consumer outcomes are being delivered.
CIGL is expected to monitor company performance against set standards so performance can be tracked over time. Even if the correct conclusions are drawn from MI, there are situations where the MI may not provide any indication of the root cause of the results. In such situations, senior management would be expected to perform more detailed analysis.
Incorporating additional detail into MI can be important in deciding appropriate action. Analysis of the MI can highlight potential inconsistency in the delivery of TCF outcomes but can also provide some of the analysis needed to solve the problem.
The process of review and root cause analysis can be complex, managers may have conflicting opinions of how the business works, or the information needed to reach a decision may not be available. In these situations, TCF does not require a full and detailed analysis of every possible root cause, but CIGL is expected to make a reasonable effort to eliminate certain root causes that are indicative of failing to meet TCF outcomes.
If MI shows details about customers and products then it becomes easier for firms to identify and resolve situations where they may fail to deliver TCF outcomes.
iv. Acted on
Arguably the most critical part of MI. Many firms collect MI and have a clear review process for it, but it is not always evident how those firms act to remedy problems with the delivery of TCF outcomes that are indicated by the MI.
For CIGL to be responsive to changes, the efficient internal communication of potential trends is required. The reporting lines can help in enabling efficient communication, but an element of ad-hoc cooperation between the area that sees the MI and the area that may need to act will also be required. In some cases, alternative reporting lines will need to be used e.g. a whistle-blowing line, internal audit, a TCF intranet site or a direct line to senior management.
v. Recorded
Where an issue has been identified, CIGL is expected to produce evidence that actions have been taken to resolve it. In these situations, appropriate records should demonstrate that MI has been seen, challenged, analysed and acted on. MI that evidences a process, control, responsibility or even a project has been implemented will not by itself prove that the problem has been remedied. If the remedy involves something that can be measured, then further MI is equally important.
Remedial actions need to be documented and may even need their own MI to prove they are successful. MI is not just information which is collected on a routine basis, but contains the appropriate mix of routine and ad-hoc data.
4 DEALINGS WITH CIGL
CIGL have identified key principles which will enable customers to be treated fairly at all times.
(1) Transparency and Openness. Customers should understand the nature of the services CIGL provide, as well as the risks associated with the products and services we offer.
(2) Communication. CIGL will communicate in an open, transparent and comprehensible manner, with a clear understanding of our Customers investment objectives, investment experience, attitude to risk, financial standing and resources.
(3) Suitability. All recommendations made to our customers must be suitable to their requirements and investment objectives.
(4) Assurance. CIGL will only promise to provide services to which it is equipped to deliver, while providing a complaints procedure which is clear, unambiguous and impartial.
(5) Training and Development. The concept of “Treating Customers Fairly” will be integral to the training of all staff at all levels as CIGL strives to provide excellent and fair service at all times.
4.1 A Culture of Treating Customers Fairly
CIGL has embedded a culture of Treating Customers Fairly throughout the company; efforts to support this have been made in the following ways:
- All customers should clearly understand the nature of the services and products CIGL provide, including terms, conditions and charges.
- All communications with customers should be fair, clear and not misleading. Marketing campaigns and literature should be balanced and informative in order to provide customers with the requisite information in order to make an informed decision. Efforts should be made to proactively explain all products, ensuring that an understanding of key points, risks and selling points.
- All customers must clearly understand the risks inherent in the products and services they purchase.
- CIGL aim to be open and transparent throughout all dealings, ensuring that all products and services will meet the needs and expectations of our customers.
- CIGL will only promise to provide services we are able or equipped to deliver.
- Where applicable the suitability of all clients will be considered through appropriate tests and the Know Your Customer (KYC) process. A thorough understanding of our clients’ investment objectives, investment experience, attitude to risk, financial standing and resources will support our initiatives to treat customers fairly.
- Clients will be correctly classified to ensure that they will be offered the appropriate level of protection.
- A Best Execution Policy is in place so as to secure all clients the best possible result when executing orders.
- The CIGL complaint procedures must be clear, unambiguous and impartial.
- Provide an appropriate level of after sales service.
- The implementation of well-defined internal policies and procedures that are embedded and supported at all levels across the company.
- Placing the needs of our customers at the forefront of any decision regarding the impact of any strategic changes taking place within the organisation. TCF must be a major consideration and the first stage of any proposed changes.
- The consideration of TCF is important even when non-customer decisions are being made and Firms should be able to show that they have taken into account delivery of TCF principles throughout the decision making process.
- To identify and manage all conflicts of interest in an appropriate manner.
- To collect and assess relevant customer information, to ensure that customers are offered appropriate support and quality assurance. The correct collection of information will enable Senior Management to identify ways of improving the service offered to customers and to make informed judgments and strategic decisions moving forward.
- To constantly measure and review the effectiveness of our treating customers fairly policy by analysing Management Information from all business areas and amending our internal processes accordingly to improve the service we offer you.
- The effectiveness of all CIGL policies, in respect of Treating Customers Fairly, will be regularly reviewed and updated.
- All CIGL staff will receive continuous training to ensure they have the correct skills based in order to perform their jobs effectively. Extensive training will be given on Treating Customers Fairly and all staff should strive to ensure that the principles outlined here are adhered to at all times.
4.2 Conflicts of Interest Policy
CIGL has created a detailed Conflicts of Interest Policy. This outlines methods of conflict management implemented by CIGL as it strives to take all reasonable steps to identify, prevent, disclose and record any conflicts of interest that may arise now, or in the future, following the obligations placed on the firm by The Markets in Financial Instruments Directive (MiFID).
Key Initiatives Include:
(1) Conflict Management. Identifying actual and potential conflicts during the course of carrying out regulated activities, ancillary activities or services.
(2) Incentivised Behaviour. CIGL does not incentivise behaviour which may lead to conflicts, such as remuneration and appraisals which reward actions that disadvantages the interests of clients in favour of the firm or other clients.
(3) Independence Policy. Staff are required to act independently of CIGL’s own interests.
(4) Chinese Walls. Restricting the flow of sensitive information between departments.
(5) Disclosure. To be used only where all reasonable steps to manage a particular conflict of interest are not sufficient, ensuring that any risk of damage to the interests of a client will be prevented.
4.3 Supporting Procedures
Further areas in which CIGL are keen to maintain fair and transparent treatment of all customers include the following:
(1) Personnel Account Trading Policy. This detailed policy imposes restrictions on all employees with a view to removing the likelihood of a conflict of interest.
(2) Gifts and Inducements. The CIGL gifts/inducements policy and procedures outlines in detail restrictions imposed on CIGL employees with regards to offering, giving, soliciting or accepting any inducement if it is likely to conflict with any duty owed by CIGL to its clients.
(3) Breaches Policy. Details how CIGL will identify, report and monitor any perceived breach by any Employee.
(4) Client Classification. Through the classification of clients and the recording of details, CIGL will be able to tailor its services to the needs of the client, providing the level of protection specified by the FSA and MiFID.
(5) Compliance Manual This detailed document expands upon the policies and procedures listed above providing an all encompassing comprehensive overview of CIGL’s efforts to ensure all customers are treated fairly. This document is available to all staff members and is considered a vital tool in the efforts of CIGL to treat all customers fairly.
(6) Assessing Appropriateness. Where required CIGL will consider a clients knowledge and experience in order to assess whether the product or service would be appropriate for the client in question.
5 CATALYST TREATING CUSTOMERS FAIRLY INITIATIVES
The following initiatives have been identified by CIGL as potential ways of generating quality MI and imbedding a culture of TCF throughout the company.
(1) Continuously updating and refreshing the TCF Policy, allowing CIGL to adapt to the changing requirements of TCF. Implemented by Senior Management this will filter down to all areas of the organisation.
(2) Incorporating a TCF action plan containing key milestones which need to be addressed.
(3) A TCF section will be included on the website.
(4) A TCF customer service survey will be sent to clients with a view to obtaining quantitative and qualitative research in order to obtain quality MI, enabling CIGL to identify areas for improvement.
(5) Developing training methods so all staff members are aware of the importance of TCF and for this to be updated and revisited on a regular basis.
(6) Using all relevant MI information to improve the service and products provided by CIGL.
(7) In depth monitoring by compliance. This will include monitoring calls to and from the Broking Team, ensuring Financial Promotions meet the required standards, monitoring and responding to any complaints while recording any exchanges in order to continue.
(8) Improve customer understanding of the various products, to ensure that they meet customer expectations and potentially open the market to customers who may show reservations due to a lack of understanding the nature of the products in question. Improved communication at all levels would benefit both CIGL and its customers.
(9) Full facts about any products must be disclosed and any supporting documents need to be simple, clear and accessible. The Fair, Clear and Not Misleading principle must play particular prominence. The use of plain English should be promoted at all times and any technical language or difficult terminology should be resolved through a comprehensive definitions page.
(10) Supporting documents could be seen in any medium which would also encompass the CIGL website which should be regularly updated with the most relevant information.
(11) Any risks should be communicated to all customers and should be of equal prominence to the rest of the information provided.
(12) Potentially developing a panel of retail investors to preview new products being designed, enabling CIGL to consider whether the fair treatment of customers has been adequately considered.
6 COMPLAINTS
CIGL aims to provide the very best level of customer service and will respond swiftly to acknowledge and deal with all customer queries and complaints In accordance with the CIGL complaints procedures.
Where a complaint is received, CIGL will aim to give a detailed response within eight weeks but will endeavour to provide an adequate response at the earliest opportunity, clearly communicating our understanding of events. All complaints are recorded by the compliance department, supporting efforts to produce quality MI.
