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Jean-Yves Gilg

Editor, Solicitors Journal

Treat me right

Treat me right


Treating clients fairly will become increasingly relevant to the legal profession and firms should start preparing early, says Ben Hardiman

Although many readers will be aware of the FSA's 'Treating Customers Fairly' (TCF) initiative, the majority will be unaffected by it. Certainly solicitors have not been affected in the same way as banks, insurance brokers and IFAs.

So, why discuss something which is seemingly irrelevant to the profession? My view is that elements of the concept are already applicable and it will become increasingly relevant in the next two to three years, so firms need to be alive to the changes which are on their way.

We are already starting to see the impact of the provisions of the Legal Services Act which are bringing about changes to the regulatory landscape. The Legal Services Board will act as a single, independent and publicly accountable regulator with the power to enforce high standards in the legal sector. The board is expected to appoint a consumer panel to provide advice on how issues may be perceived by the consumer. Further, the Office for Legal Complaints will be established to deal with complaints which will include an ombudsman scheme.

As the new bodies are unlikely to be fully operational until 2010, there is currently limited information on how they will operate in practice. Nonetheless, the indications are that these bodies are likely to follow a general blueprint of the mechanisms already in place for the financial services sector. So, for the LSB, one can see the FSA. For the OLC, one can see the Financial Ombudsman Service. If the pattern is followed, TCF could be the next big stick for the regulator to brandish.

TCF and the legal landscape

Although a relatively new principle, TCF stems from the FSA's Sixth Principle for Business, namely that firms must pay due regard to the interests of their customers and treat them fairly. On the face of it, this is a fairly insipid standard given that most businesses will think they treat their customers fairly. The incorporation of TCF into business practice has been a controversial issue for the financial services sector and it should not be viewed as a soft option. The FSA has imposed serious fines, in some cases exceeding £250,000, on a number of firms which have failed to treat their customers fairly.

Several elements to the TCF regime could be superimposed onto the legal landscape:

  • fair treatment of customers is central to a firm's corporate culture;
  • customers are provided with clear information and are kept appropriately informed;
  • advice is suitable and takes account of a customer's circumstances;
  • customers do not face unreasonable post-sale barriers.

To an extent these provisions already affect the solicitors' profession. Think for example of how Rule 2 of the Code of Conduct operates to facilitate the management of a client's expectations and a solicitor's responsibilities '“ acting in the client's best interests; keeping the client informed of progress; giving the client information regarding costs; having a written complaints procedure. These are all areas of overlap with the TCF regime and are relevant to practice now.

The FSA's definition of a complaint is extremely wide: 'any expression of dissatisfaction, whether oral or written, and whether it is justified or not'. If a standard that wide is imposed on the legal profession, solicitors may face problems when considering how to comply with the obligations imposed by their professional indemnity insurance. Most policies require insureds to give notice as soon as practicable of the discovery of any claim or any circumstance which might reasonably be expected to give rise to a claim. An expression of dissatisfaction, particularly if oral and unjustified, is unlikely to meet that level. Nonetheless, in order to comply with the regulatory regime a firm has to take action even if it does not satisfy the requirements of the insurance regime.

Investigating complaints

In fact, the FSA goes further because firms must proactively investigate their compliance with TCF. That extends to firms obtaining management information to evidence their complaints handling processes are working and may go as far as acquiring feedback from the firm's customers about their perception of the service provided. For even the best prepared firm, it is not unreasonable to anticipate some expressions of dissatisfaction in such a survey. Strictly speaking, that would not amount to a notifiable circumstance, but would the investigation amount to the handling of a complaint for insurance purposes?

The FSA is also concerned to avoid situations where customers are prevented from making complaints or claims because of unreasonable 'post-sale' barriers. Although it does not require firms to uphold and/or settle every complaint or claim, prompt, fair and consistent investigations into any complaint are essential. This is already a requirement under Rule 2.05 of the Code of Conduct.

From a professional indemnity perspective, most policies prevent insureds from making admissions, offers or promises of payment without prior consent from their insurer. That has the potential to conflict with the regulatory requirement of undertaking prompt investigations and making fair and prompt offers and payments of redress (if appropriate). For an insured's regulatory wellbeing, an insurer cannot afford to delay proper investigation or even prevent settlement by delaying their decisions over issues such as coverage or perhaps even consenting to an insured's proposed response to a complainant.

In most instances, this is not an immediate issue for the profession but it may become one. When it does arise, the professional indemnity market may have to adapt also. For any solicitor reading this article, the recommendation would be to start preparing early. If nothing else, a business which treats its customers fairly and addresses complaints fairly and reasonably ought to be a successful one.