Darlington Building Society Group Conduct Risk Policy

Transcription

1 Darlington Building Society Group Conduct Risk Policy 1. INTRODUCTION 1.1 This policy is intended to represent the Group s policy for managing retail conduct risk. 1.2 Retail conduct risk has been defined as: risks arising from firms conduct in their direct relationship with retail customers, or where firms have a direct duty to retail customers. 1.3 The management of conduct risk is one of the keys to a successful delivery of the Group s strategy and objectives towards its members and other key stakeholder interests. 1.4 Particularly relevant to conduct risk are the Regulators Principles for Businesses. The 11 Principles include the following, which require every authorised firm: Principle 1: to conduct its business with integrity Principle 2: to conduct its business with due skill, care and diligence Principle 6: to pay due regard to the interests of its customers and treat them fairly. 2 RISK APPETITE 2.1 In controlling risk it is appropriate to state that risk in any activity cannot be eradicated completely. We operate in an environment that has risks attached and this need to be managed within acceptable limits or an agreed appetite. 2.2 The risks identified by Board, Management and staff form our Retail Conduct Risk appetite statement, see Appendix 1, and come under four broad headings reflecting the regulatory view of treating customers fairly and retail conduct risk i.e. Governance & culture, products, sales and after sales. 2.3 The risk appetite is approved annually by the Board Conduct Risk Committee. 3. VALUES At Darlington Building Society we will act with honesty and integrity; and pride ourselves on providing excellent customer service through well trained and friendly members of staff. We respect and treat others as we would like to be treated ourselves. 1 of 4

2 We believe that good ethics and good business are compatible, and together produce the best long term results for members and staff. The highest ethical standards shall be cascaded downwards from the most senior level and no-one shall be exempt. Ethical business practices reflect how we will deal with our members and staff. It is reflected throughout the Society s culture, our values, policies and the way we are expected to behave. Our Vision and commitment to Treating Customers Fairly reflect and reinforce this. Through them we play a positive role in our community, attract and develop the best people and create products to suit our customer needs. We will remain a local mutual building society, looking after local interests; servicing our customers in the main through our branch network, offering a choice of savings, mortgages and associated products and services. Our code of ethics was written by the staff with the headline being We will always aim to treat people with honesty and integrity, putting the interests of our members first. The values and ethics that are important to us are published on our website and highlighted in each of our branches. Our Vision & Ethics policy is reviewed and challenged every year as part of the Board strategy process. This policy statement has been developed with the full involvement of the Board. 4. SCOPE This policy applies equally to all departments, branches and active subsidiary companies all of whom shall take cognisance of its contents and act accordingly. 5. ROLES AND RESPONSIBILITIES This section sets out the responsibilities of individuals and committees involved in operational risk management. 5.1 THE BOARD One of the key risks is a failure to embed good business conduct at the heart of the organisation and for that reason it is important that the Board set our standards and that each individual Director lead by example in championing a culture that delivers a business actively engaged in treating our customers fairly. Directors have ultimate responsibility for ensuring that an appropriate system of control is in place and maintained which includes the management of conduct risk. The Board Conduct Risk Committee however has been delegated with this task and reports directly to the full board after each of its meetings. Authority is delegated to management to establish, operate and monitor the system on a day to day basis. 2 of 4

3 5.2 THE BOARD CONDUCT RISK COMMITTEE (BRC) The Board Conduct Risk Committee is responsible for the maintenance of this policy Statement. The Committee keeps the risk appetite under review and reports to the Board regarding our present practices. The policy statement and risk appetite are reviewed at least annually. The Committee is Chaired by a non executive director and has both executive and non-executive representation. The Risk & Compliance Manager and other relevant senior managers attend meetings by invitation. 5.3 EXECUTIVE Under the Regulator s Principles of Good Regulation, senior management is responsible for a firm s compliance with regulatory requirements. The Executive are engaged with conduct business risk areas across the Society. 5.4 TCF REVIEW COMMITTEE The principal objective of this Committee is to consider all matters pertaining to Treating Customers Fairly and to ensure that our approach is consistent with the Group s Business Conduct objectives and risk appetite. It will report to the Executive and the Board Conduct Risk Committee. 5.5 DEPARTMENTAL AND BRANCH MANAGEMENT Often it can be managers or staff who see the first signs of either new risks emerging or existing risks materialising as they are in daily contact with our members and new customers. They have an important and vital role therefore in ensuring that they maintain a high level of awareness of TCF and will make their Executive manager aware of any new and existing business conduct risks. All branches and departments have responsibilities to identify and report conduct risks and to co-operate with each other, the Compliance Department, the Board and its Committees to promote our Vision & Ethics. 5.6 STAFF TRAINING Training is provided during induction and at regular intervals thereafter by CBT, Information Letter and ad-hoc training. All staff are required to complete the Conduct Risk CBT annually and the TCF CBT and QB every six months. It is the responsibility of each member of staff to ensure that they complete relevant training in order to maintain their individual competence. 5.7 COMPLIANCE DEPARTMENT The Compliance Department under the management of the Risk & Compliance Manager, is responsible for providing an expert and professional service to help ensure that the Society complies with its legal and regulatory obligations and does so with high ethical business standards. As part of this role, it is responsible for promoting policies and procedures to guard against compliance risk. 3 of 4

4 5.8 INTERNAL AUDIT Internal audit s role is to help the Group achieve its objectives by carrying out a risk based review of our control, procedural and governance processes. Suitable reports shall be produced based upon an audit plan approved by Audit, Risk & Compliance Committee. 5.9 MANAGEMENT INFORMATION The Balanced Scorecard is updated quarterly and reports on a number of agreed TCF/Conduct Risk areas. The Balanced Scorecard is considered each quarter by the TCF Committee and at each meeting of the Board Conduct Risk Committee. The measures and scores within the Balanced Scorecard are agreed by the Executive each year. Minutes of the Staff Audit Team are considered by the TCF Committee and at each meeting of the Board Conduct Risk Committee. 6. OUTCOMES Desired behaviours throughout this policy statement are driven by our commitment to the Regulators desired outcomes for members, these are: Customers should be confident that they are dealing with a firm who has the fair treatment of customers at the centre of their culture. Products and services marketed and sold should be designed to meet the needs of identified consumer groups and the products should be targeted at these predefined groups. Customers should be provided with clear information and kept appropriately informed before, during and after the sale. Where advice is provided it should be suitable and it should take account of the customer s circumstances. Our customers should be provided with products that perform as we have led them to believe, and the associated service should also be as we have led them to believe in addition to being at an acceptable standard. Customers should not face unreasonable post-sale barriers to prevent them from changing product, switching provider, submitting a claim or making a complaint. Attach App 1 Conduct Risk Appetite March of 4

5 Appendix 1 to the Conduct Risk Policy Retail Conduct Risk Appetite Statement This Retail Conduct Risk Appetite Statement (the statement) has been developed after a careful consideration of the current 5 Year Business Plan along with the current Group Risk Assessment. This Risk Appetite will follow a typical product life cycle to ensure that we capture all possible touch-points with our key stakeholders:- Our investing members Our borrowing members Our staff Our communities Our regulators Third party partners This statement includes in its framework the vital ingredients of not only the Society s Conduct Risk but also its Corporate Social Responsibility. It is acknowledged that the two would not normally come together under Retail Conduct Risk however it is important to us that we add value to both our members and the wider community in the area in which we operate. It will also prevent the process of identifying the key risks of being simply a tick-box exercise and it will ensure the highest possible level of engagement by directors, executive, managers and staff towards business integrity, high moral values and responsible business ethics. We will ensure that conduct risk (the risk of Darlington Building Society treating its retail customers unfairly and delivering inappropriate outcomes) are effectively managed in order to provide an appropriate degree of protection for customers. Conduct risks will be analysed, managed and reported to the Board Conduct Risk Committee. Management oversight is through the risk function. The Society will comply with the FCA Conduct Principles and will invest sufficient resource to ensure this outcome is achieved. Throughout this Statement we use the term the Society to refer to all our operations, all subsidiary companies, all departments and all staff. The Society expects equivalent standards from its suppliers and business partners. This statement will be published on our website to enable members, suppliers and business partners to be aware of the standards which we expect. 1

6 The following risks are those identified by Board, Management and staff and are itemised here under four broad headings reflecting the regulatory view of treating customers fairly and retail conduct risk. Governance and Culture Risk Minimum Standards Measures Evidence 1. A failure to embed Conduct Risk at the heart of the Society and its dealings with customers. 2. A failure to respond effectively with regulatory and/or legislative change. 3. A failure to communicate our CSR and ethical initiatives. Conduct risk included in Board strategy and aligns to Business plan. We encourage members to have a say in how the Society is being run. Our Annual Report to Members will show how we are meeting best practice in corporate governance. Our Ethics Policy will always be available on our website. Any Executive Bonus scheme will always include Conduct Risk measures Board Conduct Risk Committee chaired by a Non Executive Director to meet 3 times annually. Retail Conduct Policy statement approved by Board. TCF measures on Balanced Scorecard reviewed at each Board Conduct Risk Committee meeting. Regulatory tracking reviewed weekly by Executive. TCF questionnaire completed by staff. Member feedback forums were established in 2013 and will be maintained, as appropriate. Our target is that a minimum of 85% of new members sending back the customer questionnaire should confirm that their product is performing as expected. Minutes tabled at Board meetings Policy statement included in Board policies Board papers with recommended actions retained and audited. Risk appetite statement included in Business Plan Website Annual Report & Accounts Our Corporate Social Responsibility initiatives will be reported and measured where appropriate. The Society will support local clubs and organisations which have been identified as worthwhile causes and important to the local community. Treating customers fairly (TCF) is taken into account in our annual staff appraisal scheme. Membership of Business in the Community (BITC). Annual entries into appropriate awards events that recognise community support including the Community Services category in the Mortgage Finance Gazette Awards. The Society s charitable donations should exceed 25,000 each year. All branches should spend their 250 annual charity budget in their local community to support local good causes. Audit & Compliance reports Press releases and covering reports identify how the charity budget has been spent. Training results monitored and reported to Executive. Treating customers fairly is a key pillar of our Induction programme for all staff. Our target is that at least 70% of staff should take-up their annual free Charity Day. All staff must have completed the Treating Customers Fairly Computer Based Training package within the last 12 months. 2

7 Products Risk Minimum Standards Measures Evidence 1. Products are targeted and marketed to unsuitable groups of people. 2. New products could be designed which are incompatible with our Conduct Risk Appetite. 3. Customers do not understand the products being targeted at them. 4. Our staff do not understand the products. 5. The intermediaries selling our products do not understand the products. 6. The products Terms and Conditions breach Unfair Contract Terms Regulations No new product-types will be launched without appropriate market research and a risk assessment carried out by the product development committees.. A post sales review will be carried out by the Product Development committees to measure sales volumes against budget and analyse customer profile. Extended tie-in periods will only be used to protect front-end benefits and will be clear, fair and not misleading. When designing a new product type, we will consider current complaints data to influence the design of the product. All of our advertising and promotions will be clear, fair and not misleading. Product checklists and Development committee minutes reviewed by Board Conduct Risk committee Two risk assessments completed for every new product. One risk assessment will consider the risk for the member; the other will consider the risk for the Society. Our target is a minimum of 85% of new members sending back the customer questionnaire should confirm that their product is understood and performing as expected. Our target is that results from Mystery Shopping will achieve positive scores of over 90% in the year. There should be no complaints which point to faulty product design. Committee minutes and product checklists retained and audited. Customer satisfaction questionnaires and mystery shopping reports retained and audited. Board Conduct Risk committee minutes maintained. Sample checks of customer information through branches and website. Product literature retained in accordance with regulatory timescales. Audit & Compliance reports reviewed by Board Conduct Risk committee. All charges and terms and conditions will be transparent and to ensure compliance with relevant regulation, codes of practice and legislation, approved by Compliance function prior to launch. Mystery shopping will be undertaken to ensure that sales staff demonstrate a good grasp of the technical details of our products and offer good customer service. A root cause analysis is undertaken quarterly on ALL customer complaints and a report considered by Board Conduct Risk committee There should be no instances where the Society is asked to amend or remove promotional literature. There should be no Red risk rated Audit or Compliance reports Fees and Charges reviewed annually Member feedback forums were established in 2013 and will be maintained, as appropriate. 3

8 Sales Risk Minimum Standards Measures Evidence 1. Sales and marketing literature is not sufficiently clear and transparent to be understood by the target audience. 2. Our sales and marketing staff do not understand the products leading to inappropriate advice to potential customers. 3. Inappropriate sales channels may be used to access target markets. This could mean that any controls implemented within the system are circumvented during the sales process. 4. Tied products may be sold to customers who are unaware of the implications. All of our advertising and promotions will be clear, fair and not misleading. They are fully compliant with the legislation and regulations governing financial promotions. Where a root cause analysis identifies problems with either the sales process or a sales promotion, immediate action will be taken following any upheld complaint. When launching new product types we will always consider which sales channels are appropriate. Appropriate training and competence will be introduced for the different sales channels. No ancillary sales will be made utilising opt-out options. This will form an integral part of any risk assessment check list. We will take responsibility for products which are sold through intermediaries including the underwriting of loans. Where we are selling the products of another firm, we will be responsible for the sales process and will ensure that only staff who are competent are allowed to sell the product(s). A check of all promotions is completed to ensure that they are clear, fair and not misleading, New customers will be sent a questionnaire where they will be asked to confirm that they understand the product. No sales incentive scheme will be utilised without a prior risk assessment The Society has zero tolerance of defective sales promotions. We will not have any promotions withdrawn or amended by the regulators. No complaints shall be upheld by the Financial Ombudsman Service where the borrower has accused the Society of irresponsible lending. All checks on financial promotions are documented. Any documents signed by customers are retained. A root cause analysis of all complaints is performed quarterly and reviewed by the Board Conduct Risk Committee. All sales incentives approved by Executive and decisions minuted. 5. Sales incentives may lead to sales to customers for whom the product is inappropriate. 6. Customers do not understand the product that is being offered meaning that they acquire a product which is inappropriate for their needs. We will only accept mortgage applications from Prudential Regulation Authority/Financial Conduct Authority registered firms. Compulsory buildings insurance will only be used for appropriate products and where any commission receivable has been used to discount the price of the product. Where a new product type is launched we will use Mystery Shopping to test the effectiveness of our sales process No complaints shall be upheld by the Financial Ombudsman Service where the Society has been accused of providing unsuitable advice. Sales bonuses will only form a small proportion of staff remuneration. Where a higher than expected number of questions from our sales staff about product technicalities is received, the training will be reassessed and changed where applicable.. Where a product has some form of tied-in ancillary product, an estimate will be made of the number of ancillary sales to be achieved. If the actual number is higher than anticipated an immediate review will be undertaken to ensure that these ancillary sales are compatible with the best interests of the member. 4

9 After Sales Risk Minimum Standards Measures Evidence 1. Existing products classed as low risk may become high risk if the external environment has altered thus making it unsuitable. 2. Over time one or more of our existing products or services may become unsupportable. 3. Members are not aware of their options during the life of a product 4. The Society could erect barriers to ensure that existing customers do not have access to new product types. 5. Wherever possible having attracted members by a competitive interest rate there is a danger that we could simply amend the rate to maximise our profit. 6. Member communications do not pass the tests of clear, fair and not misleading. 7. Members could face unreasonable postsale barriers to prevent them from changing product, switching provider, submitting a claim or making a complaint. 8. Inadequate complaints handling. A review of all open products will be carried out annually to consider how environmental changes have affected existing customers in various account types. Any remedial action required will be communicated to all affected members. Customer Support Department are represented whenever new products are developed to ensure that they are aware of the post-sale service level anticipated by the member. Our processes and systems make it easy for members to switch to a different product and we will ensure that new products are always available to existing members, subject to eligibility. The Society will not attract savings by offering a Best Buy rate simply to lower the rate in an attempt to maximise profits. Most of our products are simple products which require little decision-making by the member during the life of the product. Where a decision is required we will contact the member to ensure that they are fully aware of their options. All mortgage products are available to existing borrowers, subject to eligibility. We recognise that from time-to-time our borrowing members may experience temporary payment difficulties. We encourage such borrowers to speak to us as soon as possible. Arrears fees are not charged where either an arrangement or concession has been agreed with the borrower. We will use a wide variety of channels to communicate with members and we will avoid jargon in our communications. All borrowers will be offered an annual review. This will enable them to raise any queries about their account and to discuss their future needs. Conduct Risk is monitored and measured through the Balanced Scorecard. This is subsequently reported to the Conduct Risk Committee. All reviews are documented and available for audit. Our policy on how we treat customers fairly is available on our website. A copy of all member communication is retained in accordance with the Document Retention Policy. No more than 3 complaints against the Society will be upheld by the Financial Ombudsman Service in any calendar year. No complaints will be upheld by the Financial Ombudsman Service where irresponsible lending is claimed. 100% of complaints will be dealt with within the timescales agreed with the Financial Ombudsman Service. The Society to achieve above average voter turnout at the AGM when compared to BSA member societies All resolutions at the Annual General Meeting will be passed with at least 90% of those voting, voting in favour. All new mortgage products will be available to existing borrowers, subject to eligibility. No new savings products will be launched which are not available to existing investing members, subject to eligibility. A local charity will be identified to be sponsored at the Annual General Meeting to encourage member participation and to support a worthwhile local cause. All final response letters will be issued by a member of the Executive. A root cause analysis is undertaken and reviewed by the Board Conduct Risk committee. Every six months all staff must confirm that they have read our policy statement re Customer Complaints Approved at BRC 20 March