No, hairdressing is not about to be regulated by the Financial Services Authority. This relates to cases where mortgage and insurance product providers outsource marketing functions, for example to contact centres. Who does the contact centre say is calling?
The Financial Services Authority
Canary Wharf, FSA Headquarters
On 7 March 2005, the consultation period ended for proposals by the Financial Services Authority that there should be an "outsourcing waiver" for third party processors.
The proposals relate to a situation where a first charge mortgage or general insurance provider outsources the job of marketing its products to a third party.
All these activities are regulated by the FSA Handbook and the area of concern to which the proposals relate is transparency as to who is conducting marketing activity.
An example might be a contact centre operating under contract to a mortgage or insurance provider ("Provider"). The contact centre must itself be authorised or be an "Appointed Representative."
The effect of this is that even when it is acting on behalf of the Provider, the contact centre will strictly be obliged to disclose its own existence and involvement in a transaction at various stages.
Lobbying for a waiver
When these rules were first introduced, there was much industry concern and the DMA, amongst others, lobbied hard for a special waiver so that third parties like contact centres operating in this scenario would not be obliged to disclose their own identity.
The rationale was that in the circumstances the third party's involvement in the transaction was irrelevant to a consumer and if the third party did disclose its involvement consumers would be unclear which firm they were dealing with.
It was also suggested that having to disclose the third party's identity would dilute the Provider's brand and undermine its relationship with its customer. This in turn, it was argued, would adversely affect the viability of outsourcing as a business strategy. This could lead to Providers ceasing its use of third parties for marketing, and since these third parties could provide low cost services there would inevitably be a knock-on increase in product cost which would be passed on to consumers.
Temporary waiver introduced
In the light of these arguments, in October 2004 the FSA introduced a temporary waiver. This allowed the third party's involvement to remain undisclosed in these situations.
The purpose of the consultation process which has now come to an end is to determine whether the waiver should become permanent from 1 June 2005.
In its consultation document, the FSA expresses sympathy with the views of the DMA and others in the industry. It says it does not feel that its policy objectives are weakened by the third party being allowed to remain behind the scenes. Accordingly, the proposal is to make the waiver permanent so that third party marketers, such as contact centres, will be able to represent themselves as the Provider in any communication with a consumer.
The FSA also proposes to extend the waiver to situations where an appointed representative marketing insurance products on behalf of an insurance provider itself outsources activities to third parties. The waiver will mean that the third party operating on behalf of the authorised representative will be able to represent itself as the authorised representative.
The FSA reminds us in the consultation paper that an authorised insurance or mortgage provider cannot contract out its regulatory responsibilities and therefore it remains responsible for those regulated activities carried on by a third party, such as a contact centre, on its behalf.
To avoid any potential detrimental effect on consumers, however, the FSA proposes requiring that the outsourcing contract between the Provider and the third party contains an acknowledgement of this from the Provider. This will say that the Provider accepts full responsibility for the third party's acts or omissions when the third party carries out a regulated activity on the Provider's behalf.
Some Providers tend to change their outsourcing arrangements regularly, the FSA goes on. Accordingly, the FSA proposes including a requirement that under the outsourcing contract, the third party must co-operate fully with the Provider in handling any complains arising from its acts or omissions in carrying on regulated activities on behalf of the Provider, even after it is no longer working for the Provider. To make life marginally easier, the FSA also proposes summarising in the definition of "third party processor" all the provisions it requires Providers to include in the outsourcing agreement.
Why this matters:
This proposal by the FSA is practical and welcome and it is to be hoped that there are no significant objections which will block the path to the introduction of the permanent waiver as of 1 June 2005.