Consumer Duty: Findings from the FCA’s review of fair value frameworks
News article from the FCA, 10/05/2023, https://www.fca.org.uk/publications/good-and-poor-practice/consumer-duty-findings-our-review-fair-value-frameworks
The Consumer Duty will set higher and clearer standards of consumer protection across financial services and require firms to act to deliver good outcomes for customers.
Firms need to deliver and assess 4 outcomes under the Consumer Duty, including price and value. Firms must undertake fair value assessments as a way of demonstrating if the price a consumer pays for a product or service is reasonable compared to the overall benefits they can expect to receive. To help firms better understand the FCA’s expectations, they have committed to providing regular feedback to industry on the work they do to assess firms progress in embedding the Duty.
The FCA have reviewed 14 firms’ fair value assessment frameworks, which set out the approach firms are taking in this area. They are sharing their observations from this review as other firms will find them helpful when implementing price and value requirements. This publication does not introduce any new requirements on firms, but the FCA have set out some suggested areas of focus.
Who this applies to
These examples will be of interest to all firms to which the price and value outcome of the Consumer Duty applies.
Guidance these examples refer to
These examples refer to the FCA’s rules and guidance on price and value in PRIN 2A.4 and Chapter 7 of the non-Handbook Guidance for firms on the Consumer Duty.
This publication reiterates those rules and guidance on fair value. The specific focus of these rules is on ensuring the price the customer pays for a product or service is reasonable compared to the overall benefits (the nature, quality and benefits the customer will experience considering all these factors). As stated in FG22/5, to assess if a product or service provides value, firms must consider at least the following:
- the nature of the product or service, including the benefits that will be provided or may reasonably be expected and their qualities
- any limitations that are part of the product or service (eg limitations on scope of cover for insurance products), and
- the expected total price customers will pay, including all applicable fees and charges over the lifetime of the relationship between customers and firms.
Firms may also consider a range of additional factors in demonstrating that the price paid is reasonable compared to the benefits, including the costs firms incur to manufacture and/or distribute the product or service, the market rates and charges for comparable products or services, the price and benefit of other products in their portfolio, and any accrued costs and/or benefits for existing or closed products.
Firms have discretion to decide the additional factors they use in their value assessments, therefore, within this publication the term ‘good practice’ is used only to present examples.
Firms should consider the findings from this review and whether they need to develop their approach to implementing the FCA’s price and value outcome rules in line with good practice. They should consider these findings in conjunction with the FCA’s Finalised Guidance on the Duty and expectations highlighted in recent sectoral letters on the Duty.
The FCA will continue to support firms’ embedding activities in the run-up to, and beyond, the July 2023 implementation deadline for new and existing products and services. In particular:
- The FCA have given all the firms involved in the review feedback on their findings where applicable. They will continue to engage with firms where they have questions about their plans or approach, and to monitor the progress they are making in embedding the Duty.
- The FCA are reviewing the findings of their survey of 1100 firms, to better understand the progress smaller firms are making in different sectors and on different aspects of the Duty. They will use the findings to carry out targeted engagement with smaller firms.
- The FCA will continue to update dedicated webpages and host further regional in-person events for specific groups of small and medium-sized firms.
- The FCA will continue to monitor firms’ approach to ensuring customers receive fair value and this will include future reviews of firms’ fair value assessments of specific products and services. They will continue to feedback to the market on what they see on fair value and the other areas of the Duty.
Author: Alex Hackett, Business Development Manager
Alex is a member of the investment funds team. She is involved in the portfolio construction process and assists with regulatory reporting, trade surveillance and monitoring.