On 18 September 2024, the Financial Conduct Authority (FCA) published an update on how firms across the financial services sector have assessed their products and services against the price and value outcome of the Consumer Duty. The update collates insights from the first year of the implementation of the outcome and is intended to help firms improve the way they think about fair value assessments.
Background
The Consumer Duty sets high and clear standards of protection for retail customers across financial services. The FCA notes that firms made significant compliance efforts in the lead up to the Duty coming into force on 31 July 2023, and after that in relation to closed products and services, which have become subject to the Duty from 31 July 2024. It explains that firms are continuing to adjust and improve the way they are implementing the Consumer Duty to deliver good consumer outcomes.
The FCA is working with firms to ensure they are taking an appropriate and proportionate approach to the price and value outcome. It warns that it will act where it sees firms not making improvements in response to feedback, or if firms’ products and services are clear poor value outliers when compared to the price and value of similar products and services.
Key messages
The FCA highlights the following key messages to firms:
The FCA states that it is important not to consider the price and value outcome in isolation. It should be considered alongside the other outcomes and cross-cutting obligations under the Consumer Duty (i.e., products and services, consumer understanding and consumer support).
Firms should consider the types of customers who, by virtue of their circumstances or behaviours, are likely to get value from the product (inside the target market) as well as the types who are less likely to get value (outside the target market). If different products or services have different features or target markets, they should be considered separately.
The Consumer Duty does not prevent firms from adopting any business models which may have different prices for different groups of consumers. It also does not prevent cross-subsidies between different products or services. However, the FCA reminds firms that they must demonstrate that all groups of customers get fair value from their products (and be particularly alert to risks that cross- subsidies may disadvantage vulnerable customers).
Assertions made in fair value assessments about the costs and benefits of the product or service, or any other contextual factors, should be backed by reasonable evidence. The extent or level of detail of the supporting evidence should be proportionate to the size of the firm and complexity of the factors being considered.
The FCA notes that these actions should be specific, and their success and impact should be monitored.
Information set out in the publication
In the publication, the FCA looks at:
- How firms are assessing whether they are providing fair value for consumers.
- How firms are using fair value assessments as part of their efforts to deliver good outcomes.
- Examples of good and poor practice for firms to consider and incorporate into their approach, particularly when producing fair value assessments. These are set out under the following headings: holistic consideration across the Consumer Duty outcomes, assessing value, differential outcomes, considering costs to the firm, mitigating actions, and effective governance.
In May 2023, the FCA published findings from their review of 14 firms’ fair value assessment frameworks. Building on that publication and drawing on its experience, the FCA shares further practical examples, in particular relating to the production of a thorough fair value assessment.