On 21 February 2024, UK Finance published a blog on how to assess fair value under the Consumer Duty.  

As 2024 will see the first annual Consumer Duty board reports delivered, as well as the implementation deadline of the Duty for closed products (the deadline for both is 31 July 2024), the FCA has made it clear that the Duty is ‘not once and done’.

The blog highlights fair value as one key area of continuing focus, noting that the FCA will expect to see firms considering the following three steps:

  • Development frameworks for assessing fair value
  • Implementation of the frameworks in practice
  • Taking action to address any issues identified

The blog also sets out some questions, based on FCA guidance and UK Finance’s experience of assessing fair value, that may be useful for firms in developing, implementing and reviewing fair value frameworks, such as:

  • How does the business model operate? UK Finance often encourages firms to ‘follow the money’ to ascertain what is driving profitability and whether this is sustainable.
  • What is the target market? This is a first filter for preventing harm from materialising and is useful for defining who is ‘in’ but also who is ‘out’ of the target market, and to monitor this over time.
  • What outcomes are foreseeable? It can be useful to map out the possible harms that could arise, and what data you can use to monitor potential outcomes. When monitoring metrics, UK Finance suggests considering: 
  • The distribution of outcomes (i.e. not just averages).
  • Outcomes for different customer groups, e.g. segmenting by product usage or by customer characteristic (particularly vulnerable or potentially vulnerable customers).
  • Is the firm’s communication effective? This is about testing consumers’ understanding, and is an area where the FCA and firms will be drawing from the insights of behavioural economics. 

Finally, where the competitive process is working well, the blog notes that this can generally be expected to result in good consumer outcomes. It is therefore useful to consider whether there are competitive benchmarks that can be used to compare price and value against.

Next steps

Under the Consumer Duty, the FCA will expect firms to evidence fair value of their products and services. The blog notes that in practice, this will mean ensuring the appropriate evidence base, data and metrics are developed. It will also be important to consider whether staff are receiving the training on fair value and on embedding the Duty more broadly. A further practical step to consider is undertaking a deep dive review of one product or business area and share the lessons learned more widely.

The blog concludes by emphasising the importance of evidence, as it underpins the Consumer Duty.