FCA Publishes Findings from Fair Value Frameworks

The FCA has conducted a review of fair value assessment frameworks in the lead up to the implementation of the Consumer Duty which comes into effect on 31 July 2023. The aim of the review was to assess how firms are committed to offering fair value to their consumers in line with requirements set out in the Duty.

In total, 14 firms’ fair value assessment frameworks were sampled, measuring how firms in different sectors were approaching the price and value requirements in relation to retail banking, consumer investments, payments and digital assets, and consumer finance.

The frameworks were all assessed against 5 key targets:

1. Clear Understanding of fair value rules – how clearly the fair value assessment defines fair value and how it applies to their product lines.
2. Assessing value – how costs and benefits to consumers, including non-financial costs and benefits, have been considered.
3. Considering contextual factors – how the firm has considered broader contextual factors relevant to value.
4. Assessment of differential outcomes – approaches to assessing the range of consumer outcomes such as differential pricing, and outcomes for vulnerable consumers.
5. Data and governance – the approach to measuring and monitoring fair value using data, and how a firm’s governance arrangements operate.

Whilst the sample was not a detailed representation of the wider industry, the results show that a majority of firms are already making substantial efforts in their commitment to offering fair value to consumers under the Duty. There were, however, some concerns that some firms were not able to provide adequate evidence for why their products and services provide fair value.

Some firms also did not appear to properly consider outcomes for different groups of customers, with a focus instead on broader analysis of groups. The concern with this is that the broader group averages could disguise where outliers such as those on low incomes or in vulnerable circumstances - are receiving poor value.

In a recent speech, FCA’s Sheldon Mills, Executive Director, Consumers and Competition spoke of the results of the review, as well as what firms must do in the lead up to the implementation of the Consumer Duty.

“Firms should use the time remaining in the run-up to 31 July to ensure that their fees are fair and transparent, and that particular groups of consumers are not disproportionately disadvantaged.”

Mills also emphasised the importance of fair value being about more than just price, and that value should include considerations for the quality and benefits of the product or service.

“We want firms to look at their product and really examine and challenge themselves about whether the cost of a product or service really is reasonable relative to the overall benefits.”

Following the review, the FCA have identified 4 key areas for improvement, and will continue to monitor and support firms based on their findings both in the run-up to, and beyond July 2023. The four areas for further consideration include:

• collecting and monitoring evidence that demonstrates that products and services represent fair value
• clear oversight and accountability of the necessary remedial actions if they do not provide fair value
• where relevant, ensuring sufficient analysis of the distribution of outcomes across groups of consumers in the target market, beyond broad averages, to demonstrate how each group receives fair value
• summarising and presenting fair value assessments in a way that enables decision-makers to robustly discuss whether the product or service represents fair value, such as by being clear on any limitations in the analysis or evidence

To read the full FCA review, click here: https://www.fca.org.uk/publications/good-and-poor-practice/consumer-duty-findings-our-review-fair-value-frameworks

Users of the Development Zone can also find a range of Consumer Duty courses in their course catalogue, including:

• Consumer Duty – An Introduction
• Consumer Harm: Identification, Prevention, and the Consumer Duty
• Customer Service: The Channels of Communication

For those not currently using the system, you can find out more and request a free 14-day trial here: https://mydevelopment.zone/#getStarted