The FCA has recently published the findings of its review of firms' fair value assessment frameworks under the Consumer Duty.
Under the Consumer Duty, firms need to deliver and assess 4 outcomes, including price and value. Firms must undertake fair value assessments in order to demonstrate that the price a consumer pays for a product or service is reasonable compared to the overall benefits they can expect to receive.
Earlier this year, the FCA reviewed 14 firms' fair value assessment frameworks, which set out the approach firms are taking in this area. The firms reviewed were mainly large firms within 4 key portfolios (retail banking, consumer investments, payments and digital assets, and consumer finance) however, many of its findings will be relevant to the wider population of regulated firms and so it is sharing these to assist all firms implementing the price and value requirements.
The FCA assessed fair value frameworks against the following criteria:
- Understanding of fair value rules – how clearly the assessment defines fair value and how it applies to products.
- Assessing value – how costs and benefits to consumers (including those of a non-financial nature) have been considered.
- Considering contextual factors – how firms have considered broader contextual factors relevant to value.
- Assessing differential outcomes – approaches to assessing the range of consumer outcomes such as differential pricing, and outcomes for vulnerable consumers.
- Data and governance – the approach to measuring and monitoring fair value using data, and how firms’ governance arrangements operate.
Based on their assessment, the FCA identified 4 key areas for consideration by firms:
- Collecting and monitoring evidence that demonstrates that products and services represent fair value.
- Ensuring that there is clear oversight and accountability of the remedial actions if products and services are found not to provide fair value.
- Ensuring, where relevant, that there is sufficient analysis of the distribution of outcomes across groups of consumers in the target market 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.
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.
Our objective was to understand how firms in different sectors are implementing the price and value requirements, and to ensure our internal supervisory and regulatory approaches to fair value reflect industry thinking.