FCA findings from a review of fair value frameworks - 10 May 2023

The FCA has today published its findings from its review of firms' approaches to fair value assessments under the Consumer Duty. 

The FCA reviewed 14 firms' fair value assessment frameworks in early 2023 covering a range of mainly large firms in the retail banking, consumer investments, payments and digital assets, and consumer finance sectors, however the FCA note that its observations will be helpful for other firms when implementing our price and value requirements.

While the FCA was happy that firms are making significant efforts with their fair value frameworks, the FCA also expressed concern that some elements of the frameworks might not prove as effective in practice as could be hoped.  The FCA identified 4 key areas for further work:

1. Collection and monitoring of data evidencing fair value

2. Clear oversight of and accountability for remedial actions where fair value is not provided

3. Sufficient analysis of the distribution of outcomes across consumers, not just looking at broad averages

4. Presenting fair value assessments clearly internally to enable decision-makers to understand and "robustly discuss" whether products and services provide fair value, including being clear on any limitations in the analysis and evidence

Action required: Firms should consider the findings from this review and whether they need to develop their approach to implementing the price and value outcome rules in line with good practice outlined below.

Our view - it's all about the data

The really key theme that seems  to emerge from the FCA's findings, in our view, is that firms need to gather sufficient data and analyse it with a sufficient amount of critical thinking, including being clear internally as to what the practical limitations of the data are.  While fair value is ultimately a judgment call, the quality of the judgment will depend on the quality of the data and analysis that supports it.

With just under two months to go, now is the time to act on the FCA findings.  We have been working with a wide range of firms on their data & MI strategies in addition to developing fair value frameworks for both manufacturers and distributors. For more details or to discuss with a member of our Consumer Duty team click here.

Detailed findings

Under the Consumer Duty, firms will be required to assess whether customers paying a reasonable price for products and services compared to the benefits they can expect to receive.  Five criteria were assessed by the FCA:

1. Understanding of fair value rules - how clearly the fair value assessment defines fair value and how it applies to their products. 

2. Assessing value - how costs and benefits to consumers, including non-financial costs and benefits, have been considered

3. Contextual factors - how firms have considered broader contextual factors relevant to value. 

4. Assessing differential outcomes - the approach 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. 

For further details on how we can assist with your Consumer Duty implementation please view our ready to go menu of templates, services and training programmes or speak to a member of the team.