The FCA’s new Consumer Duty calls for firms to determine whether the products and services they offer to their retail customers provide fair value. But what constitutes ‘fair value’?
Fair value means looking beyond just price to a more holistic view of the wider benefits and costs of products/services. Firms implementing the Consumer Duty fair value expectations for the first time should set themselves up for success by learning from other sectors, such as asset managers, general insurers and independence governance committees (IGCs), who have already faced regulatory focus on ‘value’ and have begun to tackle this challenge.
Consider all aspects of value
Providing value is so much more than just the price charged or a comparison to peers’ charges. The rules are clear: there must be a reasonable relationship between price and the overall benefits of a product or service. Beyond performance, this may include non-financial costs or benefits, such as the time and effort needed to amend, buy, switch or cancel a product, as well as qualitative metrics such as the quality of a product or service (including communications), the strength of brand, or level of customer service. Firms need to have a framework for assessing all the relevant aspects of value.
Evidence your conclusions and assumptions
In assessing the full value of their products and services, firms need to demonstrate judgement and, crucially, be able to evidence how they have determined that the benefits of their product or service are reasonable relative to their price. Firms need to have good recordkeeping to do this. Where firms make assumptions, how can they be justified to the FCA?
Being able to bring together data from a range of sources in the right way is critical to monitoring, evidencing and delivering fair value to customers.
For example, firms might collate and analyse data from consumer testing, their own operations or data from other firms in the distribution chain. Reviewing data over time, such as the claims acceptance rate for insurance companies, might show firms if the value of their products is improving.
Present your findings clearly and make them easily accessible
Once the analysis is complete, firms need to consider how best to convey the results of their assessment. This means presenting the results clearly, in a well structured report that can be easily accessed, with the right granularity of information, including charts and graphics. Beyond client communications, this is key for Board oversight and accountability. Without clear and accessible reporting, Boards and management will not be able to approve product governance reviews, provide effective challenge or provide SMF attestations to the regulator.
First steps first
Firms have much to do. Identify what to do, by when, and then understand what value means to your firm. But timelines are short and action is needed immediately, with Boards expected to have scrutinised and signed off implementation plans by the end of October 2022.
