The FCA’s latest reflection on fair value frameworks discussing firms’ progress to date is the latest development in a series of steps from the FCA to aid firms with the successful implementation of the Consumer Duty’s outcomes, especially by taking into account the fast approach deadline for the implementation of the consumer duty for open product/services in just over 10 weeks, on 31 July 2023.

Consumer Duty – findings from the FCA’s review of fair value frameworks

What is the discussion about?

The FCA’s latest reflection on fair value frameworks discussing firms’ progress to date is the latest development in a series of steps from the FCA to aid firms with the successful implementation of the Consumer Duty’s outcomes, especially by taking into account the fast approach deadline for the implementation of the consumer duty for open product/services in just over 10 weeks, on 31 July 2023.

This publication follows on from the FCA’s Dear CEO letter setting out its priorities for Payment Firms (published in March 2023) and another FCA Dear CEO letter on the implementation of the Consumer Duty for payment firms (published in February 2023).

Against this backdrop, on 10 May 2023 the FCA shared its observations from its review of fair value assessment frameworks amongst a sample of 14 firms. Rather than using a representative sample, the FCA’s focus had been put on large firms operating within four portfolios (i.e. retail banking, consumer investments, payments and digital assets, and consumer finance). Even though larger firms’ fair value frameworks and assessments may be more detailed than those for smaller firms, the FCA had been hopeful that many of the FCA’s findings would also be relevant for smaller firms as well.

The FCA have provided general indicators of what demonstrates good practice whilst also highlighting certain areas of improvement for firms in their approach to ascertain how effective a firm’s framework would be in practice. Sheldon Mills, Executive Director of Consumers and Competition of the FCA identified that firms were not considering the outcomes for different groups of consumers and therefore there was a risk that certain categories of customers, such as those on low incomes or in vulnerable circumstances were receiving poor value. For example, such customers might not benefit from certain product features or might pay certain onerous charges such as late payment fees. This type of approach needs to be carefully considered by firms.

The aim of the fair value framework

The stated aim of the fair value framework is to enable firms to ensure the price the customer pays for a product or service is reasonable when compared to the overall benefits of the product or service.

The FCA assessment of firm’s fair value based on 5 criteria

The FCA have assessed fair value framework against the following five criteria:

Next steps

The FCA is expected to continue supporting firms’ embedding activities in the run-up to, and beyond, the July 2023 implementation deadline for new and existing products, in particular by:

  • giving to all the firms involved in the review feedback on its findings.
  • monitoring the progress firms are making in embedding the duty.
  • reviewing the findings of a survey of 1100 firms to better understand the progress small firms are making with different aspects of the duty.
  • making further publications and hosting further regional in-person events for specific groups of small and medium-sized firms.
  • continuing monitoring firms’ approach to ensure customers receive fair value.