Introduction
We are now a little over a year into the full implementation of the Consumer Duty, on 31st July 2023, with closed products now also subject to the rules. In September 2024 the FCA reviewed price and value considerations across the industry, producing a summary of its findings. These findings are important for firms to consider as they not only provide a window into the FCA’s thought process but also a unique opportunity to further mould consumer duty procedures to fit the intended aims of the FCA.
The Purpose of the Summary Publication
The aim of publishing these findings is to provide feedback to the industry and allow action to be taken to strengthen consumer duty frameworks, with a focus on the fair value assessment process. The FCA understands that firms are continuously adjusting and improving frameworks to deliver good outcomes in an appropriate and proportionate way. These summary findings show that the FCA is trying to work collaboratively with the industry to ensure that improvement to frameworks is being made and to reduce the mistakes seen across all sectors of the industry.
Key Messages from the FCA to Firms
The FCA has picked out five key messages for firms which should be used by firms as reference points to judge their own price and value frameworks to ensure compliance with the rules and with the expectations of the Regulator.
These key messages are as follows:
- Outcomes of the Consumer Duty should be considered holistically – Outcomes, such as price and value or customer communication, should not be reviewed and measured in isolation, but instead should be considered as wider framework outcomes; for example, communication with the customer allows for better price and value judgement to be made;
- Effective target market identification allows for assessment of impact on different groups – Firms should consider that the identification of a target market will see the identification of groups of people who will likely find value in a product, with those outside the target market less likely to find value. Products with different features or target markets should be considered separately;
- Analysing cross-subsidies, where relevant, can assist in identification of risk of failure to provide fair value to different consumer groups – Consumer Duty does not prevent adoption of business models that have different prices for different consumer groups or prevent cross-subsidies between different products or services. However, where this stance is taken, firms need to be able to demonstrate that all groups are getting fair value and to be aware of risks that cross subsidies may cause, e.g., disadvantaging vulnerable customers;
- Evidence is vital in fair value assessments, but this should be proportionate to the type of firm and their business – Claims made regarding costs and benefits (or other contextual factors) need to be backed by reasonable evidence. The degree of this evidence should be proportionate to the size of the firm and complexity of factors involved; and
- Prompt action should be taken if consumers are identified as not receiving fair value – Action taken should be specific to the failure identified, with the success of the action to be monitored.
As stated above, these five key messages are a valuable starting point in assessing your firm’s fair value assessment process. If frameworks cannot deliver in line with these key messages, then amendments to the process should be made to fall in line with the FCA’s expectations. Without amendment to system weaknesses, firms leave themselves at risk of regulatory failure and future action by the FCA.
How can Complyport Help?
Governance arrangements and internal policies are key elements in developing an appropriate compliance framework. Regular reviews and monitoring are essential in ensuring compliant processes, such as the Fair Value Assessment process, are in place. Complyport’s specialised team ensure you meet the latest regulatory standards and best practices. The services we offer include:
- Fair Value Assessment Review
- Consumer Duty Review
- Consumer Duty Monitoring
- Governance & Conduct Audit services
- Compliance Health Check
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