Consumer Duty And Carrying Out Price And Value Assessments

What has happened?

With the Consumer Duty now applying to all firms having a direct or indirect relationship with retail clients, the focus for many of them is on carrying out acceptable price and value assessments, which have been identified as one of the more involved areas to get right.

What metrics should firms use for these assessments and how should they use them?

The FCA produced detailed guidance on this topic as part of its Finalised Guidance 22/15, published in July 2022.

The focus of the price and value outcome rules within the Consumer Duty is on ensuring the price the customer pays for a product or service is reasonable compared to the overall benefits.

A product or service that meets all of the other elements of the Duty (for example, if it is designed to meet the needs of its target market and is transparently sold, customers are able to exercise choices to switch or exit, and are properly supported) is more likely to offer fair value. 

Even in cases where other elements of the Duty are met, the price and value outcome rules must still prompt firms to ask questions such as: 

• Are there elements of the pricing structure that could lead to foreseeable harm? 
• Are there fees or charges or rates which appear unjustifiably or unreasonably high compared to the benefits of the product and other comparable products (either in the firm’s product portfolio or comparable products supplied by other firms)?
• Should/have any changes in the benefits of the product been reflected in the price?, and
• Should/have any material changes to assumptions that underpinned pricing (for example on costs of servicing) been reflected in changes to the price?

In order to assess if a product or service provides value, firms must consider at least the following:

• the nature of the product or service, including the benefits that will be provided or may reasonably be expected and their qualities,
• any limitations that are part of the product or service (e.g. limitations on the scope of cover for insurance products), and
• the expected total price customers will pay, including all applicable fees and charges over the lifetime of the relationship between customers and firms.

When firms perform value assessments, they may also consider a range of factors in demonstrating that the price paid is reasonable compared to the benefits received. They include the following points. 

• The costs firms incur in manufacturing and/or distributing the product or service, including the cost of funding (e.g. for loans).
• The market rates and charges for comparable products or services and whether the product is a significant outlier compared to these.
• Whether there are any products in the firm’s portfolio which are priced significantly lower for a similar or better level of benefit and
• Any accrued costs and/or benefits for existing or closed products.

Firms must assess value at the design stage and before offering products or services to consumers, and they must ensure that the prices represent fair value for a foreseeable period. 

Firms must also monitor and assess the value of their products and services throughout their life, conducting regular reviews of their value assessment. In carrying out the value assessments, firms should collect and analyse appropriate management information. They should collect MI to monitor that their fair value assessments remain valid over a foreseeable period. 

Watch the recording from our webinar series: FCA Consumer Duty - The four consumer duty outcomes and your questions answered

How can we help you with the Consumer Duty?

Are you looking for help with your Consumer Duty value assessments, or general Consumer Duty regulation? Thistle Initiatives has supported firms for over 10 years as a trusted compliance and regulatory advisor. In addition to assisting you as-and-when, its team of specialists can serve as your right hand in meeting and complying with regulations. We understand the importance of staying up-to-date and compliant and are dedicated to providing the guidance and support needed to do so.

If you're looking for more specific guidance, or want to purchase our template documentation, contact our specialist team now to schedule a free consultation. Get in touch with us by calling 0207 436 0630 or send an email to info@thistleinitiatives.co.uk.