What do we mean when we say 'fair value'?
Executive Summary
This FCA blog post clarifies the 'fair value' concept under Consumer Duty, emphasizing that firms must evidence a reasonable price-to-benefits relationship without the FCA dictating prices or profits. It matters because it signals ongoing FCA scrutiny and enforcement in sectors like cash savings, investment platforms, and premium finance, with demonstrated consumer savings of £167m annually from interventions. Compliance professionals must prioritize robust fair value assessments to avoid challenges, remedial actions, or enforcement. #
What Changed
- No new rules are introduced; this reinforces existing Consumer Duty requirements (effective July 2023 for new products, July 2024 for closed books) on fair value as one of four outcomes (products/services, price/value, consumer understanding, support
- Firms must demonstrate evidence of fair value, assessing price against benefits, costs, and services delivered.
- Ongoing reviews required throughout product lifecycle, with actions if fair value fails (e.g., improve, withdraw).
- FCA rejects prescriptive interventions like 0% APR in premium finance to avoid market harm, favoring firm-led assessments.[FCA blog]
Suggested Considerations
- Conduct and evidence fair value assessments: Use frameworks considering product nature/benefits, limitations, total lifetime costs (fees/charges), relative to benefits; benchmark internally/externally; segment by consumer groups including vulnerables.
- Review and act on failures: If no fair value, implement mitigations (e.g., price adjustments, process improvements, product withdrawal); evidence processes and implementation.[FCA blog]
- Monitor markets/products ongoing: Assess at firm/market level, including intangible benefits (e.g., scam protection, support channels); prepare for FCA challenges/enforcement.
- Premium finance specific: All firms review offerings; outliers demonstrate workings or improve (e.g., APR reductions).[FCA blog]
Compliance Impact
Urgency: High – FCA is actively intervening (e.g., £157m savings in premium finance, £10m in platforms), with threats of enforcement for poor processes/evidence. Matters due to cultural shift under Consumer Duty; weak assessments risk fines, remediation, or product halts, especially in high-complaint areas like savings/insurance. Firms without frameworks face immediate exposure in supervisory revi
Who is Affected
References
AI-generated analysis. May contain errors or omissions — verify with the original FCA source before acting. Full disclaimer.
Summary
What does 'fair value' mean in financial services? It might sound like dry regulator speak, but it’s really asking a simple question – are customers paying a reasonable price for a product, compared to the benefits they get in return?This is not us setting a particular price or level of profit which firms can make. But it's a challenge to firms – can they provide evidence that their customers are getting a fair deal? If they can’t, then they need to look again.This applies across financial se...