FCA’s Appointed Representative regime and the regulatory focus on Principal firms
As the weeks continue to slip away, we spotlight the FCA’s
Here, Neil Dethick, Associate Director at TCC, focuses on outcome two: price and value. Ahead of the imminent Duty Implementation Plan deadline, Neil details three important points for firms to consider when demonstrating the all-important evidence of compliance.
Long before the Duty, firms had been expected to offer consumers fair value for their products and services. However, now firms must explain and evidence how they determine a product or service’s worth, and that the associated charge is considered fair value.
Neil explains: “The FCA expects firms to assess their products and services and the relationship to the price paid for them. The Regulator has indicated that they will spot check firms to ensure they’re continually evidencing compliance with the Duty’s four outcomes and may want to scrutinise the evidence if they’re concerned by a firm’s level of compliance.”
The FCA is likely to consider whether all other elements of a product or service meet the Duty requirements. Such as if the needs of the target market are met, and the firm offers appropriate support throughout the customer journey, the product or service is more likely to be considered of a fair value. Firms are also required to have an ongoing value assessment process in place, starting at the design process stage, with demonstratable continuous reviews and updates in place.
The FCA published ‘Fair pricing in Financial Services’ in 2019, which determined that ensuring fairness in pricing is a part of their role as a regulator – yet there is ‘no simple formula that determines whether a practice is unfair’.
Neil comments: “The FCA realises that the rules under the price and value outcome are not as easy to apply as other aspects of the Duty. But key examples to consider for this outcome are that a product or service should not exploit a consumer’s lack of knowledge and charge them an unfair price because of this.”
“A further question arises,” Neil continues, “if a product or service’s benefits have significantly changed, should this affect the price? For instance, if the benefits of a product were to reduce, a proportionate decrease in the price would be considered reasonable.”
What is a harmful outcome? The assumption is that if a retail customer isn’t getting good value for money from a product and is frustrated by a product’s unsuitable or unnecessary features, or if there’s been poor communications and consumer support, such outcomes are considered harmful.
Neil comments: “If a product or service is sold to a customer and doesn’t meet any of their pre-determined needs, this would be harmful and non-compliant to the Duty.”
However, it’s important to note that the FCA does not intend to set prices, nor will it consider products of low price as automatically fair – instead, a more rounded view of all the qualities and benefits to customers is considered to determine a product’s worth. So, if a product has fewer features and benefits, this should be clearly reflected in its price.
A simple rule for firms to follow is to ensure that there is a ‘reasonable relationship between the price charged and profitability’.
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