After years of consultation and planning, the Consumer Duty came into force on 31st July 2023, demanding higher standards of customer care and calling upon FCA-regulated financial businesses to ‘act to deliver good outcomes for retail customers’.

Central to this vision is the pledge that firms will do everything within their power to ensure fair value for money. In other words, consumers should have access to products and services at a price that is reasonable and proportionate to the benefits offered.

And with this wide-ranging legislation now live, firms will need to ensure they have a plan and process in place for discerning what fair value looks like for their business and customer base. But not only that: the new ‘show me, don’t tell me’ model of supervision means you’ll have to provide the FCA with solid, Quantitative (data led) and Qualitative (research backed) evidence that you’ve given ample thought to your pricing models when asked.

So, when it comes to price and value, what is the regulator looking for?

What does the FCA expect on fair value?

One of the core challenges of the Price & Value outcome is the subjectivity aspect: what may superficially appear to be a reasonable price for a product or service from a firms’ perspective is likely to be informed by their own biases or over-reliance on the perceived mark ‘norm’, making it difficult to ‘check your own homework’ through an objective lens.

Firms should be mindful that the market ‘norms’ they may have historically used in their rationale are also changing as the result of the new Consumer Duty – and they can no longer rely on them for comfort.

What’s more, the regulator has been clear that it favours a principles-based, outcomes-focused approach for the Consumer Duty – as opposed to setting hard-and-fast rules – meaning there’s no set roadmap for businesses to follow. And so, despite the huge number of metrics and factors at play, firms will need to devise their own criteria and monitoring strategy that fits their own business model.

Leaving old assumptions at the door

Complying with the Consumer Duty’s Price & Value outcome means providing a clear answer to the question ‘can you articulate why you’re charging what you charge – and how it provides fair value for money for customers?’.

To this end, you’ll need to conduct a thorough evaluation of your charging structure that takes into account:

• The benefits of your service
• The cost of your service
• The profitability of your service

In his ‘Countdown to Consumer Duty’ speech, the FCA’s Executive Director, Consumers and Competition, Sheldon Mills, explained this process should lead firms to:

‘examine and challenge themselves about whether the cost of a product or service really is reasonable relative to the overall benefits’ – whilst noting ‘some firms [don’t] seem to be challenging themselves enough on uncomfortable questions’.

Accordingly, firms should recognise the importance of taking an analytical approach when putting their framework into practice – with ongoing monitoring and reviews – and not falling back on previous assumptions surrounding compliance. For instance, are your charging models truly representative of the benefits provided? How have you tested your beliefs with a representative consumer view, or are you simply charging what you charge because you’ve always done so, and haven’t received any complaints?

After all, the Consumer Duty calls upon firms to go much further than the previous TCF standard of merely doing no harm to consumers: the onus is now on firms to show initiative, and locate and remove any roadblocks towards customers receiving value for money. In other words, the absence of complaints doesn’t necessarily mean there’s no issues waiting to be resolved – and if you’re waiting for customers to find fault before you act, you’re not being proactive enough

Do your charging structures make sense post-Consumer Duty?

TCC’s benchmarking study, conducted in the run-up to the Consumer Duty implementation date, found that half of firms had no plans to alter their charging structure as they felt their models ‘already comply with the expectations of Consumer Duty’. And while this may seem encouraging at face value, such a high proportion of firms concluding there’s no further work needed in this area suggests some may not have grasped the full level of detail the FCA expected from their assessments.

So, starting with the fundamentals: if you haven’t changed your charging structure, why not? Have you carried out internal research to confirm this pricing is fair for the entirety of your target market? And have you fully grasped the types of situations where your products would not offer (or no longer offer) fair value for certain customers?

To take a common example, wealth sector firms are well known for basing their charging models on percentages of asset values – but this raises the question: can charging a flat 1% rate for both a £500,000 and £1,000,000 investment be justified as fair value in both cases? Can you demonstrate the latter service took twice the resource and time to deliver, given the firm will be asking for twice the compensation?

Furthermore, can any additional costs – be it switching, administrative or cancelation charges – truly be justified under the new, more stringent Consumer Duty rules? Or have you assumed compliance based on what you’ve always done, instead of building your Consumer Duty framework from the ground up?

It’s always worth bearing in mind that the final cost to the consumer is amalgam of all charges and fees added across the product lifecycle, so you’ll need to ensure you’re aware of your partners’ manufacturing costs to maintain visibility of the full picture.

Futureproof your Price & Value framework

At TCC, we know no two businesses are the same and so each firm’s path to compliance will inevitably bring with it a unique set of challenges. But more than 20 years’ experience in helping businesses navigate regulatory change – whatever the task at hand – our compliance experts are here to help every step of the way:

• Regulatory Gap Analysis: No one knows compliance like we do – so let us help you take stock of your existing processes to identify any remaining gaps in your regulatory framework, and ensure your strategy meets the FCA’s new, higher standards
• Policy and Procedures: With a clear vision of where you’ve come from and where you need to be, our experts can assist you in creating robust policies and procedures that align with regulator’s best practice guidance surrounding each of the four Consumer Duty outcomes: Products & Services, Price & Value, Consumer Understanding and Consumer Support
• Monitoring and Reporting: To ensure your processes are working as they should, we’ll help you establish comprehensive reporting systems across the whole business lifecycle – with detailed insight dashboards that help you track progress, make more informed decisions and provide clear evidence of compliance for the regulator
• Remediation and Implementation: Consumer Duty compliance is a long-term project – that’s why our specialists are on hand to offer guidance on implementing the changes you need to ensure your strategy is fit for the future

The TCC difference

Our dedicated team of ex-regulators, industry practitioners and experienced consultants have the knowledge you need to get ahead of the Consumer Duty curve and develop a compliance strategy that will deliver for you and your customers for years to come.

Whether it’s strengthening your present or elevating your future, we’re here to help:

Compliance assessment: where are you now?

With the Consumer Duty era now underway, now’s the time for an honest, impartial review how your fair value framework is working where it truly matters: in delivering consistently good outcomes for customers.

We all know that what sounds fool proof on paper may present new challenges once put into practice – but we’ve got you covered. Let our regulatory specialists give an expert section opinion on any teething problems you may have encountered and highlight areas where more work could be done to take your business to the next level.

Ongoing evidencing support

A Consumer Duty strategy is only as strong as its ability to properly showcase compliance to the regulator. That’s why we go the extra mile to ensure all your hard work can be evidenced in an efficient and consistent way:

• Next-generation MI: We’ll help you go beyond surface-level feedback surveys to unlock deep MI that delivers unrivalled, actionable insights into your business processes, so you can root out inefficiencies as they arise
• Consumer Duty-focused file reviews: Our suitability of advice reviews now come with a Consumer Duty assessment as standard. Let our regulatory experts point you towards sustainable compliance and make sure you’re aligned with the regulator’s priorities
• AI RegTech: Gain 100% oversight of your customer calls and conversations through close collaboration with our tech partner Recordsure. With next-generation RegTech at your fingertips, you’ll be able to ensure process adherence and manage emerging vulnerability risks

Periodic health checks and guidance

All businesses grow and change over time – and that means your Consumer Duty strategy will need to develop alongside it.

To help you stay on course, our team can conduct file reviews and value assessments on a periodic basis, offering feedback and recommendations on key areas where your core strategy may need refining. And beyond that, we can examine your own internal annual review files to ensure they’re suitable from a Consumer Duty standpoint.

Whether you need a thorough rethink of your fair value analysis or simply want independent assurance your Price & Value framework still makes sense – our experts can give you the support you need to balance your commercial interests with delivering the best possible outcomes for customers.

Looking for specialist support to build an airtight fair value framework? Let’s get to work solving your Consumer Duty challenges – get in touch with our experts today.