Consumer Duty: Four key lessons from the FCA’s Fair Value

What happened?

The FCA published findings from a thematic review exploring how firms across retail banking, payments and consumer investments were approaching their Fair Value assessments ahead of the Consumer Duty’s launch on 31 July. The review assessed whether firms’ internal processes matched the regulator’s vision for the new price and value requirements.

The FCA found some frameworks relied on high-level assertions of fair value without evidence to support them, reflecting a ‘show me, don’t tell me’ expectation that many firms had not yet grasped. It also flagged concerns about the use of generic templates that were not tailored to the specific product or service being assessed.

Why does it matter?

Fair value cannot be assessed against a single checklist: it depends on the nature of the product, its target market and the whole customer journey, not just price. The review found firms need to look beyond fees to non-financial elements such as customer support after the point of sale, since poor post-sale service can undermine value even where pricing looks competitive.

The FCA also expects value assessments to consider differential outcomes for different customer segments rather than relying on averages, while confirming that its rules do not require firms to charge every customer the same amount or make the same profit from each one.

Who is affected?

The review’s findings are relevant across wealth management and financial advice, pensions and retirement income, payments and fintech, banking, consumer credit and lending, general insurance and protection, and motor finance.

Key risks

• Fair value assessments built on assertion rather than evidence
• Over-reliance on generic templates not tailored to the product being assessed
• Assessing value on price alone, without considering the whole customer journey
• Using average outcomes instead of assessing different customer segments
• Gaps in the data and data-gathering methods needed to monitor fair value on an ongoing basis

Actions to take

1. Check whether value assessments cover all the areas the FCA would expect
2. Assess all products and services, not just a sample, against fair value requirements
3. Identify concrete steps to address any areas found to be falling short
4. Build processes that consistently evidence that all clients are receiving value
5. Prioritise review effort on products and services with the greatest potential for customer harm

Wider implications

The review also found firms had not always considered the impact of cross-subsidies on fair value, and that data gaps around metrics such as profit margins, claims ratios and defaults were making it harder for some firms, particularly in markets like fund management, to evidence value consistently.

With so many data points potentially relevant, firms need to decide in advance which data and tools they will use, rather than treating this as a one-off exercise for the implementation deadline.

Recommendations

Firms should be transparent about their reasoning, able to answer why they charge what they charge and how it provides value, and should embrace a collaborative approach with other firms in the distribution chain to gather the information needed to assess value. An impartial, expert second opinion can help identify gaps before the regulator does.