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The Consumer Duty has now been in force for half a year – but the FCA have been clear that the Duty is ‘not once and done’.

And one key area of continuing focus will be on fair value.

The FCA will expect to see firms considering the following three steps.

1. Developing frameworks for assessing fair value,
2. Implementation of the frameworks in practice,
3. Taking action to address any issues identified,

Are our fair value frameworks sufficiently robust and fit for purpose? What to look out for.

In many cases this has been the first time firms have had to evidence fair value. This means that while the FCA has noted good progress in some areas, there will be more to do. The industry (and indeed the regulator) is still discovering what a good fair value assessment means.

Based on FCA guidance and our experience of assessing fair value, there are a number of questions that can be useful to ask yourself when developing, implementing and reviewing fair value frameworks:

• How does the business (model) operate? We often encourage firms to ‘follow the money’ to understand what is driving profitability and whether this is sustainable.
• What is the target market? This is a first filter to prevent harm from materialising. It can be useful to define not only who is ‘in’ but also who is ‘out’ of the target market, and to monitor this over time.
• What outcomes are foreseeable? It can be useful to map out the possible harms that could arise, and what data you can use to monitor potential outcomes. When monitoring metrics, we suggest looking at:
  • the distribution of outcomes (i.e. not just averages).
  • outcomes for different customer groups e.g. segmenting by product usage, or by customer characteristic (particularly vulnerable or potentially vulnerable customers).
• Is our communication effective? This is about testing consumers’ understanding – e.g. for a sample of customers. This is one area where the FCA and firms will be drawing from the insights of behavioural economics.

Finally, where the competitive process is working well, this can generally be expected to result in good consumer outcomes. It is therefore useful to consider whether there are competitive benchmarks that can be used to compare price/value against.

Next steps - Is our evidence base sufficiently developed to be able to assess fair value?

Under the Consumer Duty, the FCA will expect firms to be able to evidence fair value of their products and services. In practice, this will mean ensuring the appropriate evidence base, data and metrics are developed.

It will also be important to consider whether staff are receiving the training on fair value and on embedding the Duty more broadly. One practical step firms are considering is to undertaken a deep dive review for one product or business area, and to share the lessons learned more widely.

As we often say, the Duty is all about three things: evidence, evidence, evidence!

Look out for upcoming training material and events.