Fair value

The way forward in 2024 and beyond

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January 2024

Fair value is one of the four Consumer Duty outcomes that the FCA sees as forming the key elements of the firm-consumer relationship. As such, it sits alongside the products and services, consumer understanding and consumer support outcomes — but, as firms have experienced, it is the most integrated of outcomes. This is why the FCA holds it in such high regard as being illustrative of whether firms have culturally embraced the Duty.

If done well, fair value assessments can be used to generate deeper insights into your customer base

Under the fair value outcome, the FCA has challenged firms to evidence that the total price paid is reasonable in relation to the benefits. The FCA has not provided detailed guidance (although some indicators are starting to be shared of good and poor practice) on how firms should go about undertaking this assessment, emphasising the outcomes-based approach to the Duty. It has indicated that firms can consider many factors, including costs, benefits, and utility to customers, as well as market rates for comparable products.

The FCA has been at pains to emphasise that fair value is not just about price, and that firms should look carefully at the benefits and features of the product and how these meet the needs of the target market and individual customer segments within that. Firms should ask themselves whether the product and service is performing as expected, and then whether the price is reasonable in the light of that performance. It's not about the lowest price solution being necessarily the best value. 

Obscure prices, unclear choice architecture, and unsuitable products are less likely to offer value. 

The FCA has left significant discretion to firms to decide how best to assess fair value on a sector-by-sector basis and what factors should be included in the assessment. This has led to some differences in approach as firms are familiar with the concept of benchmarking their prices to their competitors but are less familiar with assessing the reasonableness of prices in relation to the costs and benefits to consumers. Benchmarking alone (or over-relying upon it) will not meet FCA's expectations. 

Most firms have completed fair value assessments on their entire front book product suite, and FCA is reviewing a selection of these and we expect it to provide feedback in due course. But the FCA does not want this to become a tick box exercise. It wants boards to be looking critically at customer outcomes and providing challenge to the executive, and to have the right MI and data to do that. So there is still a lot of scope for firms to be creative about the kinds of data and metrics that they use to support their fair value assessments.

This brings both challenges and opportunities. On the one hand, the lack of prescriptive framework means that there is some uncertainty and ambiguity about what is necessary. But on the other hand, this presents a big opportunity to harness data flexibly and dual-purpose it to deepen consumer insights and leverage this insight for commercial purposes too. For example, analysis of customer transaction data to highlight patterns and trends in consumer behaviour can be overlaid with customer insights from surveys and focus groups to get a deeper understanding of what's driving that behaviour. This can help to design products and services that are more tailored towards the needs of specific customer groups, potentially increasing customer loyalty and retention, as well as meeting the Consumer Duty requirements more fullly.

Fair value is a journey, and improvements are required

The FCA is emphasising that the Consumer Duty is a journey and that it is looking to see firms making continuous improvements. In respect of fair value, it has stated that it is looking to see improvements in firms' approach and framework; execution of this approach and quality of data and MI; and in the actions that are taken as a result. The FCA has made clear that fair value assessments should be data-driven, and multi-dimensional — spanning product and service usage and performance, customer understanding, and price — and should enable consideration of outcomes for multiple customer cohorts including vulnerable customers. 

KPMG in the UK has reflected on where improvements can be made on the price & fair value outcome. 

Key takeaway: doing price & fair value outcome well may require a significant investment but has significant payoffs

The Consumer Duty is an opportunity for firms to review their product suites across the board to consider not only where harm may be arising but how they might improve value for their customers. For firms who do Consumer Duty well, there is the prospect of gaining competitive advantage, securing greater customer loyalty, and improving firm culture, all leading to an improvement in firm value.  More on this in due course…..

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The way forward in 2024 and beyond
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The way forward in 2024 and beyond
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The way forward in 2024 and beyond
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Our People

David Miller

Partner, Risk Consulting

KPMG in the UK

Mita Dave

Partner, Risk and Regulation

United Kingdom

Daniel Barry
Daniel Barry

Partner, Wealth & Asset Management

United Kingdom

Philip Deeks

Retail Conduct, Regulatory Insight Centre

KPMG in the UK


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