FCA's Price and Value Outcome Update: Best Practices and Areas for Improvement

The FCA has released a detailed report on the Price and Value Outcome as part of its ongoing Consumer Duty framework. This update provides crucial insights into how firms can ensure they deliver fair value to their customers and highlights examples of both good and poor practices across the financial services sector. Below are some of the most important takeaways from the report, which can help firms align with regulatory expectations and improve consumer outcomes.

Holistic Consideration of Consumer Duty Outcomes

The FCA emphasises that the Price and Value Outcome should not be viewed in isolation but as part of the broader Consumer Duty framework. Alongside price, firms must assess how products and services meet customer needs, ensure customers understand what they are paying for, and offer effective support. For instance, a product might be priced fairly, but if customers do not understand its features or if support is lacking, the overall value delivered may still be poor. This interconnected approach is vital for ensuring that all customer touch-points meet the high standards set by the Consumer Duty.

Fair Value Assessment: A Crucial Tool

Fair value assessments are at the heart of ensuring good consumer outcomes. The FCA's update stresses that firms must conduct these assessments thoughtfully, providing evidence to justify their pricing strategies and the benefits consumers receive in return. The key is to ensure that the price paid reflects the value delivered to the customer, particularly in sectors where there may be opaque pricing structures or complex products.

For example, in the cash savings sector, the FCA found that some firms offered lower interest rates as account balances grew, disproportionately affecting customers with larger balances. Without transparency around this structure, customers were not always able to make informed choices. The FCA expects firms to address such issues by presenting clear pricing and value propositions and taking corrective action when assessments reveal that consumers are at risk of receiving poor value.

Target Market and Segmentation

Another critical point raised by the FCA is the importance of identifying and understanding a product’s target market. Firms need to go beyond general categories and consider whether their products are delivering value to all segments of their customer base, including vulnerable groups.

In several cases, firms were found to have overly broad target market definitions, failing to account for consumers who may not benefit from the product in the same way. For example, some providers of Guaranteed Asset Protection (GAP) insurance were found to define their target market as "anyone buying a car," without considering that such coverage might be unsuitable for owners of lower-value vehicles. The FCA urges firms to refine their market segmentation and assess whether different consumer groups are receiving appropriate value.

Additionally, firms should evaluate their pricing structures and identify cross-subsidies that might disadvantage certain customer groups. While the Consumer Duty does not prohibit cross-subsidies, firms must ensure that all customer segments receive fair value for the products or services they purchase.

Small Firms: Proportionate Approaches

For smaller firms, the FCA acknowledges that resources may be limited compared to larger organisations, and as a result, they are encouraged to take a proportionate approach to implementing the Consumer Duty. This means smaller firms might not need the same level of formal governance or exhaustive data analysis. However, the report suggests practical methods for smaller firms, such as using customer feedback, complaints data, and case studies to assess whether their products provide fair value. By using these tools, smaller firms can still meet regulatory requirements without the need for extensive financial or operational resources.

Good and Poor Practices Across Key Sectors

The FCA's report provides practical examples of both good and poor practices. In the cash savings sector, firms that conducted in-depth analyses of their products, segmented by customer type and behaviour, were seen as good examples of fair value assessments. These firms were able to show how different customer groups, including first-time savers or those with smaller balances, were receiving appropriate value.

Conversely, the FCA pointed out instances where firms failed to consider key factors such as customer understanding of pricing structures or the hidden complexity of charges. For example, in the platform cash market, some firms engaged in "double dipping" by charging both a platform fee and retaining a portion of interest earned on customers’ cash balances, without providing sufficient transparency. This lack of clarity can prevent customers from making informed decisions about their investments, leading to poor outcomes.

Governance and Monitoring: Ensuring Accountability

Effective governance is essential for ensuring that fair value is consistently delivered to customers. The FCA expects firms to establish clear governance structures, including board-level oversight of fair value assessments. Firms should regularly review their products and services to ensure they continue to offer fair value, especially when there are significant changes in the market or customer behaviour.

In practice, this means boards should receive regular reports on fair value assessments and have the necessary data to challenge senior management on whether the firm’s products meet the requirements of the Consumer Duty. Firms should also have mechanisms in place to take corrective actions promptly when assessments reveal risks of poor consumer outcomes.

In some cases, the FCA observed poor governance practices where firms had identified issues with fair value but had not escalated these concerns to their boards or taken timely action. Such failures can lead to prolonged periods of poor consumer outcomes, potentially exposing firms to regulatory sanctions.

The FCA's update on the Price and Value Outcome serves as a critical reminder for firms to remain vigilant in ensuring that customers receive fair value. By adopting a holistic approach to the Consumer Duty, conducting thorough fair value assessments, understanding target markets, and ensuring robust governance, firms can better serve their customers and reduce the risk of regulatory intervention. Whether a large organisation or a small firm, every business must ensure that its pricing strategies, product offerings, and customer outcomes align with the high standards set by the FCA.

Firms that take these lessons to heart will not only improve consumer trust and satisfaction but also position themselves for sustainable long-term success in a more regulated and competitive market.