Fair Value Assessment Frameworks – five key takeaways the FCA want you to include:
The FCA has published further guidance for Firms on how to ensure they meet the price and fair value outcome. Their observations are taken from a review of 14 large firms across four portfolios (retail banking, consumer investments, payments and digital assets, and consumer finance).
The key takeaways that Firms should be considering are as follows:
What to include in your policy framework:
You will need to have a framework that clearly articulates how the benefits and costs of a product are taken into account to form a view on fair value. It will not be enough to rely on unevidenced assumptions or rationale.
How to assess value:
There is a requirement to assess the cost against the benefit. This includes non-financial benefits and costs, for example the quality of customer service and its cost to the business. Finally, if your assessment does not include a review of profit margins by product and service line, then it is unlikely to be fit for purpose.
Pricing influences:
Your assessment must be broader than just an assessment of cost and benefits. Firms should evidence consideration of contextual factors and the impact of other cross cutting rules that may impact fair value. For example, to what extent has your assessment taken into account market prices for similar products and services, or consumer characteristics in your target market.
Different prices for different customer groups:
The FCA are likely to ask you what impact your target market analysis and customer segmentation has had on your pricing model. This should be part of your assessment as you will need demonstrate how each group of customers receives fair value.
Monitoring:
From July you will be required to monitor your adherence to this rule. Firms should have a plan in place that clearly shows what data they have/need to monitor whether fair value is being delivered and what to do if/when it is not.
These observations are published on the same day that the FCA has warned that it is prepared to take "robust action" against firms that fail to meet the impending Consumer Duty deadline. Fair value is a focus area and one where Firms would be wise to ask themselves the difficult questions before the FCA does.
We are already advising clients across a number of sectors on how to ensure that their fair value assessments meet FCA expectations. Our experienced consultants have valuable insight into how to achieve compliance with these new rules in a manner that is proportionate and effective.
In addition to this we have developed a template framework that is designed to help Firms meet the requirements listed above.
Get in touch to understand how we can help you. contact@avyse.co.uk
