Give me the reasons why: latest FCA feedback on fair value

Holistic approach to assessments

• Support your points with evidence. The FCA emphasises the importance of backing up conclusions with good quality evidence throughout its feedback. Poor assessments were found to make bald assertions or assumptions as to value without anything to support them. The FCA is looking for explanations as to how and why firms reached their conclusions.

• Consider financial and non-financial benefits, alongside the time and effort required to access a product’s benefits. This is particularly important where a product is provided at no cost: the FCA is clear that fair value cannot be presumed in these cases. It found some firms relying solely on their own cost base to justify prices, without considering product features or comparators, or developing a broader evidence base for overall value. The FCA wants firms to link benefits to costs, understood in the broadest sense, to build a detailed picture of value.

• Segmentation remains key. The FCA wants firms to consider whether different groups of customers are receiving poor value. Many firms segment purely by customer type (e.g. vulnerable customers or those in financial difficulty), whereas segmentation by product use can provide a richer picture. The feedback also mentions segmenting target markets by distribution channel or customer characteristics. The metrics firms choose should be relevant to the nature of the product. This approach helps prevent generalised conclusions from masking pockets of poor value for specific groups, such as customers paying particular types of charges.

• Consider the entire product life cycle. The FCA praised firms that considered value across the entire customer journey, as well as those that assessed value at key interaction points, such as renewal, or when a customer falls into arrears or experiences financial difficulty.

• Benchmarks are one data point among many. The FCA pays particular attention to firms’ use of benchmarks in value assessments. It considers them a valuable means of identifying potentially poor value and providing evidence to challenge assessments. Comparator products must be sufficiently similar to the product being assessed. Firms should be ready to explain why they chose a particular comparator, what the comparison demonstrates and how it informed their assessment.

  Where a firm’s product is more expensive than a comparator, a firm should consider product features, service standards, benefits, target markets, service propositions and outcomes to identify an objective reason for the price difference. Benchmarking against the market should not replace a firm’s own assessment of whether their product offers fair value on its own terms.

Communications

• Information about costs should be provided early in the customer journey and should be comprehensive, covering the amount, timing and frequency of payments.

• Customers should be able to see all charges, and the total cost figure, in one place, rather than scattering elements of the overall price across a website or product guide.

• Positive readability scores or engagement measures are not, in isolation, meaningful evidence of customer understanding.

• The FCA praised firms that review chats and proactively contact customers paying certain charges to check whether they understand what they are paying and why, with remediation following where they do not.

Monitoring

• Firms should have a clear monitoring framework identifying the outcomes to be monitored, relevant metrics and data sources, ownership and governance arrangements, monitoring frequency, quality assurance thresholds, and thresholds for escalation and intervention.

• Unsurprisingly, the FCA repeats its requirement that firms segment their target market and monitor outcomes for specific customer groups. Monitoring only at an overall portfolio level risks a firm missing differences between groups. A firm monitoring arrears levels should also consider which customers are in arrears, how often arrears charges are imposed, whether those charges accumulate, and the relationship between charges, customer balances and subsequent financial difficulty.

• Monitoring should capture a range of data and evidence, extending beyond complaints to include product usage, customer service information, arrears and forbearance outcomes, cancellations, renewals, and use of product features or support services.

• Firms also need a clear approach to using monitoring findings. This should explain how they investigate and escalate concerns, decide whether to remediate, and assess whether the intervention has improved outcomes.

Controls

The FCA specifically addresses the controls firms should establish to guard against foreseeable harm arising from fees and charges. Given the sectors reviewed, the principal harm envisaged is escalating arrears charges and other charges, potentially trapping vulnerable consumers in a debt spiral from which escape becomes increasingly difficult. Different sectors will face different value-related foreseeable harms, but the need to identify and mitigate them proactively remains the same.

• The FCA praised firms that considered:

  • sending payment reminders and giving customers additional time to pay before imposing charges;

  • grace periods;

  • waiving charges where a customer was in forbearance; and

  • limiting the number of charges imposed within a specified period.

• The FCA reminds firms that the existence of a control does not prove that it works. Firms need evidence to demonstrate the efficacy of the controls they put in place.