The Consumer Duty: Value Assessments
As firms continue to get to grips with the details of the new Consumer Duty, in particular the detailed requirements set out in PRIN 2A, they will be beginning to form their implementation plan. To enable the creation of the plan, it’s imperative to understand the content of the required Consumer Duty assessments, such as value assessments. As the FCA requires firms to have signed-off implementation plans ready by the end of October, it is now imperative to understand the key features of the duty, this article sets out the required content to be included within value assessments.
The detailed rules and guidance are set out in PRIN 2A.4 which sets out the requirement that a product provides fair value for a customer where the amount paid is reasonable and reflective of the product benefits. Manufacturers must ensure products represent fair value through completing a value assessment ‘on a regular basis’ which includes a new product or where a product is significantly changed.
A manufacturer’s assessment of whether or not a product provides fair value must include (but is not limited to) consideration of the following:
(1) the nature of the product, including the benefits that will be provided or may be reasonably expected and its quality;
(2) any limitations that are part of the product;
(3) the expected total price to be paid by the retail customer or that may become due from the retail customer.
The expected total price includes:
(a) the price paid or agreed to be paid by the retail customer on entering into a contract for the product, including by way of repayments;
(b) any regular charges or fees payable over the lifetime of the product, for example an annual management charge;
(c) any contingent fees or charges, for example, administrative charges for changes of address, charges for falling into arrears on a loan, or charges for transferring investments;
(d) any non-financial costs the retail customer is asked or required to provide to the firm;
The manufacturer must also identify any characteristics of vulnerability that retail customers in the target market display and the impact these characteristics have on the likelihood that retail customers may not receive fair value from its products.
There is guidance under PRIN 2A.4.9 which states the following can be taken into account which ascertaining if a product provides fair value:
(1) the costs incurred by the firm in manufacturing or distributing the product;
(2) the market rate and charges for a comparable product;
(3) any accrued costs and/or benefits for existing or closed products; and
(4) whether there are any products that are priced significantly lower for a similar or better benefit.
Equally benefits can include both financial and non-financial benefits such as enhanced customer service. This all sounds a lot and it is, however we’ve done the hard work for you and have pulled out the key requirements, including them in this template.