Consumer Duty | Part 4 | Price & Fair Value 💷😊

Continuing our Consumer Duty Insight Series, in part 4, Grath investigates how technology solutions aid firms in meeting consumer needs and ensuring positive outcomes, particularly concerning fair pricing and value.

Products and services should be deemed ‘fair value’ by the recipient or purchaser; all products and services offered by the organisation must be fit for purpose and represent fair value for consumers. Additionally, the firm should conduct a value assessment to determine the measurement of ‘fair value’ and be capable of demonstrating the rationale behind considering the price versus benefit as ‘reasonable.’

Each firm must consider its assessment of value with the focus not solely based on price, within the context of the other outcomes. For example, a poorly designed product or one that has unsuitable features, or one that has been poorly delivered to the end consumer. Products with little or no support or communication structures in place will have a detrimental effect on their perceived value to the consumer.

Following the introduction of the Duty, price is an area that has received regulatory and media scrutiny, particularly for firms offering platform services and with particular attention to fee structures, exit charges and treatment of interest on cash balances held.

Firms must consider any fees or charges which are unable to justify or are unreasonable when compared to what the product and other similar competitive products offer.

Firms should consider at all times the FCA objective across price and fair value:

“We want firms to assess their products and services in this round to ensure there is a reasonable relationship between the price paid for a product or service and the overall benefit a consumer receives from it”.

Consumer Duty expects firms to ensure the price a customer pays for a product or service is reasonable when compared to the overall benefits expected of that product or service.

A fair value assessment should include the firm’s ability to demonstrate how it has arrived at its price determination and continue to monitor all variables that drive its price determination. Subsequent rationale and evidence of how value is arrived at will be vital in dealing with challenges from auditors, regulators, and other interested third parties.

Factors to take into account when assessing fair value should include the costs incurred to manufacture or distribute the product or service, including the cost of funding, or non-financial costs incurred by the customer, such as the effort it takes to access, assess, act to buy, amend, switch or cancel a product. The market rate or charges for a comparable product should also be considered. Any accrued costs or benefits for existing or closed products should form part of any assessment. Firms should Identify whether there are (to the best of the firm’s knowledge) similar products priced significantly lower for a similar or better benefit.

When arriving at value assessments, the use of large data sets for products and transactional data is crucial for firms to arrive at quantifiable and consistently applied assessments, thus avoiding tick-box style compliance. Firms must follow pre-determined scripts or templates around developing a deeper understanding of the data available and applying pre-defined logic across such assessments.

Similar to the other three outcomes, firms’ success in implementing and further demonstrating their fair price and value assessments is mainly dependent on continual monitoring, with defined thresholds and triggers when, if breached, support swift management intervention. Firms must be clear about where such thresholds are set and how often they are recalibrated to ensure they remain relevant and realistic.

Firms that maintain strongly defined monitoring systems and escalation processes can be reinforced with a clear understanding of who owns the identified “foreseeable harms” and the means by which they are monitored. Active monitoring of problem areas, that may manifest foreseeable harm to actual harm, should be identified promptly and be capable of rectification to prevent further consumer detriment.

So, where does technology fit into all this?

The FCA recognises the increasing availability and choice of consumer-facing technology and the need for themselves and the firms they regulate to leverage large and complex data to identify and address previously undetected problems. Furthermore, the FCAs are obligated to support product innovation while protecting consumers and the financial services market. The benefits of well-considered technology are closely aligned to the four outcomes of Consumer Duty: consider the value to a customer where tailored products or services are made readily available for use or where previously excluded consumers can access products as technology enables cost reduction. Intensified competition of technology across firms offering an array of similar products can support consumers in making informed decisions based on price transparency. Such competition makes it easier to switch between providers and promotes prompt exit should that be the consumer’s decision.

When taken in the context of Consumer Duty, it’s clear how technology impacts price and fair value with the application and analysis of MI, data and other intelligence being crucial in monitoring the fair value of products and services on an ongoing basis. Distilled further, firms should consider the application of technology when providing transparent pricing information and should leverage technology to provide transparent and easily accessible pricing information on online platforms. Additionally, comparison tools can enable consumers to compare prices and features across different products or services.

Firms should consider automated disclosure of pricing information and terms and conditions. Automated systems can ensure that consumers receive clear and comprehensive information about costs, fees, and charges associated with financial products.

Using technology, firms can implement systems that provide real-time updates and notifications to consumers about any changes in pricing, fees, or terms. This ensures that customers are informed promptly and can make decisions based on the most current information.

Technology enables firms to analyse consumer data and offer personalized pricing or discounts based on individual behaviours and preferences. This personalization can enhance the perceived value for consumers.

Firms can use technology to collect and analyse customer feedback and reviews related to pricing. This information can be valuable for identifying areas of improvement and demonstrating a commitment to fair value.

Conclusion

With the FCA’s commitment to promote the use of big data and the technologies that support this, firms should consider this an opportunity to better understand different customer segments, tailoring pricing strategies and product value propositions to meet target markets. Interpreting such data can also help firms to understand customer behaviour throughout the relationship lifecycle. This includes the identification of price sensitivity, response to promotions, and the factors that influence perceived value.

How Grath Can Help

Our 5th and final insight of the series will land on the 6th of March. Grath will conclude the insight series by describing how our customers have levelled up their approach to the new principle by achieving real-time Consumer Duty compliance.

Our Consumer Duty levelling up program encompasses:

• Consumer Duty Obligation mapping
• Outcome and cross-cutting monitoring
• Harm register
• Mitigating control mapping
• BAU-ready evaluation processes for monitoring and review
• Attestation sign-off
• Reporting and dashboards designed to identify, assess, and score harms.

Want to learn more about Grath?

Grath can provide further guidance on how technology helps future-proof your regulatory compliance and risk management process, we’d love to talk.

Get in touch with us at grath.com/contact

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