Fair Value Assessments Under Consumer Duty: What Regulated Firms Must Evidence

What the price and value outcome requires

PRIN 2A.4 sets out the price and value outcome. PRIN 2A.4.1R defines value as the relationship between the amount paid by a retail customer for the product and the benefits they can reasonably expect to get from it. A product provides fair value where the amount paid is reasonable relative to those benefits. This is a relationship test, not a maximum price control. The FCA has been clear in FG22/5 that its intention is not to set prices and its rules do not have that effect.

Under PRIN 2A.4.2R, a manufacturer must ensure that its products provide fair value to retail customers in the target market, and must carry out a value assessment and review that assessment on a regular basis. FG22/5 paragraph 7.3 frames the specific focus of the rules as ensuring the price the customer pays is reasonable compared to the overall benefits, considering the nature, quality and benefits the customer will experience. Value must be considered in the round.

Two points from FG22/5 shape everything that follows. First, at paragraph 7.5, a product that does not meet the needs of the customer it is sold to, causes foreseeable harm, or has negligible or no obvious benefit is unlikely to provide fair value whatever the price. Second, at paragraph 7.4, products that cost more may well provide value if that cost reflects their quality and benefits. Fair value is therefore assessed against benefits, not against a price ceiling.

How the FCA defines fair value

The defined term matters because it sets the standard firms have to evidence. Fair value under PRIN 2A.4.1R is the amount paid being reasonable relative to the benefits of the product. FG22/5 paragraph 7.3 expands this to the nature, quality and benefits the customer will experience, considered together rather than in isolation.

The FCA is careful to say what fair value is not. It is not a mathematical calculation of price against cost. FG22/5 paragraph 7.13 gives firms discretion to decide which factors they use, provided those factors allow them to demonstrate that there remains a reasonable relationship between the total price and the benefits the customer receives. In its later good and poor practice work the FCA warned against over-reliance on a cost-plus approach, noting that the fact a firm incurs higher costs does not, in itself, mean a higher price represents fair value.

Benefits are to be understood broadly. They include the quality of the product and the level of consumer service, not only its headline features. Costs are also understood broadly. FG22/5 paragraph 7.28 states that firms must consider non-financial costs such as the time and effort it takes a customer to access, assess and act to buy, amend, switch or cancel a product, and situations where consumers effectively pay with their data, privacy or attention.

Manufacturer and distributor responsibilities

The Duty splits responsibility across the distribution chain. A manufacturer, which creates, develops, designs, issues, manages, operates or underwrites a product, carries the primary value assessment obligation. Under PRIN 2A.4.2R it must ensure its products provide fair value and must carry out and regularly review the value assessment. FG22/5 paragraph 7.22 requires manufacturers to assess the benefits consumers can reasonably expect, taking account of the characteristics and objectives of the target market.

Distributors have their own duties. FG22/5 paragraph 7.31 states that distributors must ensure their own charges for distributing the product represent fair value, and that all firms in the distribution chain are responsible for the value of the product. Paragraph 7.32 requires distributors to obtain relevant information from manufacturers to understand the value the product is intended to provide and whether their distribution arrangements, including any remuneration, would result in the product ceasing to provide fair value.

The interaction is important where charges are added along the chain. FG22/5 paragraph 7.35 explains that where a manufacturer sets the final price the retail customer receives, including distribution charges, the manufacturer is responsible for ensuring fair value and the distributor does not need to carry out its own value assessment. Even then, the distributor must confirm the manufacturer has carried out a value assessment and review the information shared before distributing. Where a financial adviser is the distributor, paragraph 7.34 requires them to recommend a proposition that is fair value for the customer.

The fair value assessment framework

FG22/5 paragraph 7.9 sets a minimum. To assess whether a product provides value, firms must consider at least the nature of the product, including the benefits that will be provided or may reasonably be expected and their qualities; any limitations that are part of the product, such as limitations on scope of cover for an insurance product; and the expected total price customers will pay, including all applicable fees and charges over the lifetime of the relationship.

Paragraph 7.10 lists further factors firms may consider, and which the FCA may consider when it reviews a firm's assessment. These include the costs the firm incurs to manufacture or distribute the product, the market rates and charges for comparable products and whether the product is a significant outlier, whether other products in the firm's own portfolio are priced significantly lower for a similar or better level of benefit, and any accrued costs or benefits for existing or closed products. PRIN 2A.4.9G similarly points to costs of manufacturing and distributing and the market rate for a comparable product.

Timing and review are built into the framework. FG22/5 paragraph 7.15 requires firms to assess value at the design stage and before offering a product, and to ensure prices represent fair value for a foreseeable period, including following renewal. Paragraph 7.16 requires firms to monitor and assess value throughout the life of the product, conducting regular reviews. Paragraph 7.14 requires appropriate action, such as amending the product or withdrawing it from sale, where a product does not provide or ceases to provide fair value. Our Control platform is built to hold this assessment, its review cadence and its evidence trail in one place.

Differential pricing and different customer groups

The price and value outcome does not require every customer to pay the same amount. FG22/5 paragraph 7.38 states that the rules do not require firms to charge all customers the same, and that clear, transparent up-front discounts for new or existing customers are not prohibited. Firms can also differentiate products, for example bronze, silver and gold cover with different levels of benefit, as noted at paragraph 7.40.

Where firms charge different prices to separate groups, they must consider whether the price provides fair value for customers in each pricing group, having regard to whether any customers with characteristics of vulnerability may be disadvantaged. The FCA reinforced at paragraph 7.39 that price walking some groups of consumers, so that they make significant overpayments that do not provide fair value, would not meet the requirements of the Duty.

This is where assessments frequently fall short. In its good and poor practice work the FCA warned against justifying differential pricing through customer inertia or behavioural biases, and against relying on group averages that mask outliers or pockets of poor value. Firms are expected to segment the target market meaningfully and assess whether each group receives fair value, rather than presenting a single blended figure that hides the customers who are worst served.

Evidencing fair value: what the FCA expects to see

Having a framework is not the same as evidencing an outcome. In its review of firms' fair value frameworks, first published on 10 May 2023 and covering 14 firms, the FCA found good practice where firms had clear principles aligned with its guidance, assessed costs and benefits broadly, and used clear governance with named owners and data-driven monitoring. It found poor practice where firms relied on high-level or unevidenced arguments that their business model or ethos was inherently fair value, used a single generalised template across products with very different characteristics, or leaned on averages that concealed poor value for some customers.

The FCA's later good and poor practice examples, updated on 16 September 2024, went further on documentation. The regulator expects fair value to be embedded in decision-making from the design stage, with documentation reflecting the analysis undertaken during product design and pricing decisions rather than retrospective justification. Governance forums should receive management information that extends beyond financial metrics, and boards should be able to challenge the conclusions. Benchmarking against peers alone is unlikely to provide a meaningful assessment of value unless it is supported by broader evaluation of total pricing, benefits and target market characteristics.

In practice this means a defensible assessment records the target market, the benefits and their quality, the limitations, the full price including non-financial costs, the comparators used and why, the value conclusion, and the review date and outcome. Where charges accumulate across a distribution chain, the record should show how remuneration was tested. A structured approach to remuneration and charge modelling, such as our Pay module, helps firms demonstrate that the total price paid remains reasonable relative to the benefits delivered.

Conclusion

The fair value assessment is the evidencing engine of the Consumer Duty price and value outcome. PRIN 2A.4 fixes the standard, namely that the amount a customer pays must be reasonable relative to the benefits they can reasonably expect, and FG22/5 explains how the FCA expects firms to reach and record that judgement. It is not a price control and it is not a cost-plus sum. It is a structured, documented view of benefits, limitations, total price and comparables, refreshed at design, before sale, at renewal and through regular review.

Firms that treat the assessment as a one-off template exercise are the ones the FCA's reviews have criticised, for relying on averages, unevidenced ethos arguments and peer benchmarks alone. Firms that embed fair value in product governance, segment their target markets, test the whole distribution chain and keep a living evidence trail are far better placed to demonstrate compliance and to act quickly when a product stops delivering value. That is a governance discipline as much as a pricing one, and it rewards firms that build the assessment into how products are designed, priced and reviewed from the outset.

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