Earlier this month the FCA published their findings from a review of Fair Value frameworks. Fair Value is one of the 4 outcomes on which firms will be assessed under Consumer Duty when it comes into effect in July. To help establish the regulator’s expectations, the FCA is providing feedback based on organisations’ proposals. For this report, they looked at the Fair Value Assessment Frameworks of 14 firms, with the aim of both highlighting good practice and areas of improvement to provide clear examples.

What kind of evidence does the FCA want to see to prove that your business offers customers Fair Value? The Fair Value rules within Consumer Duty focus on ensuring that the price a customer pays for a product or service provides “reasonable value” relative to the overall benefits. The regulator will want to see clear proof that organisations have considered the nature of their products and services, any limitations of the product or service and the expected total price customers will pay across the lifetime of the product.

For this review, the FCA assessed the Fair Value Assessment Frameworks on their understanding of Fair Value rules, how costs and benefits to customers (including non-financial costs and benefits) are being assessed, how the firm has included wider contextual factors in their assessments of value, what approach has been used to assess the range of possible consumer outcomes (including outcomes for vulnerable customers) and how a firm is using data to monitor and measure fair value.
The good practice sections for each of these five assessment factors are encouraging reading, suggesting many firms have a good understanding of what they need to do and are on the way to achieving it. For example, the report says that the majority of frameworks have clear principles for how they will apply the concept of fair value, most frameworks have a reasonable view of how to assess consumer benefit, including non-monetary factors, and many firms are considering the interplay between Fair Value and the other elements of Consumer Duty.

I would recommend anyone working on Consumer Duty preparations read the full report, but I wanted to highlight some of the key Areas for Improvement that the FCA names.

First, looking at the “understanding fair value” assessment, they raised a concern that some firms “planned to rely on high-level or unevidenced arguments that their business models or ethos are inherently fair value”. This is something we’ve talked about in previous Consumer Duty articles – almost everyone working in Financial Services believes they’re putting out good products for their customers. It’s going to be crucial to get past that kind of belief in the “self-evident” and to provide substantial evidence that your products are providing fair value. The FCA is also concerned that some firms have “not given sufficient thought to the distinction between manufacturers and distributors in PRIN 2A.4”. Whether a firm is a manufacturer, a co-manufacturer or a distributor makes a substantial difference to how they should assess the costs and benefits of their services.

Next, within the “assessing value” findings, they flagged that some firms who operated across multiple markets were using a single generalised template for assessing Fair Value. Any business with a wide range of products across different market sectors is going to need to think about how they adapt their approach for each of those sectors. The FCA also mentioned that some firms had failed to make any reference to their profit margins on products and services and pointed out that this is “likely to be a relevant factor in assessing [a product’s] fair value.”. Finally, on assessing value, they were concerned that some firms were not considering non-financial costs and benefits – for example, quality of product and level of consumer service on the benefit side and the time taken to decide about a product and the effort needed to make an amendment or cancellation on the cost side. It’s going to be important to think about those factors that can’t be reduced to numbers on a page, providing a holistic view of how your organisation is providing Fair Value.

Under the “considering contextual factors” section, the FCA were alarmed that some firms were simply not giving substantial consideration to broader contextual factors and their impact on Fair Value. Again, it’s not going to be enough to say a product provides positive financial value, organisations are going to need to look beyond that – especially for larger firms and complex offerings. There was also concern that some firms were not considering what information they needed from other firms in their distribution chain, which will be vital to assessing fair value of any product that involves third parties.

In the fourth section, “assessing differential outcomes”, they noted that some of the information being presented in frameworks had a tendency to “rely on average outcomes rather than analysis to understand the full distribution of outcomes”. Remember that averages are likely to mask outliers and what the report calls “pockets of poor value” – just because you have an average positive outcome, your assessment needs to consider the value being provided to customers who do not have the normal positive experience with your product.

Finally, under the “data and governance” findings, the FCA raises concerns that some firms have not identified how they plan to monitor Fair Value, what data they want to use and how they will address data gaps. A lack of proper data will lead to vague, “high-level” cases being made which, again, will not be enough. A related issue is firms failing to consider the limitations of the data they were using to evidence Fair Value, making it unclear how decision-makers would be able to critically review this evidence. There was also a point raised about firms using market-level benchmarks and presenting their case for Fair Value in terms of relative comparisons – this can hide value issues which are prevalent across the wider market. Finally, where firms are using “traffic light” or points-based approaches in their Fair Value Frameworks, there needs to be substantial critical analysis around those scores and ratings – firms need to examine how thresholds between different ratings and points are drawn and whether sufficiently detailed information is being provided to review and challenge the assessment of Fair Value.
It’s a lot to consider, but there is still time to get your organisation ready before the July 31st deadline.

Kind Consultancy recently supported a client through an initial Review of Target Market Fair Value and processes to ensure they were in line with FCA and industry expectations. This included examining the way the firm had assessed their target markets, benchmarking against those in and outside the sector, looking at what was needed to maintain a cycle of continuous improvement, agreeing on what conditions would trigger an urgent out-of-cycle Fair Value review and how senior management were informed in order to provide assurance that their risk tolerance was being kept within the required parameters.

If you are looking for a ‘fresh pair of eyes’ to act as a critical friend, Kind Consultancy work with a number of consultants who are available to provide you who can independently assess the work you have carried out so far and highlight any changes needed in order to be Consumer Duty ready. framework and highlighting any changes needed to be Consumer Duty ready.
For more information, please get in touch on 0121 643 2100 or e-mail selena@kindconsultancy.com for a confidential conversation about your needs.

Kind Consultancy – The Year in Review 2022

 As we head towards the end of the year, I wanted to take a look back at what 2022 has been like for both the recruitment world and for our clients in the Financial Services GRC space.

 Regulations

Most years we see different themes come to the forefront and then recess across the 12 months . In 2022 though, it felt like Consumer Duty has dominated the Governance Risk & Compliance conversation all year long – and understandably, when it constitutes the biggest change to UK Financial Services regulations in a decade. The need to pay close attention to every single step of the customer journey was made even more crucial with FCA expectations around helping customers through the rising cost of living and the knock-on effect on their wider personal finances. Other issues that have been important include both high tech and low-tech fraud and the KYC challenges faced by purely digital banks and other fintech start-ups. All of which made for a very busy year for us, with high demand for proven collections and complaints teams and more clients than ever seeking out bespoke consultancy services from the experts on our Kind Agile Solutions bench.

 Recruitment

 In the recruitment world, the most prevalent themes of the last two years continued . The candidate shortage rolls on, creating a recruitment marketplace that is as candidate-led as it ever has been. This has been a tricky transition for some organisations, but I think the second half of the year has seen a shift with many businesses now recognising that they need to showcase themselves better to attract the best candidates, rather than the other way around. Keeping salaries competitive has remained important but for skilled specialist candidates, the deciding factor has often not been monetary, with flexibility and remote work being the real make or break issues instead.

According to the ONS data, at the start of the year there was a huge number of vacancies – that has reduced in the second half of the year, but the most recent data shows unfilled job levels are still higher than before the Covid-19 pandemic. There’s also been an increase in reliance on contractors, a sure sign of a shortage of readily available skilled candidates, and anecdotally I can say that we’ve definitely seen more and more of our own clients looking for interim talent who have not previously considered it an option. It will be interesting to see if this shifts in the next year as the wider effects of the current economic uncertainty continue to build up. One thing I’m sure of is that in this kind of challenging labour market, we can deliver exceptional value as specialist recruiters and make a big difference to our clients.

 Our Team

 Here at Kind Consultancy Ltd, we’ve had an exceptional year. We continued to grow the team, with Hetal Chavda joining us in May and quickly proving herself an important addition . Hetal Chavda flew through her probation period last month and Catherine Tieley took the step up to Senior Recruitment Consultant in August and Shai Cassidy was promoted for a second time to Executive Consultant back in June. The core recruitment team have all undertaken regular training on Financial Services industry topics to ensure we continue delivering on our promise to have a better understanding of our clients than they would get from a big corporate recruiter.

We’ve also helped to share knowledge to keep our clients ahead of the game, running a series of industry roundtables and seminars, sharing thought leadership around Consumer Duty and how Financial Services businesses can best help customers in the Cost of Living crisis.

 The continuous focus and hard work from the whole team has paid off – at the time of writing we’re on track to have our most successful year ever! We’ve made a record number of total placements, with 66% of them being contract / interim and 33% being permanent. I’m also very proud that this year, 42% of our placed candidates were women and 60% were from ethnic minority backgrounds. This year we also carried out 9 retained search projects and also delivered on 11 specialist regulatory projects, all of which were bespoke plans crafted for each client’s individual compliance needs. Offering these truly specialist solutions and working with top-tier industry experts sets us apart from the competition, and for me personally it’s some of the most satisfying work we do.

Looking Ahead

 In 2023, Kind Consultancy Ltd is going to keep reaching for new heights. Continued demand from our large client base enables us to grow year on year, and we are currently planning to expand our offices in Lichfield as we grow our team further. We will also continue to develop our fantastic staff, by investing in more training in both recruitment skills and Financial Services industry knowledge. We will also continue to run round tables and webinars to ensure the best-in-the-industry talent we work with can share their knowledge and experience, enriching our clients and our own team.

 Thank You

 As we near the end of the year, I just wanted to take this opportunity to say thank you to all of our clients, candidates, connections and followers – every one of whom contributed to our amazing 2022. I hope you all have some time and space over the winter break to relax, rest and celebrate.

To stay up to date on all of our latest opportunities and other news from the Kind team, keep following me and the Kind Consultancy Ltd page on LinkedIn.