FCA clarifies 'fair value' and its impact on consumer savings and insurance

The Financial Conduct Authority (FCA) defines 'fair value' as ensuring customers pay a reasonable price for a product, considering the benefits received.

This principle does not involve setting specific prices or profit levels, but rather challenges firms to provide evidence of fair customer outcomes.

Following the introduction of the Consumer Duty, the FCA first scrutinized the cash savings market.

After engaging with the 9 largest banks, improvements were observed in both available rates and the clarity of customer communications.

The FCA also addressed 'double dipping' by investment platforms, where firms charged fees while retaining interest on customer cash balances.

These actions are estimated to save consumers £10 million annually.

The FCA recently focused on premium finance, a market where 23 million customers pay for insurance monthly.

Concerns about fair value for these consumers, many relying on monthly payments for affordability, prompted close scrutiny.

The regulator directly challenged firms identified as outliers in charges or profits.

Some demonstrated fair value, but others lacked adequate assessment processes or failed to implement them.

This intervention led to a 7 percentage point average reduction in APRs among challenged firms, saving an estimated £14 on a typical motor policy and £4 on a home policy.

Overall, regulatory attention is estimated to save consumers £157 million annually.