Fair Value Assessments Under Consumer Duty: A Practical Framework

Methodology, Data Inputs, and the Substantive Analytical Standard the FCA Expects

Fair value assessment is the most operationally demanding component of the Price and Value outcome under Consumer Duty, and the area where the gap between strong and weak firm practice has widened most visibly through 2024-2025. The substantive analytical work required — examining whether the price paid by customers is reasonable relative to the benefits received, with consideration of customer characteristics, total cost, and differential pricing — goes far beyond traditional product pricing review. Firms that produce credible fair value assessments invest substantively in methodology, data inputs, and board governance; firms that don’t typically face FCA supervisory pressure as the substantive standard is tested.

This blog sets out a practical framework for fair value assessment in 2026 — what the methodology should look like, what data inputs are needed, how the assessment should engage with adverse findings, and what the FCA examines during supervisory dialogue. For the broader regime context, see our Four Consumer Duty Outcomes Guide.

The Fair Value Standard Under Consumer Duty

The Price and Value outcome (PRIN 2A.4) requires firms to ensure the price paid by customers is reasonable relative to the benefits they receive. The substantive standard requires firms to consider:

• Total cost — explicit charges, implicit charges, ancillary fees, and any reduction in benefits
• Total benefits — the product itself, ongoing service, brand value, and other relevant benefits
• Customer characteristics — particularly differential pricing across customer groups and any disadvantage for vulnerable customers
• Comparator considerations — comparison to similar products in the market where applicable
• Cumulative impact — particularly where multiple fee layers apply

The assessment must be documented, refreshed at least annually, approved at appropriate seniority, and form part of the firm’s overall Consumer Duty framework. See our Consumer Duty Pillar Guide.

What a Substantive Fair Value Methodology Looks Like

Strong fair value methodologies typically include the following components:

1. Product scope definition

Clear identification of which products require fair value assessment, with appropriate granularity. Aggregating diverse products into a single assessment typically obscures fair value patterns; assessing each product separately surfaces them.

2. Cost analysis

Comprehensive cost analysis covering:

• Explicit charges (fees, premiums, interest)
• Implicit charges (spreads, currency conversion, embedded margins)
• Ancillary fees (transaction fees, adviser charges, platform fees)
• Charges deducted from benefits (e.g., fund charges reducing investment returns)
• Cumulative impact across multiple fee layers

3. Benefit analysis

Substantive analysis of benefits delivered to customers:

• The core product or service
• Ongoing servicing and support
• Risk management or protection benefits
• Brand value and trust benefits
• Convenience or accessibility benefits
• Specific benefits for the target market

4. Customer segment analysis

Where pricing varies across customer segments, substantive analysis of:

• Whether differential pricing reflects genuine cost or benefit differences
• Whether vulnerable customers receive worse value than others
• Whether specific demographic groups face systematic disadvantage
• Whether loyalty patterns produce unfair outcomes

5. Comparator analysis

Where appropriate, comparison to similar products in the market — accounting for differences in benefits, target market, and service.

6. Conclusion with substantive support

A documented fair value conclusion supported by the substantive analysis — not just an assertion that fair value applies.

7. Action where concerns are identified

Where the assessment identifies fair value concerns, substantive action — pricing changes, product modifications, customer redress, or product withdrawal where appropriate.

Data Inputs Required

Substantive fair value assessment requires substantial data inputs:

Cost data

Granular cost data covering all relevant charge types — typically requiring substantial finance team engagement. For products with implicit charges (spreads, embedded margins), the assessment may require methodology development to extract cost information.

Customer outcome data

Data on what customers actually experience — claim rates, persistency, complaint patterns, customer feedback, satisfaction data — providing evidence of benefit realisation.

Market comparator data

Where comparator analysis applies, market data on comparable products. Data sources may include market intelligence, industry surveys, or external pricing databases.

Customer segment data

Demographic and behavioural data on customer segments, supporting analysis of differential outcomes across customer groups.

Vulnerable customer data

Specific data on vulnerable customer outcomes, supporting analysis of whether the assessment captures vulnerable customer concerns. See our Vulnerable Customers Guide.

Sector-Specific Considerations

Investment and wealth management

Fair value assessment for investment products is particularly demanding given multiple fee layers (advice + platform + investment management + fund). Cumulative impact analysis is essential. See our Wealth Management Compliance Guide.

Insurance products

Insurance fair value involves analysing claim outcomes against premium paid — including consideration of claim acceptance rates, payment timing, and product utility for the target market.

Banking products

Banking fair value covers savings rate fairness, account fee structures, lending pricing fairness, and ancillary product pricing. The FCA’s specific work on cash savings rates has substantially elevated banking fair value expectations.

Consumer credit

Consumer credit fair value engages affordability, total cost of credit, and the relationship between cost and customer outcomes. Affordability and forbearance practice both engage fair value substantively.

Asset management (manufacturer obligations)

Asset managers conduct fund-level fair value assessment under the AFM framework, with substantive board engagement. See our Asset Management Compliance Guide.

Payments and fintech

Fair value for payments products engages transaction fees, FX margins, and ancillary product pricing. Subscription and freemium models face specific fair value considerations.

Board Engagement on Fair Value

Fair value assessment requires substantive board engagement — not just formal approval. Strong board governance includes:

• Substantive board discussion of methodology
• Board challenge of analytical conclusions
• Board engagement with adverse findings
• Board ownership of action plans where concerns are identified
• Consideration of fair value in pricing decisions throughout the year — not just annually

For SMF16 holders specifically, leading the board through fair value engagement is one of the more demanding aspects of the role — see our SMF16 Compliance Oversight blog.

What the FCA Examines

FCA supervisory dialogue on fair value has intensified materially through 2024-2025, with several specific focus areas:

Methodology substance. Whether the methodology engages substantively with all relevant dimensions or applies a documentary framework without substantive analytical depth.

Conclusion support. Whether fair value conclusions are supported by substantive analysis or asserted without analytical foundation.

Loyalty penalty engagement. Whether the assessment substantively addresses loyalty penalty patterns where they exist in the firm’s customer base.

Vulnerable customer analysis. Whether vulnerable customers face fair value disadvantage, with specific MI rather than aggregate analysis.

Cumulative fee impact. Where multiple fee layers apply, whether the cumulative customer impact is substantively analysed.

Action where concerns emerge. Whether the firm takes substantive action where the assessment identifies concerns — pricing changes, product modifications, redress — or maintains existing practices despite adverse findings.

Board engagement evidence. Whether the assessment shows substantive board challenge or pro-forma approval.

Common Fair Value Pitfalls

Conclusory frameworks. “Products provide fair value” assertions without substantive supporting analysis.

Cost analysis incompleteness. Where implicit charges, ancillary fees, or cumulative impact aren’t substantively captured.

Benefit analysis vagueness. Where benefits are described qualitatively without substantive quantification or evidence.

Differential pricing without scrutiny. Where pricing varies across customer groups but the differential isn’t substantively analysed.

Loyalty penalty avoidance. Where the methodology doesn’t engage with loyalty patterns despite their relevance to the firm.

Vulnerable customer aggregation. Where vulnerable customer fair value is asserted without specific MI.

Comparator weakness. Where comparator analysis applies but is conducted superficially.

Action plan absence where concerns identified. Where the assessment identifies fair value concerns but the firm continues existing practices.

Annual refresh as compliance check. Where annual refresh confirms continued fair value without substantive reanalysis.

Closed product books treated lightly. Where live products receive substantive analysis but closed books receive a cursory paragraph.

The Recruitment Implication

Fair value assessment requires specific senior team capability that combines compliance knowledge with commercial pricing analytics:

• SMF16 (Compliance Oversight) — owns governance of the assessment process
• SMF2 (CFO) — typically owns cost analytics. See our SMF2 Guide
• Head of Pricing or equivalent — owns commercial pricing methodology
• Head of Customer Outcomes — emerging dedicated role at larger firms
• Fair Value specialist — increasingly common dedicated role bridging compliance and commercial

The candidate pool with substantive fair value assessment experience is meaningfully tight — particularly candidates who have led methodology development through the early Consumer Duty cycles. Firms recruiting specialist fair value capability should benchmark compensation realistically and plan recruitment timelines accordingly.

Related Reading

For deeper detail: The Four Consumer Duty Outcomes | Cross-Cutting Rules & Principle 12 | Vulnerable Customers Under Consumer Duty | TCF and Consumer Duty | Consumer Duty Pillar Guide | How Consumer Duty Reshaped SMF16 | The Consumer Duty Annual Board Report | Distribution Chain Obligations | Wealth Management Compliance | Asset Management Compliance