Fair value, three years in: the FCA names what good evidence looks like

Three years into the Consumer Duty, the FCA has moved from principle to practice on fair value, publishing a review that distinguishes firms embedding it credibly from those still relying on description over evidence (FCA). The regulator's framing is pointed: fair value conclusions must be grounded in customer data, segmented by cohort, and tested against what customers actually understand about price.

Evidence, not description

Alison Walters, Director of Consumer Finance at the FCA, singled out one credit card provider that quantified cashback, FX savings and other benefits and set them directly against fees and interest paid, giving a defensible evidence base rather than a product summary (FCA). The weaker pattern she describes will be familiar to anyone who has sat through a product governance committee: relevant data exists, but scattered across documents, never reconciled into a conclusion. For chief risk officers and product heads, the practical message is that fair value memoranda built from assumption and narrative will not survive supervisory scrutiny. The bar is a coherent, quantified relationship between price and benefit.

Segmentation becomes the dividing line

The review's second move is more consequential for pricing governance. Stronger firms segmented customers by credit risk, product usage, distribution channel and vulnerability characteristics, and tested fair value across APR bands and risk-based pricing groups (FCA). Weaker firms treated the target market as homogeneous. That distinction matters because it directly implicates risk-based pricing models, where cross-subsidy between cohorts is often the point. Firms running differentiated APRs now need to demonstrate that each priced group continues to receive fair value, not just the average customer. This is a materially higher evidentiary standard than many consumer credit boards have been operating to.

The understanding overlay

The review ties fair value to customer understanding, suggesting that even a well-designed price fails the test if customers cannot grasp the real cost (FCA). That connects to a parallel FCA strand on retail investor behaviour, where new survey data shows only 36% of 18 to 40-year-olds would be made more cautious by a 'last chance to buy' investment pitch, against 65% who spot the same tactic in a horror film (FCA). The regulator is building a consistent thesis: disclosure and price only count if the customer can actually process them. For firms, this pushes customer understanding testing into the fair value file itself, not a separate workstream.

What boards should do now

The review is not a new rule, which is precisely why it carries weight. It tells firms what good looks like after three years of practice, and by implication what will attract supervisory attention. Audit committees should ask whether fair value papers quantify benefit against price, whether cohorts are tested separately, and whether customer understanding evidence sits inside the same file. Firms that cannot answer yes to all three are now on notice.

Fair value has moved from principle to proof. The firms that treated the Duty as a drafting exercise will find the second three years harder than the first.