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PRIN 2A.4 Consumer Duty: retail customer outcome on price and value

What is value?

PRIN 2A.4.1R

1For the purposes of this outcome:

  1. (1)

    value is the relationship between the amount paid by a retail customer for the product and the benefits they can reasonably expect to get from the product; and

  2. (2)

    a product provides fair value where the amount paid for the product is reasonable relative to the benefits of the product.

Price and value: manufacturers general obligation

PRIN 2A.4.2R

1A manufacturer must:

  1. (1)

    ensure that its products provide fair value to retail customers in the target markets for those products; and

  2. (2)

    carry out a value assessment of its products and review that assessment on a regular basis appropriate to the nature and duration of the product.

PRIN 2A.4.3R

1An initial value assessment must be carried out for:

  1. (1)

    a product; and

  2. (2)

    any significant adaptation of a product,

in each case before it is marketed or distributed to a retail customer.

PRIN 2A.4.4G

1PRIN 2A.4.2R and PRIN 2A.4.3R include any product whether a new product manufactured on or after 31 July 2023, an existing product or a closed product. In relation to an existing product or a closed product, “marketing” or “distributing” includes reference to any future activity regardless of whether the product has previously been made available for marketing or distribution.

PRIN 2A.4.5R

1In ensuring that a product provides fair value, a manufacturer must be satisfied that this will be the case from the point at which the manufacturer completes the assessment for a reasonably foreseeable period, including, where the product is one that renews, following renewal.

PRIN 2A.4.6G

1What constitutes a ‘reasonably foreseeable period’ will depend on the type of product. This could include the expected length of time a retail customer in the target market will keep it, including, where relevant, the number of occasions the firm would reasonably expect that a retail customer would renew the product.

Product packages

PRIN 2A.4.7R

1Where a product is intended to be provided with one or more other products, a manufacturer must ensure that:

  1. (1)

    each component product; and

  2. (2)

    the package as a whole,

provides fair value to retail customers in the target market.

The value assessment

PRIN 2A.4.8R

1A manufacturer’s assessment of whether or not a product provides fair value must include (but is not limited to) consideration of the following:

  1. (1)

    the nature of the product, including the benefits that will be provided or may be reasonably expected and its quality;

  2. (2)

    any limitations that are part of the product;

  3. (3)

    the expected total price to be paid by the retail customer or that may become due from the retail customer. The expected total price includes:

    1. (a)

      the price paid or agreed to be paid by the retail customer on entering into a contract for the product, including by way of repayments;

    2. (b)

      any regular charges or fees payable over the lifetime of the product, for example an annual management charge;

    3. (c)

      any contingent fees or charges, for example, administrative charges for changes of address, charges for falling into arrears on a loan, or charges for transferring investments; and

    4. (d)

      any non-financial costs the retail customer is asked or required to provide to the firm; and

  4. (4)

    any characteristics of vulnerability that retail customers in the target market display and the impact these characteristics have on the likelihood that retail customers may not receive fair value from its products.

Guidance on the value assessment: factors that may be considered

PRIN 2A.4.9G

1A manufacturer may consider one or more of the following in its assessment of whether or not a product is providing fair value:

  1. (1)

    the costs incurred by the firm in manufacturing or distributing the product;

  2. (2)

    the market rate and charges for a comparable product;

  3. (3)

    any accrued costs and/or benefits for existing or closed products; and

  4. (4)

    whether there are any products that are priced significantly lower for a similar or better benefit.

Guidance on the value assessment: benefits and costs

PRIN 2A.4.10G
  1. (1)

    1The types of benefits that retail customers may reasonably expect to obtain may include non-financial benefits such as an enhanced level of customer service providing extra assistance to retail customers in using the product.

  2. (2)

    Examples of non-financial costs include the provision of personal data and the granting of permission to use that data.

Guidance on the value assessment: characteristics of retail customers

PRIN 2A.4.11G

1In considering the value assessment and how it applies when manufacturers have different groups of retail customer in their target market for a product, they should have regard in particular to the following:

  1. (1)

    whether any retail customers who have characteristics of vulnerability may be less likely to receive fair value; and

  2. (2)

    whether the product provides fair value for each of the different groups of retail customer in the target market, including in circumstances where the pricing structure of the product involves different prices being charged to different groups of retail customers.

Guidance on the value assessment: interaction with the Duty and the retail customer outcomes

PRIN 2A.4.12G

1In ensuring that a product provides fair value, a manufacturer should have regard to how the cross-cutting obligations (PRIN 2A.2) and the other retail customer outcome rules (PRIN 2A.3 to PRIN 2A.6) are met in respect of the product.

Manufacturers: collaboration with another firm or with unregulated persons

PRIN 2A.4.13R

1Where firms collaborate to manufacture a product, they must set out in a written agreement their respective roles and responsibilities in the value assessment in PRIN 2A.4.

PRIN 2A.4.14R

1Where a firm collaborates with a person who is not a firm to manufacture a product, it remains fully responsible for discharging all its obligations under PRIN 2A.4.

Manufacturers: information for distributors

PRIN 2A.4.15R

1The manufacturer of a product must ensure that firms distributing the product have all necessary information to understand the value that the product is intended to provide to a retail customer.

Price and value: distributors general obligation

PRIN 2A.4.16R
  1. (1)

    1A distributor must not distribute a product unless its distribution arrangements are consistent with the product providing fair value to retail customers.

  2. (2)

    Arrangements will be consistent with providing fair value to retail customers where they enable the distributor to obtain enough information from the manufacturer to understand the outcome of the value assessment and in particular to identify:

    1. (a)

      the benefits the product is intended to provide to a retail customer;

    2. (b)

      the characteristics, objectives and needs of the target market;

    3. (c)

      the interaction between the price paid by the retail customer and the extent and quality of any services provided by the distributor; and

    4. (d)

      whether the impact that the distribution arrangements (including any remuneration it or (so far as the distributor is aware of it) another person in the distribution chain receives) would result in the product ceasing to provide fair value to retail customers.

Distributors: unregulated manufacturer

PRIN 2A.4.17R

1Where a distributor distributes a product manufactured by a person to whom the rules in PRIN 2A.4 do not apply, it must take all reasonable steps to comply with PRIN 2A.4.16R.

Distribution chains

PRIN 2A.4.18R
  1. (1)

    1A firm which distributes products to retail customers is responsible for ensuring the fair value obligations in relation to distribution are met in respect of any product it distributes to a retail customer.

  2. (2)

    A firm which distributes products to other distributors must ensure that all information relevant to the value assessment is passed to the distributor at the end of the distribution chain.

  3. (3)

    A firm which distributes products to other firms in the distribution chain must consider whether they are also a co-manufacturer of the product they are distributing and if they are, apply the manufacturer rules in this section.

When must a manufacturer and a distributor consider the value assessment?

PRIN 2A.4.19R

1Manufacturers and distributors are responsible for the value assessment as follows:

  1. (1)

    A manufacturer must consider the fair value assessment at every stage of the product approval process, including in particular when:

    1. (a)

      designing the product;

    2. (b)

      identifying retail customers in the target market for whom the product needs to provide fair value; and

    3. (c)

      selecting distributions methods/channels.

  2. (2)

    A distributor must consider the fair value assessment when determining the distribution strategy for the product and in particular where the product is to be distributed with another product whether as part of a package or not.

The value assessment: general

PRIN 2A.4.20R

1In determining whether a product provides fair value, or distribution arrangements are consistent with fair value being provided, a firm must not rely on individual retail customers to consider whether they believe the product provides fair value in place of the firm’s own assessment.

Closed products

PRIN 2A.4.21R
  1. (1)

    1The obligation on manufacturers in PRIN 2A.4.2R to ensure that a product provides fair value applies to closed products as well as new and existing products.

  2. (2)

    In the case of a closed product, the reference to a target market in PRIN 2A.4.2R should be read as referring to the retail customers who are customers of the closed product.

Guidance on the value assessment: closed and existing products

PRIN 2A.4.22G

1The assessment of whether a closed product or an existing product provides fair value should be on a forward-looking basis only. Unless required to do so by any other rule, manufacturers do not need to consider whether their closed products or existing products provided fair value prior to these rules coming into force.

PRIN 2A.4.23G

1In assessing whether a closed product or an existing product provides fair value, a manufacturer may take into account the benefits provided, the costs charged to the retail customer and the costs incurred by the firm prior to these rules coming into effect.

[Note: See also PRIN 2A.4.29R regarding appropriate action for closed products if the product no longer provides fair value.]

Reviewing the value assessment

PRIN 2A.4.24R
  1. (1)

    1A manufacturer must regularly review the value assessment throughout the life of the product to ensure that the product continues to provide fair value to retail customers in the target market.

  2. (2)

    A distributor must regularly review its distribution arrangements throughout the life of the product to ensure that they remain consistent with the product providing fair value to retail customers in the target market.

PRIN 2A.4.25R

1Where a manufacturer identifies in its review of its value assessment that the product no longer provides fair value, it must take appropriate action to:

  1. (1)

    mitigate, and where appropriate, remediate any harm caused to existing retail customers; and

  2. (2)

    prevent harm to new retail customers.

PRIN 2A.4.26R

1Appropriate action under PRIN 2A.4.25R includes notifying the distributor(s) of the product of the issue and of any changes to the product and the distribution strategy that the manufacturer has put place to mitigate and prevent further harm.

PRIN 2A.4.27R

1Where a distributor identifies that the product no longer provides fair value, whether that is due to aspects of the product or the distribution arrangements, it must take appropriate action to:

  1. (1)

    mitigate the situation and prevent further occurrences of any possible harm to retail customers, including, where appropriate, amending the distribution strategy for that product (and, where relevant, the package);

  2. (2)

    redress any foreseeable harm that has been caused to retail customers by faults in the distributor’s distribution arrangements; and

  3. (3)

    inform any relevant manufacturers and other distributors in the chain promptly about any concerns they have and any action the distributor is taking.

PRIN 2A.4.28G

1The appropriate action that a distributor may need to take under PRIN 2A.4.27R will depend on the role the distributor has in the distribution chain and in relation to the product being distributed. A distributor who is a co-manufacturer of the product being distributed is likely to be able to do more to mitigate the situation than distributors who are not co-manufacturers.

Vested rights

PRIN 2A.4.29R

1In the case of a closed product, or an existing product held by a retail customer before 31 July 2023, unless the firm has identified a breach of rules in existence before 31 July 2023, the appropriate action a firm may take does not require a firm to waive its vested contractual rights.

PRIN 2A.4.30G

1For the purposes of PRIN 2A.4.29R, vested contractual rights include the following:

  1. (1)

    payments already due under the terms of the contract;

  2. (2)

    remuneration for services wholly or partly provided under the contract; and

  3. (3)

    contractual charges payable on early termination of the contract.

PRIN 2A.4.31G

1Whether a right is a vested right or not will depend on all the facts of the case and interpretation of the relevant contract.

Application of the price and value outcome

PRIN 2A.4.32R
  1. (1)

    1 The rules in PRIN 2A.4 do not apply to:

    1. (a)

      a firm which manufactures or distributes a non-investment insurance product or a legacy non-investment insurance product;

    2. (b)

      a firm which manufactures or distributes any funeral plan product subject to PROD 7; and

    3. (c)

      an authorised fund manager in relation to products subject to COLL 6.6.19R to 6.6.26G, COLL 8.5.16R to 8.5.22R, or COLL 15.7.16R to 15.7.24R.

  2. (2)

    A firm in (1) must continue to apply PROD 4 andPROD 7 or the relevant COLL rules .

PRIN 2A.4.33R

1PRIN 2A.4 does not apply to both:

  1. (1)

    units in an authorised fund or the sub-fund of such a scheme, where the relevant authorised fund or sub-fund is in the process of winding up or termination under, or in accordance with, COLL 7.3, COLL 7.4, or COLL 7.4A; and

  2. (2)

    units or shares in a fund or sub-fund which is not an authorised fund or a sub-fund of such a scheme or AIF, where the relevant fund or sub-fund is in a process of winding up or termination which is equivalent to that referred to in (1).

PRIN 2A.4.34R
PRIN 2A.4.35E

1Where a manufacturer of a closed product which is a funeral plan product manufactured before 29 July 2022 is following the provisions of PROD 7 concerning the fair value of funeral plan products, contravention of PROD 7 may be relied on as tending to establish contravention of those provisions of PRIN 2A.4 that apply to the firm.

Application to pension scheme operators and providers of pathway investments

PRIN 2A.4.36R
  1. (1)

    1This rule applies to a firm that is required to comply with COBS 19.5 (Independent Governance Committees (IGCs) and publication and disclosure of costs and charges).

  2. (2)

    A firm to which this rule applies must use the value for money assessment carried out by the IGC or the governance advisory arrangement when carrying out its value assessment under PRIN 2A.4.2R.

  3. (3)

    Where a firm disagrees with the value for money assessment carried out by the IGC or the governance advisory arrangement it must:

    1. (a)

      explain why it disagrees with the assessment; and

    2. (b)

      set out how it considers the relevant scheme or pathway investment provides fair value.

  4. (4)

    In setting out how it considers the relevant scheme or pathway investment provides fair value the firm must use the framework set out in COBS 19.5.

  5. (5)

    A firm that is unable to adequately explain why it disagrees with a value for money assessment conducted under COBS 19.5 must apply PRIN 2A.4.25R to the relevant scheme or pathway investment.