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

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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 .

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).

1. (1)

   1A manufacturer of a funeral plan product which is a closed product and was manufactured before 29 July 2022 must apply the closed product rules and guidance in PRIN 2A.4..

2. (2)

   The closed product rules and guidance are PRIN 2A.4.1R to 2A.4.2R, 2A.4.4G to 2A.4.6G, 2A.4.8R to 2A.4.12G 2A.4.20R to 2A.4.25R and 2A.4.29R to 2A.4.31G.

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.