PRIN 2A.4 – Price and Value Rules
These rules form part of the FCA’s Consumer Duty framework, specifically focusing on the “price and value” outcome for retail customers. The regulations ensure that financial products provide fair value to customers throughout their lifecycle. These rules apply to both manufacturers (who create products) and distributors (who sell them), establishing clear responsibilities for value assessment, ongoing monitoring, and remedial action when products no longer deliver fair value.
What Does “Value” Mean?
PRIN 2A.4.1R: For the purpose of these rules, “value” refers to the relationship between the price a customer pays and the benefits they receive from a financial product.
Core Obligations for Product Manufacturers
Basic Fair Value Requirement
PRIN 2A.4.2R: Product manufacturers must ensure their products provide fair value to retail customers in the target markets for those products. They must also conduct regular value assessments and review these assessments at appropriate intervals based on the product’s nature and duration.
PRIN 2A.4.3R: Before any product can be marketed or distributed to retail customers, manufacturers must complete an initial value assessment. This applies to new products launched after 31 July 2023, existing products already on the market, and closed products no longer available to new customers.
PRIN 2A.4.4G: When ensuring fair value, manufacturers must be confident that the product will provide value for a reasonably foreseeable period from when they complete their assessment. For renewable products, this includes the period following renewal.
PRIN 2A.4.5G: The “reasonably foreseeable period” depends on the product type and could include how long a typical customer in the target market would keep the product, including expected renewals.
Product Packages
PRIN 2A.4.6R: When a product is designed to be sold with other products as a package, manufacturers must ensure that both each individual component and the package as a whole provide fair value to customers in the target market.
What Must Be Considered in Value Assessments
PRIN 2A.4.7R: When assessing whether a product provides fair value, manufacturers must consider at least:
- The product’s nature, including benefits provided and quality
- Any product limitations
- The total expected price customers will pay, including upfront costs, ongoing fees, contingent charges, and non-financial costs
- Any vulnerability characteristics of target market customers and how these might affect their ability to receive fair value
Additional Factors for Consideration
PRIN 2A.4.8G: Manufacturers may also consider:
- Their costs of manufacturing or distributing the product
- Market rates and charges for comparable products
- Any accumulated costs and benefits for existing or closed products
- Whether similar or better products are available at significantly lower prices
PRIN 2A.4.9G: Benefits can include non-financial elements like enhanced customer service, while costs can include non-financial elements like providing personal data or granting permission for data use.
Considering Different Customer Groups
PRIN 2A.4.10G: When manufacturers have different customer groups in their target market, they should pay particular attention to:
- Whether vulnerable customers may be less likely to receive fair value
- Whether the product provides fair value for each different customer group, especially where different groups pay different prices
Integration with Other Consumer Duty Requirements
PRIN 2A.4.11G: When ensuring fair value, manufacturers should consider how their obligations under other parts of the Consumer Duty framework are being met for the product.
Collaboration Between Firms
PRIN 2A.4.12R: When multiple firms collaborate to manufacture a product, they must document their respective roles and responsibilities for the value assessment in a written agreement.
Information Sharing with Distributors
PRIN 2A.4.13R: Manufacturers must ensure that firms distributing their products have all necessary information to understand the value the product is intended to provide to retail customers.
Core Obligations for Product Distributors
Basic Distribution Requirements
PRIN 2A.4.14R: Distributors must not distribute a product unless their distribution arrangements are consistent with the product providing fair value to retail customers. These arrangements must enable distributors to:
- Understand the manufacturer’s value assessment outcomes
- Identify the product’s intended benefits
- Understand the target market’s characteristics, objectives, and needs
- Assess how their pricing and services interact with customer value
- Determine whether their distribution arrangements (including remuneration) would prevent the product from providing fair value
Unregulated Manufacturers
PRIN 2A.4.15R: When distributing products made by unregulated manufacturers, distributors must take all reasonable steps to comply with the fair value distribution requirements.
Distribution Chains
PRIN 2A.4.16R: In complex distribution chains:
- Firms distributing directly to retail customers are responsible for ensuring fair value obligations are met
- Firms distributing to other distributors must pass on all relevant value assessment information
- Firms must consider whether they are also co-manufacturers and apply manufacturer rules if appropriate
When Value Assessments Must Be Conducted
PRIN 2A.4.17R: The timing requirements are:
For Manufacturers: Consider fair value assessment at every stage of product approval, particularly when:
- Designing the product
- Identifying target market customers
- Selecting distribution methods and channels
For Distributors: Consider fair value assessment when determining distribution strategy, especially when distributing products as part of a package or bundle.
Special Rules for Closed Products
PRIN 2A.4.18R: The fair value requirements apply to closed products (no longer available to new customers) as well as new and existing products. For closed products, references to “target market” should be understood as referring to existing customers of that product.
PRIN 2A.4.19G: Value assessments for closed and existing products should be forward-looking only. Manufacturers don’t need to assess whether these products provided fair value before the rules came into effect, though they may consider historical benefits, costs, and firm expenses in their current assessments.
Ongoing Monitoring and Reviews
Regular Reviews
PRIN 2A.4.20R: Both manufacturers and distributors must regularly review their value assessments throughout the product’s life:
- Manufacturers must review to ensure products continue providing fair value to target market customers
- Distributors must review to ensure their distribution arrangements remain consistent with fair value provision
Action When Products No Longer Provide Fair Value
PRIN 2A.4.21R: When manufacturers identify that a product no longer provides fair value, they must take appropriate action to:
- Mitigate and, where appropriate, remedy harm to existing customers
- Prevent harm to new customers
PRIN 2A.4.22G: Appropriate manufacturer action includes notifying distributors about issues and any changes to products or distribution strategies implemented to prevent further harm.
PRIN 2A.4.23R: When distributors identify fair value problems (whether due to the product itself or distribution arrangements), they must:
- Mitigate the situation and prevent further customer harm, including amending distribution strategies where appropriate
- Provide redress for any foreseeable harm caused by faulty distribution arrangements
- Promptly inform relevant manufacturers and other distributors about concerns and actions being taken
PRIN 2A.4.24G: The appropriate action distributors can take depends on their role in the distribution chain. Distributors who are also co-manufacturers typically have more options for addressing fair value issues than those who are not.
Protection of Existing Rights
PRIN 2A.4.25R: For closed products or existing products held by customers before 31 July 2023, firms are not required to waive their existing contractual rights when taking appropriate action, unless they have identified breaches of pre-existing rules.
PRIN 2A.4.26R: Existing contractual rights include:
- Payments already due under contract terms
- Remuneration for services wholly or partly provided
- Contractual charges payable on early contract termination
PRIN 2A.4.27G: Whether a right is considered “existing” depends on all case facts and relevant contract interpretation.
Scope and Application
General Exclusions
PRIN 2A.4.28R: These rules do not apply to:
- Firms manufacturing or distributing non-investment insurance products or legacy non-investment insurance products
- Firms manufacturing or distributing funeral plan products subject to specific PROD 7 rules
- Authorised fund managers for products subject to specific COLL rules
However, excluded firms must continue applying relevant PROD 4, PROD 7, or COLL rules as appropriate.
Funds in Wind-up
PRIN 2A.4.29R: These rules don’t apply to units in authorised funds or sub-funds that are winding up under specific COLL procedures, or equivalent processes for non-authorised funds.
Special Funeral Plan Rules
PRIN 2A.4.30R: Manufacturers of closed funeral plan products created before 29 July 2022 must apply specific closed product rules and guidance from this section.
PRIN 2A.4.31G: When funeral plan manufacturers following PROD 7 fair value provisions contravene those rules, this may indicate contravention of applicable PRIN 2A.4 provisions.
Pension Schemes and Pathway Investments
PRIN 2A.4.32R: Firms required to comply with COBS 19.5 (relating to Independent Governance Committees and cost disclosure) must:
- Use value for money assessments conducted by Independent Governance Committees (IGCs) or governance advisory arrangements when performing their value assessments
- When disagreeing with IGC assessments, explain their disagreement and demonstrate how they consider the scheme or pathway investment provides fair value using the COBS 19.5 framework
- Apply remedial action rules to schemes or pathway investments when unable to adequately explain disagreement with value for money assessments