Demystifying FCA fair value in authorisation applications: Comprehensive guide

Jun 20th '24

Navigating the financial services landscape in the UK can feel like walking through a dense fog, especially when it comes to understanding the FCA’s (Financial Conduct Authority) requirements. One of the trickiest aspects is grasping the concept of “fair value” in authorisation applications. But fret not! This guide is here to clear the mist and help you sail smoothly through your authorisation process.


Fair value, when it comes to FCA authorisation, isn’t just a buzzword—it’s a cornerstone of ensuring your business offers genuine value to its customers while adhering to stringent regulatory standards.


In this article, we’ll break down what fair value means in the context of FCA authorisation applications, why it matters, and how you can make sure your business ticks all the right boxes.


What is FCA fair value in authorisation applications?
The FCA is the watchdog for financial services in the UK, ensuring that markets work well for consumers, businesses, and the economy as a whole. One of its key mandates is to ensure that all financial products and services provide fair value to consumers.


Defining fair value
fair value, in the FCA’s context, refers to the balance between the price consumers pay for a product or service and the benefits they receive. It’s not just about being cheap—it’s about providing adequate benefits that justify the cost.


When you’re applying for FCA authorisation, you must demonstrate that your products or services are priced fairly and offer real value. This means showing that you understand your target market, the specific needs of your customers, and that your offerings are designed to meet those needs effectively and efficiently.


Why is fair value important?

Fair value is crucial for several reasons:


  • Consumer protection: ensuring that customers receive fair value helps protect them from overpriced, underperforming products.
  • Market integrity: it maintains the integrity of financial markets, making them more transparent and trustworthy.
  • Competitive edge: businesses offering fair value are more likely to gain consumer trust and loyalty, giving them a competitive edge.


Real-world implications
Imagine you’re a small business owner offering a new insurance product. If your product is overpriced and offers limited benefits, not only will you struggle to attract customers, but you might also find yourself on the wrong side of the FCA. On the flip side, a product that’s reasonably priced and offers significant benefits can help you build a loyal customer base and stay in the FCA’s good graces.


Steps to ensure fair value in your FCA authorisation application
Getting your FCA authorisation application right involves a few key steps. Here’s how you can make sure you’re hitting the mark:


1. Understand your target market
Knowing your audience is half the battle. Conduct thorough market research to understand who your customers are, what they need, and how much they’re willing to pay. This will help you tailor your products or services to meet their specific needs.


2. Design value-driven products
Ensure your products or services offer real value. This means they should provide tangible benefits that justify their cost. For instance, if you’re offering a premium financial advisory service, ensure it includes personalised advice, detailed financial planning, and regular check-ins.


3. Transparent pricing
Be transparent about your pricing. Clearly explain how much your products or services cost and what customers get in return. Avoid hidden fees and charges, as these can erode trust and lead to complaints.


4. Regular reviews and adjustments
Markets change, and so do customer needs. Regularly review your products and services to ensure they continue to offer fair value. If necessary, make adjustments to your pricing or benefits to keep them in line with market standards.


FAQs about FCA fair value in authorisation applications


What happens if the FCA deems my product doesn’t offer fair value?
If the FCA determines that your product doesn’t offer fair value, they may deny your authorisation application or require you to make changes before approval. It’s crucial to get this right from the start to avoid delays and additional costs.


How does the FCA assess fair value?
The FCA looks at various factors, including your target market, pricing structure, and the benefits your product offers. They may also consider customer feedback and market comparisons.


Can I appeal an FCA decision?
Yes, you can appeal an FCA decision. However, it’s often quicker and more effective to address any concerns they raise and resubmit your application.


The role of customer feedback
customer feedback is a valuable tool in ensuring your products or services offer fair value. Regularly gather and analyse feedback to understand what your customers value most and where there might be room for improvement. This can help you fine-tune your offerings and stay ahead of the competition.


Collecting feedback

  • Surveys and questionnaires: send out regular surveys to your customers to gauge their satisfaction and gather suggestions.
  • Focus groups: organise focus groups to get in-depth insights into customer needs and perceptions
  • Customer reviews: monitor online reviews and social media mentions to see what customers are saying about your products.


Using feedback to improve fair value
Once you’ve gathered feedback, use it to make informed decisions about your products or services. If customers are consistently saying that a particular feature isn’t valuable, consider removing or improving it. If they’re asking for additional benefits, explore how you can incorporate these without significantly increasing the price.


Common pitfalls to avoid
When it comes to ensuring fair value, there are a few common pitfalls that businesses often fall into. Here are some to watch out for:


It’s tempting to set high prices to maximise profits, but this can backfire if customers don’t feel they’re getting their money’s worth. Ensure your prices are in line with the benefits you offer.


Lack of transparency
Hidden fees and unclear pricing structures can erode trust and lead to complaints. Be upfront about all costs and make sure customers understand what they’re paying for.


Ignoring market trends
Markets change, and so do customer expectations. Regularly review market trends and adjust your offerings to ensure they continue to provide fair value.


Benefits of getting fair value right

Ensuring your products or services offer fair value isn’t just about avoiding regulatory pitfalls—it’s also about building a sustainable, customer-focused business. Here are some benefits:


  • Increased customer loyalty: customers who feel they’re getting good value for their money are more likely to stick around.
  • Positive reputation: businesses that offer fair value are more likely to be recommended by their customers, leading to positive word-of-mouth and a stronger reputation.
  • Regulatory compliance: meeting the FCA’s fair value requirements helps ensure your business remains compliant and avoids potential fines or sanctions.


Understanding and implementing FCA fair value in authorisation applications is essential for any business operating in the UK’s financial sector. By focusing on delivering genuine value to your customers, you not only increase your chances of gaining FCA authorisation but also build a more sustainable and trustworthy business.


Remember, fair value is about more than just price—it’s about ensuring your customers receive benefits that justify what they pay. By following the steps outlined in this guide and regularly reviewing your offerings, you can ensure your business stays ahead of the curve and continues to thrive in a competitive market.


Quick recap

  • Fair value means balancing cost and benefits for consumers.
  • Understand your market and design products that meet their needs.
  • Be transparent with your pricing and regularly review your offerings.
  • Collect and use customer feedback to improve your products.
  • Avoid overpricing, lack of transparency, and ignoring market trends.


Stay ahead by focusing on fair value, and you’ll not only meet regulatory requirements but also build a loyal customer base that supports long-term success.


LS Consultancy are compliance specialists capable of handling you application from start to finish. Apply for FCA authorisation.


Related: Path to FCA authorisation success starts here!


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