FCA's CFD pricing findings: the Consumer Duty lessons every financial services firm needs to act on

The FCA is disappointed that nearly three years since the introduction of the Consumer Duty, and six months after publishing detailed feedback, firms have not acted faster.  Many of the changes firms have made appear designed to demonstrate compliance rather than materially improve their offering, and some firms remain clear outliers on charges without making substantive adjustments.

Firms should not treat their fair value assessments merely as a tick-box exercise designed to conclude that they deliver "fair value", they must focus more on consumer outcomes and potential harm.  Good practice is to ensure assessments cover all costs and charges applied to consumer accounts, giving a rounded view of the costs and benefits of a product, rather than focusing solely on execution costs and dealing charges.

The FCA confirmed that charges vary considerably between firms and across products, and that some firms' charges appear high relative to prevailing base rates and peer comparisons, with wide spreads on long and short positions.  Firms should consider whether outlier rates are compatible with fair value for clients, taking into account the overall price and benefits of the product.

The FCA had raised concerns about narrow and inappropriate peer group comparisons, with firms often benchmarking themselves against offshore or global providers rather than UK-regulated ones; several firms have now, correctly, moved to peer comparisons with UK-regulated providers.  Firms in all sectors that use peer benchmarking in their fair value assessments should check that their comparator group is appropriate and defensible.

Firms do not explain their costs prominently enough in the client journey, even where they have reviewed and enhanced the information, with many including it only in terms and conditions or Key Information Documents.  Firms should consider whether they could produce better consumer outcomes with earlier and more prominent signposting to information about pricing and overall fair value.

Only a minority of CFD firms have improved their disclosures to add annual percentage rates to the implied daily percentage cost of overnight financing charges, which would give clients a more widely used comparison point.  The mark-ups that firms include in their charges remain largely opaque.  The principle that consumers should be able to understand and compare the true cost of a product, applies in every sector.

Firms that permit or encourage clients to put on matched or hedged positions should review all the information provided throughout the client journey; the FCA is concerned that firms may be encouraging clients to maintain positions that incur additional charges without a clear, balanced explanation of the pros and cons compared to simply closing those positions.  Communications about costs must be fair and balanced, and help clients make informed decisions.

Firms that have improved their processes have done so by introducing income thresholds at the appropriateness testing stage, reviewing target markets, and enhancing their vulnerability monitoring measures.  These are concrete steps that firms in all sectors, particularly those offering complex, high-cost, or high-risk products, should be replicating.

The FCA strongly recommends that all firms review the good practice and areas of concern it has set out and further consider whether changes are needed; it expects firms to be able to demonstrate that they have reviewed their charges and will follow up with individual firms where it has concerns.  Every firm should ensure it has a documented audit trail of the Consumer Duty review work it has carried out.

Firms should review the transparency and prominence of charges, including overdraft fees, account maintenance charges, and interest rate mark-ups, and ensure that fair value assessments genuinely consider consumer outcomes rather than acting as a compliance sign-off exercise. Any peer comparisons should be considered for appropriateness.

The FCA's concern about the opacity of mark-ups in charges maps directly onto the consumer finance market, where the cost of credit, including the lender's margin, is rarely broken out in a way that allows consumers to compare products meaningfully. Fair value assessments in consumer credit must go beyond APR disclosure and consider whether the overall package of price, service and terms delivers genuine value.

The warning that firms should not treat fair value assessments as a tick-box exercise has direct force for mortgage lenders and intermediaries pricing reversion rates, product fees and early repayment charges. Firms must be able to evidence that their assessments are outcome-focused and that the information they provide at key points in the mortgage journey is clear, fair and not misleading.

Payment service providers and e-money institutions subject to the Consumer Duty should review FX mark-ups, transaction fees and the prominence of their disclosure of those charges, particularly where fees are embedded in exchange rates rather than shown as a separate line item, which is directly analogous to the opacity in overnight CFD funding charges that the FCA has criticised.

The FCA's criticism of changes that are designed to show compliance rather than materially improving the offering  echoes themes from its earlier general insurance fair value work. Insurers and distributors must ensure their product value assessments focus on the claims experience and the actual benefit consumers receive – not simply on premium-to-charge ratio comparisons – and that charges such as policy administration fees and add-ons are genuinely justified.

The emphasis on transparent charging, including the need to show mark-ups and to present costs in a way that gives consumers a meaningful comparison point, is acutely relevant to asset managers, platforms and wealth managers, where layered charging structures (fund charges, platform fees, adviser charges) can make it difficult for consumers to understand the total cost of holding an investment. The FCA's concern about costs buried in documentation rather than prominently signposted in the client journey applies equally to investment product disclosure.

Firms operating in the regulated digital assets space, including cryptoasset businesses that are planning to become FCA-authorised, should not assume that Consumer Duty principles are less rigorously applied in their sector. Spread-based pricing, funding rates, and liquidation charges in crypto-derivatives and other digital asset products present many of the same conflicts of interest and disclosure challenges that the FCA has criticised in the CFD market. Firms should build Consumer Duty compliant fair value frameworks from the outset.