Find out how we measure our impact before we intervene with rule-making powers.
We set out the impacts we expect from our rule-making interventions in Cost Benefit Analyses (CBAs). These are usually published as part of our consultations on proposed rule changes. Our Statement of Policy on Cost Benefit Analyses describes why, when and how we do CBA:
To continuously improve our CBA practices and methods, we also undertake and commission research externally. This ensures our CBA practitioners can draw on the latest and most relevant evidence and best practice methodologies when assessing the impact of our policies.
- The wellbeing effects of debt and debt-related factors[2]
- Wellbeing effects related to FCA interventions[3]
- Valuing consumers’ time in our Cost Benefit Analysis[4]
- Discount rates and appraisal periods for the CBA of financial services regulation[5]
Our publications related to CBA are listed below.
We also separately set out how we evaluate our work[6].
Measuring our impact before we intervene
Statement of Policy on Cost Benefit Analyses[1] (PDF)
The Financial Services and Markets Act 2023 requires us to establish an independent Cost Benefit Analysis (CBA) Panel and prepare and publish a Statement of Policy (SoP) on CBA. The Statement of Policy sets out the methodology we use when conducting CBA.
FCA Cost Benefit Analysis Panel[7]
The CBA Panel is an independent panel of experts established by the Financial Services and Markets Act 2023 to provide advice to the FCA in relation to CBA. From 1 August 2024 we are required to consult the Panel (subject to certain exemptions) in the preparation of a CBA, in accordance with our SoP.
When and how we use field trials[8] (PDF)
‘When and how we use field trials’ clarifies when we consider it appropriate to undertake field trials to gather evidence for our policies. It covers some broad principles on when we are more likely to use field trials including feasibility, impact and proportionality.
It also sets out the typical stages of field trials we conduct. It is intended to help firms and practitioners understand our use of field trials and what firms can expect if they partner with us on a field trial.
Occasional Paper No. 39: Estimating the benefits of interventions that affect consumer behaviour[9]
The paper aims to help us estimate the benefits of our interventions, while recognising the challenges.
It focuses on how the benefits of regulations that intend to improve outcomes for consumers could be captured. In retail environments where behavioural biases are prevalent, we cannot assume that consumers make optimal decisions that are aligned with their own interests.
Many of our regulations intend to improve those decisions, yet the claimed benefits of such improvements are seldom measured. The paper describes a few available techniques to monetise benefits and their application in financial services markets.
The wellbeing effects of debt and debt-related factors[2] (PDF)
The Simetrica-Jacobs (2020) research estimates and monetises the impact of debt on subjective wellbeing for potential use in cost benefit analysis for FCA market interventions. Subjective wellbeing is a standardised approach to measuring the wellbeing (or happiness) of individuals.
The research estimates the subjective wellbeing effects of entering into different types of debt (for example, credit card and mortgage debt) and changes in levels of indebtedness.
Wellbeing effects related to FCA interventions[3] (PDF)
The Oxford Economics (2024) research builds on the Simetrica-Jacobs study by using a wider set of data and expanding the type of outcomes considered beyond debt and indebtedness. It uses the WELLBY approach to estimating impacts of changes to life satisfaction to provide monetary values for the wellbeing effects of changes in economic outcomes.
Valuing consumers' time in our Cost Benefit Analysis[4] (PDF)
Among the benefits and costs considered in our CBAs are time savings or losses accruing to individual consumers because of our interventions. In principle, a minute less (more) time spent dealing with financial products and services implies a minute more (less) time for other leisure activities - thereby generating a benefit (cost) for consumers.
There is no definitive evidence on the value of time saving/losses in the finance context. So, our recent practice has been to ‘transfer’ values of leisure time from the Department for Transport's ‘Transport Analysis Guidance’. This research study assesses the defensibility of this practice, generally providing support for it and proposing sensitivity tests we can consider to provide additional assurance under certain scenarios.
Discount rates and appraisal periods for the CBA of financial services regulation[5] (PDF)
In line with Treasury’s Green Book, we use a standard discount rate of 3.5% and standard appraisal period of 10 years in our CBA. This discussion paper considers the case for using alternative assumptions, for example differentiating discount rates by types of impact or group affected.
The literature and existing practice from other authorities does not support us changing our approach at this time. However, it highlights cases where adjusting cost and benefit estimates before applying the standard discount rate can improve the quality of our estimates.
We intend to keep our approach to measuring impact up-to-date, and welcome views from stakeholders about our approach and techniques.
For more information on Cost Benefit Analysis at the FCA, contact [email protected].