On a number of previous occasions, the Financial Conduct Authority (FCA) has said that it is not a price regulator, i.e. that while it sets rules for the way firms conduct their business, it does not dictate the prices firms can and cannot charge for providing services to clients.
However, in some respects that may be changing, and at the end of February 2018, the FCA’s Director of Competition and Chief Economist gave a speech on this very subject.
Addressing the think tank the Social Market Foundation, Mary Starks began by acknowledging that the FCA has acted on pricing in some specific cases, by commenting:
“I often get asked whether the FCA is a ‘price regulator’. It’s a deceptively straightforward question.
“I’d love to give a simple yes or no answer and finish the speech here, but the answer is it depends (I am an economist after all).
“Unlike some other regulators (Ofcom, Ofgem and the other utility regulators), we do not have formal, regular price reviews built into our remit. In this sense, we are not a price regulator.
“Our remit is to promote competition in the interests of consumers, to safeguard market integrity, and to secure an appropriate degree of protection for consumers. In advancing these objectives, there have been some instances where the FCA has intervened to set a cap on certain prices charged to consumers. So clearly we can regulate price in some situations. The important question is: when should we?”
Before specifically addressing the issue of price regulation in financial services, Ms Starks acknowledged the risks associated with intervening in this way, by commenting:
“First, fixing or capping prices can have very serious unintended consequences, including undermining the very intent of the policy and fuelling black market or other criminal activity. Secondly, once a policy is in place, even if it proves to be bad policy, it can become entrenched.”
The FCA director noted that, while her organisation does have the legal power to act of its own accord on pricing issues, the three occasions that it has done so were after instructions from the Government. These were the price caps on payday lending interest and fees, workplace pension schemes and early exit pension charges.
Specifically regarding payday loans, she remarked that “consumers are paying less for loans and are better able to repay them on time.” She added that 60% of consumers who have been turned down for high-cost credit as a result of the cap did not go onto borrow elsewhere.
Ms Starks commented that direct price regulation was sometimes more effective than encouraging competition, as increased competition sometimes “works powerfully to drive prices down for some, but this can be at the expense of higher prices for others.”
In conclusion, she acted to calm fears of widespread FCA interventions on pricing issues in the future, by saying:
“We see no reason to intervene directly in most of the thousands of prices that are set every day in financial services markets.”
Ms Starks emphasised that the FCA would always carefully consider the “unintended consequences” of any price cap it was considering.
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.