Global Regulation, Local Solutions Emerging Themes 2020 - Page 15



SUPERVISION
In October the FCA announced a wide-ranging
consultation on its overall role as regulator, the
outcomes that it should be seeking, and the
consequent changes to its rules and guidance.
It views this as a significant “opportunity to reshape how financial services regulation works in
the UK”.
EMERGING THEMES 2020
promoting effective competition in the financial
services sector. In this new role, the FCA has
a greater range of tools available to it to
intervene in the structural aspects of markets
– including pricing practices – to promote
better competition.
Of particular interest will be how far the
regulator should intervene on the prices firms
set for their products and services, and the
methods used for setting those prices.
Thirdly, the increasing prevalence of digitised
sales has allowed for prices to be based on a
wider range of factors than would historically
have been the case, and which some may
consider to be unfair to the consumer.
In the FCA’s previous guise as the Financial
Services Authority (“FSA”) in the period 20012013, the regulator was at pains to make clear
that it was not a price regulator. The FSA viewed
the prices that firms set as outside the scope
of its regulatory responsibilities, and did not
view the prices charged as part of the “treating
customers fairly” duty. The FSA would not step
in simply to prevent the consumer making a
bad bargain.
Finally, building on lessons learned from
payment protection insurance mis-selling,
the FCA has placed greater focus on product
governance at the product provider, rather than
focusing solely on the sales process followed
by the customer-facing intermediary. The FCA
has required product providers to consider
the target market for its products and assess
whether its products deliver a valuable service
to consumers.
beyond the cost of providing the product and
the associated risk factors – for example, the
practice of charging higher amounts to loyal
customers who have remained with the product
provider over the longer term.
Similarly, the FCA has concerns about firms
offering products at a low initial cost, in the
expectation that the consumer will forget
to cancel the product when the price is
raised in the future. Its concerns also extend
to the utilisation by firms of additional (non
core) factors in the pricing of a product for
a particular individual, based on extra data
available – such as how price-conscious the
customer is likely to be.
The FCA has particular
concerns about “price
discrimination”
CHANGE OF MINDSET
Since its relaunch as (principally) a conduct
regulator in 2013, the FCA has grown to
view price-setting as squarely within its
responsibilities. There are perhaps four main
reasons for this change of mindset and
approach from the regulator.
Firstly, in a handful of areas of potentially
significant harm, Parliament has enacted
discrete statutory duties requiring the FCA to
regulate prices. As a consequence, specific
restrictions have been introduced by the FCA
on high-cost short-term credit in 2014, on
workplace personal pension schemes in 2015
and on early exit pension charges in 2016.
Secondly, in April 2015 the FCA became
a concurrent competition regulator, with
additional powers and responsibilities for
The FCA clearly now believes that
the duty to treat customers fairly
extends to a firm’s approach to
setting prices
FAIR PRICING
The FCA’s pricing focus has mainly been on the
extent to which firms’ pricing practices are “fair”
to consumers, rather than the absolute price at
which products are sold. The FCA now maintains
that the Principle 6 duty to treat customers fairly
extends to a firm’s approach to setting prices.
The FCA has particular concerns about “price
discrimination” – the extent to which prices
charged vary depending on factors which go
CONCLUSION
I therefore expect that the
regulator will seek to introduce
more explicit new rules on how
firms set their prices. As part of
its ongoing review, I believe the
FCA will add to its Principles for
Businesses a specific duty on firms
to adopt fair pricing practices.
Defining what “fair” looks like is
not straightforward, and therefore
I expect the FCA to fall back on
the adoption of a high level
obligation of this nature, with
examples of good and bad
practice in underlying guidance.
POWERS AND DUTIES
Outside the discrete price cap powers listed
above, the FCA does not currently have clear
powers to take action against firms who are
perceived to be applying “unfair” pricing
practices of this nature. It is arguable whether
Principle 6 (paying due regard to the interests of
customers and treating them fairly) on its proper
interpretation does extend to how a firm sets
its prices – the FCA cannot be confident that
the Upper Tribunal would uphold such a wide
definition of the duty.
NATHAN WILLMOTT
Partner,
London
14/
/15

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