Industry figures warn FCA on pricing power
Incoming regulator the Financial Conduct Authority will have power to monitor pricing but it should only use these as a last resort, insurers and trade bodies have said.
Matt Connell, head of government and industry affairs for Zurich UK, said the tool was a blunt instrument and, although the FCA will have competition powers to monitor pricing, it should not lead to the FCA dictating to providers about prices.
He said: “It is a form of intervention that often gets discredited simply because it is a blunt instrument and kills off what exists above it. It doesn’t really act as a downward pressure on what is below it.
“With treating customers fairly rules there is already the duty to understand the target market.
“The best form of pressure on pricing is the inflationary environment.”
Mr Connell said he had not seen any direct evidence of the FSA acting on pricing, adding: “Pricing powers would only be used when everything else fails.”
Bernard Clarke, communications manager for the Council of Mortgage Lenders, said he did not believe the incoming regulator would go as far as imposing pricing restrictions, such as caps on loan-to-value.
This is despite the fact that the Hong Kong regulator, where Martin Wheatley, incoming chief executive of the FCA, previously worked, had instigated pricing caps on LTVs since 1995.
Mr Clarke said: “I do not think any decision on LTVs would be personality driven.
“LTV caps were rejected in the latest mortgage market review paper. A cap may be used as a macro-prudential tool depending on economic conditions, but it would not be driven by consumer protection.”
A spokesman for the Association of British Insurers said the trade body did not expect the FCA to act as a pricing regulator.
She said: “Price regulation in the UK is generally only used when there is an acute competition problem. Most financial services markets are competitive in the sense that there are a number of providers. It’s also a blunt tool as regulators lack information about underlying costs and experience suggests maximum prices can end up becoming minimum prices.”
She added that the FCA should use its new powers to make competition work better, ensuring that consumers have good information about prices and are able to switch between providers easily.
The comments came after Derek Bradley, chief executive of PanaceaIFA, said the FCA should not abuse its powers to review comparative pricing under the Financial Services Bill.
Mr Wheatley has in the past made speeches that mentioned the FCA intervening on pricing. However, a spokesman for the FSA said: “We have no intention to regulate prices, but we will look at it in terms of competition.”