The regulator is, and is not, a price regulator

For many years the topic of price setting or price regulation has been ticking along in the background, coming to the fore after occasional comments from the City watchdog (timepiece pun intended) about what it considers to be fair or reasonable levels of remuneration.

Commentators have in the past warned that despite repeated statements from the regulator that it is not setting prices, there's a Gertrude-like undercurrent of protesting too much.

The alarm bells have been ringing again, this time after a speech earlier this week (February 20th) on the success so far of consumer duty and next steps for financial services companies.

The watchdog is effectively a regulator of prices by means of a focus on 'fair value'.

This was set out by Sheldon Mills, executive director of consumers and competition for the FCA, when he said: "We do not set prices: Our job is to make sure that markets can work well".

He added that markets cannot work well if products and services fail to offer fair value, or if they offer features that lead to foreseeable harm. 

Notice Mills did not say: "We do not set prices, but our job is to make sure that markets can work well". 

A lesson in coordinating conjunctions

In the glorious convoluted way in which the English language operates, a colon can take the place of a but (yes, yes, cue sniggers from some readers).

Basically, a semi-colon can often replace a coordinating conjunction, such as 'and, but, or, so, therefore'. Rarely, as it is not considered proper, a colon can be used in the same fashion - namely to qualify the first part of a sentence by means of the second part of a sentence. 

For example: "I'm not saying she's a rubbish writer; her editorials are long and laborious". The context implies the 'but'.

While it is not a price regulator, it is prepared to force the issue of fair value.Vicky Pearce, B-Compliant

Consider the context, therefore, of that sentence in the speech given this week.

The FCA states it does not set prices; in the same breath it reinforces its role to make markets work well, going on to explain that it can only ensure markets work well if there is fair value on products and services. 

It might not be a price setter, but the watchdog is effectively a regulator of prices by means of a focus on 'fair value'. 

This has been happening for a long time, if you care to look back long enough through FT Adviser's articles on 'price regulator'.

Let us not omit to mention: the cap on payday lending; caps on bankers' bonuses; the focus on wealth management fees; the reviews into insurance commissions; reviews into the charges on drawdown and reviews suggesting robo can help bring down the cost of advice.

In 2017, the investment world directly accused the regulator of setting prices. 

In 2019, the FCA said it "will act on unfair pricing" across the whole of financial services.

And now that back door into keeping prices under control has been wedged wide open by the consumer duty, as well as by chancellor Jeremy Hunt's message to regulators last year that prices needed to be kept in line.

Indeed, Pimfa noticed the winds of change coming in last year, and said it would have 'something to say' if policy met regulation, and fair-value principles ended up forcing a change in price-setting.

Quacking like a duck

Earlier today (Thursday 22), FT Adviser reported that regulatory pressures are causing more advice firms to consider a value-based subscription fee structure.

This followed a score of financial advice companies stating they would be reviewing their fee structures in the light of CD.

All this looks very much like price regulation. And if it looks like price regulation, sounds like price regulation and smells like price regulation, then I'd bet a tenner that it is price regulation. 

(Not sure how price regulation would smell; possibly like the coppery tang of well-handled 2p coins and the leathery aroma of your wallet.)

In 2012, former Financial Services Authority conduct policy boss Sheila Nicoll told Financial Adviser the incoming FCA was not going to be a price regulator. At an event in London in 2013, then FCA technical specialist Rory Percival said explicitly: “We are not a price regulator.”

Forcing the issue of fair value just waddles like a price-regulating duck to me.

But 12 years on, consider how the market is reacting, with companies directly addressing fee structures post-regulation, and the FCA stating it will consider how fees meet fair value expectations.

Financial compliance specialists B-Compliant have reminded wealth managers and stockbrokers they have very little time left to fill in the FCA’s latest Section 165 request.

This asks detailed information about firms’ pricing models, client demographics and employee renumeration. It requires data to be collated from a 12-month period, ending September 2023 and disseminated to the FCA in a prescribed format.

According to Vicky Pearce, director of the Manchester-based compliance firm: "The FCA believes firms are still charging for services they don’t deliver and are not providing clear disclosure on fees.

"While it is not a price regulator, it is prepared to force the issue of fair value."

'Forcing the issue of fair value' just waddles like a price-regulating duck to me.

Am I quackers? Let us know what you think in the comments below.

simoney.kyriakou@ft.com