The Impact of the Competition Powers on Financial Services
The Financial Conduct Authority (FCA) is currently one of only two financial regulators in the world to have a top line competition objective. In fact, according to Tracey Dermott, Acting Chief Executive of the FCA, managing competition risks is now considered to be one of the FCA's three basic tasks in improving financial services markets; this is alongside managing integrity risk and managing the risk of poor treatment of end users. Although these powers will result in an increased number of competition investigations, this development also presents exciting opportunities for the Regulated Financial Services Market.
A Co-operative Framework
On 22 December 2015, the FCA signed a Memorandum of Understanding with the UK's competition watchdog, the Competition and Markets Authority (CMA). This agreement sets out the framework for co-operation between the FCA and CMA and follows the announcement of the FCA's acquisition of competition powers. On 1 April 2015, in a revolutionary development, the FCA acquired concurrent powers, which enable it to enforce competition law alongside CMA.
The FCA now has concurrent powers under the Competition Act 1998 to enforce competition law prohibitions in relation to the provision of financial services. Under these powers, the FCA (alongside the CMA) will be able to investigate possible breaches of:
- The Article 101 TFEU/Chapter I Prohibition on anti-competitive agreements; and
- The Article 102 TFEU/Chapter II Prohibition on abuse of dominance.
These powers also extend to making market investigation references to the CMA for detailed review of a particular market (under the Enterprise Act 2002).
Implications for the Regulated Financial Services Market
Don't panic! There will be no further regulation under the FCA's new powers – the FCA is simply using powers that the CMA already has (and has used) in relation to, for example, an in-depth market investigation into retail banking. The implication for the Regulated Financial Services Market will be an increased number of competition investigations, given the FCA's resources and narrower focus.
Since the FCA has gained its competition powers, market studies into the following industries have formed the heart of its initial focus:
- Wholesale Banking;
- Investment and Corporate Banking; and
- Asset Management Industry.
The new competition powers also afford the FCA a significant role in promoting competition. For instance, on 20 January 2016, the FCA set up, in conjunction with the PRA, the 'New Bank Start-Up Unit'. This is designed to help those who want to start a new bank in the UK navigate the regulatory process. This presents a positive development for the Regulated Financial Services Market and we will be keeping our fingers on the pulse for further developments.
For more information on the FCA's competition powers, contact Jonathan Kitchin.