FCA publishes terms of reference for its investment and corporate banking market study

Published: 22/05/2015     Last Modified: 22/05/2015

The Financial Conduct Authority (FCA) has set out the issues it will focus on as part of its market study into competition in investment and corporate banking.

These markets are a cornerstone of the UK economy, helping companies raise capital for investment, expansion and funding ongoing operations.

The study will focus on choice, transparency, bundling and cross-subsidisation in debt and equity capital markets, mergers and acquisitions and acquisition financing. It will also consider links between competition in these primary market services and related activities such as corporate lending and broking, and ancillary services.

Christopher Woolard, FCA director of strategy and competition said:

"We want to see a sector that benefits the real economy by helping businesses of all sizes access capital. That means offering real choice, transparency and good service at every level.  It is also essential that the regulatory framework encourages competition, and we will engage with banks, advisers, clients and investors throughout the review to assess which aspects of the market work well, and identify areas for improvement."

Building on feedback to the wholesale sector competition review published in February, the FCA will focus on the following key issues:

  • Transparency, particularly the transparency of the allocation process in debt and equity issues and the impact of established market practice and regulations on transparency in the IPO process.
  • Client choice and behaviour and the impact of syndication.
  • Assessing whether and how bundling and cross-subsidisation affects competition.
  • The potential benefits of reducing regulatory barriers to firms entering or expanding into primary markets.

This study will take into account ongoing domestic and international work, including the Fair and Effective Markets Review and the implementation of new EU legislation, particularly the new Markets in Financial Instruments Directive (MiFID II) and the Capital Markets Union.

The FCA will engage with a wide range of firms from full service banks to boutiques and public sector and corporate clients of all sizes to inform this work and particularly encourages smaller firms who have recently raised capital and new entrants to these markets to share their views with us directly by 22 June 2015. The FCA expects to publish a report setting out the interim findings and any proposed remedies (if required) ahead of the final report in spring 2016.

This is the first FCA market study into competition in wholesale markets, and reflects its objectives to ensure markets work well and promote competition in the interest of consumers.

Notes to editors

  1. The terms of reference.
  2. The FCA received over 40 written responses to its call for inputs on potential subjects of a market study in the wholesale sector, published in February 2015, and met over 70 market participants through a mixture of round tables and one-on-one meetings.
  3. The Fair and Effective Markets Review (FEMR), led by the Bank of England and co-chaired by the FCA and HM Treasury, was established by the Chancellor in June 2014, to conduct a comprehensive and forward-looking assessment of the way wholesale financial markets operate.
  4. MiFID II will apply from 3 January 2017. It will affect firms that participate in primary market activities and operate in the investment and corporate banking sector. More information on MiFID II.
  5. The Capital Markets Union aims to create deeper and more integrated capital markets in the EU where investors are able to invest their funds without hindrance across borders and businesses can raise the required funds from a diverse range of sources, irrespective of their location. To achieve these objectives the European Commission is currently exploring ways of reducing fragmentation in European financial markets, diversifying financing sources, strengthening cross-border capital flows and improving access to finance for businesses through both legislative and non-legislative means.
  6. On the 1 April 2013 the Financial Conduct Authority (FCA) became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA).
  7. The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this it has three operational objectives: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system; and to promote effective competition in the interests of consumers.
  8. You can find more information about the FCA, as well as how it is different to the PRA.

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