The FCA has today published the final findings of its investment and corporate banking market study and set out a targeted package of remedies to ensure effective competition in the market.
The final report confirms the findings of the interim report published in April 2016. It finds that whilst many clients feel well served by primary capital market services there were some areas where improvements could be made to encourage competition, particularly for smaller clients.
The FCA’s final report outlines a targeted package of remedies, including:
- Banning banks from using contractual clauses that seek to limit clients’ choice on future transactions. The FCA has published a separate consultation paper alongside this final report setting out the proposals. Depending on the responses to the consultation paper, the FCA expects to publish the final rules in early 2017.
- Ending league table misrepresentation in banks' pitches to clients: banks routinely present league tables to clients in a way that inflates their own position. The FCA is working with the BBA and AFME so that they can develop and adopt industry guidelines to improve the way such information is presented.
- Removing incentives for loss-making trades to climb league tables: league tables that rank investment banks can be misleading because some banks carry out loss-making transactions purely to generate a higher position in such tables. The FCA has asked league table providers to review their recognition criteria so as to reduce the incentives for banks to undertake such league table trades.
- Supervisory programme for initial public offering (IPO) allocations: allocations of shares in IPOs are at times skewed towards buy-side investors from whom banks derive greater revenues from other business lines (for example, trading commission). In the run up to the implementation of MIFID II, the FCA will work with those firms where shortcomings in their allocation policies or practices have been identified.
Christopher Woolard, Director of Strategy and Competition at the FCA, said:
“Wholesale financial services markets play a vital role in the economy and the FCA has an important role to play to ensure these markets work well.
“The universal banking model clearly works well for a wide range of participants but areas such as the use of restrictive contractual clauses, league table credibility and the allocation of shares in IPOs are not always working as well as they could. We’ve developed a package of remedies designed to address these problems. This sends a signal that we expect firms to compete on the merits, not by restricting clients’ choice on future transactions, drawing misleading comparisons with competitors’ performance, or exploiting conflicts of interest.
“We are also continuing to look at how we can improve the IPO process.”
Update on the IPO process discussion paper
In a separate discussion paper published at the same time as the interim report, the FCA proposed changes to the IPO process. The consultation period closed in July and the FCA expects to publish a separate consultation paper on changes to the IPO process in winter 2016/17.
Notes to editors
The FCA’s investment and corporate banking market study focused on choice, transparency, bundling and cross-subsidisation in debt and equity capital markets, and mergers and acquisitions. It also considered links between competition in these primary market services and related activities such as corporate lending and broking, and ancillary services.
Investment and corporate banking market study final report.
Prohibition of restrictive contractual clauses consultation paper.
Investment and corporate banking market study interim report.
Availability of information in the UK Equity IPO process discussion paper.
Occasional paper - Quid pro quo? What factors influence IPO allocations to investors?
On 1 April 2013, the 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).
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.
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