FCA wholesale sector competition review – call for inputs

The Financial Conduct Authority (FCA) has today launched a review of competition in the wholesale sector

Wholesale financial markets play a crucial role in the economy and it is important that they are not only clean but also competitive. That is why the Financial Conduct Authority (FCA) has today launched a review of competition in the wholesale sector to identify any areas that might merit further investigation through an in-depth market study. The review is an exploratory exercise that aims to highlight where competition may be weak or not be working properly in these markets.

Christopher Woolard, director of policy, risk and research at the FCA, said:

“It is vital that wholesale financial markets are efficient, fair and competitive. We are publishing this call for inputs today to seek views and evidence from stakeholders on areas where they think competition may not be working effectively.

“Effective competition within the wholesale sector can lead to an increase in institutional efficiency, lower prices, greater innovation and can improve the quality and range of financial services provided. Improvements in competition should contribute to the sustainable development of the financial system, and have positive knock-on effects for retail consumers and real economy businesses.”

The FCA is seeking views on areas in the wholesale sector where competition might not be working effectively.  The review will focus primarily on competition in wholesale securities and investment markets, including:

  • markets and market infrastructure
  • investment banking
  • asset management
  • corporate banking

The FCA is interested in features of a market or behaviour that could inhibit or distort competition in the market. To aid discussion, the FCA has provided examples of the types of competition issue which might warrant further investigation. These include examples of potential barriers to entry or expansion, information asymmetries, conflicts of interest, and cross-selling or bundling of services. The FCA is seeking views on these issues, as well as views and evidence on other issues to explore.

On the 12th June, the Government announced the Fair and Effective Financial Markets Review, a joint review between the Bank of England, HM Treasury and the FCA. The Fair and Effective Financial Markets Review will focus on trading practices, the scope of regulation, the impact of forthcoming regulation and the implications for supervision. The FCA’s wholesale sector competition review will not focus on the trading practices that are central to the Fair and Effective Financial Markets Review. As a result, it is expected that there will be limited cross-over between the two reviews. However, the FCA will liaise closely with the Fair and Effective Financial Markets Review team and will ensure that any issue which could potentially fall within both reviews, will be handled by the team that is most suited to undertake the analysis and take it forward.

The call for inputs for this review will be open for 3 months, closing on the 9th October.  Written responses are welcome throughout this period, and we very much invite early responses.  During this period, the FCA will engage with stakeholders, primarily through a series of round-tables. Once the responses have been received, the FCA will take these into consideration and decide whether to launch a market study into any particular area.

Notes for editors

  1. Read the Wholesale sector competition review – call for inputs.
  2. 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).
  3. The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this it has three operational objectives: to secure and 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.  These statutory objectives are outlined in the Financial Services Act 2012.
  4. Market studies are one of the main tools the FCA uses for examining how competition works and to assess whether it should intervene in the interests of consumers.
  5. The FCA completed its first market study in March this year (general insurance add-ons) and announced the programme of competition work for the year ahead in the 2014/15 business plan. This stated its intention to complete the two competition market studies currently ongoing (cash savings and retirement income), to look at aspects of the credit card market, and to initiate this review.
  6. Find out more information about the FCA.