The view from the regulator: developing our approach

Speech by Mary Starks, Director of Competition at the FCA, delivered at the AIC conference ‘Making choices in uncertain times’.

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Speaker: Mary Starks, Director of Competition
Location: AIC conference, London
Delivered on: 9 March 2017


  • Our future Mission will help to explain how we interpret our objectives, and how we choose what our priorities are each year. Work following the Mission will help to clarify our Competition remit.
  • Competition in the interests of consumers is a process of rivalry that can transform services and markets. Our role is to enable competition, not to control it.
  • Competition is a complement to regulation, not an alternative.
  • We are reviewing the comments on our asset management market study.

Note: This is the speech as drafted and may differ from the delivered version.

Thank you very much to the AIC for inviting me to speak at this fascinating event. I intend to focus my talk on the FCA’s competition work, and then go on to look at our recent interim report on the asset management market study.

Uncertain times

I want to start by touching on the theme of the conference itself – uncertain times.

Guy has already emphasised the impact of the referendum on EU membership, and I am not sure that there’s much more that I can add on that at this stage. There are a number of interesting questions in the competition space. At the FCA, our role is primarily to provide technical support to the government during the negotiation period.

However the day job, as it were, doesn’t stop. We have a unique view as the regulator of around 56,000 firms, and we have an objective to make sure that markets work well. We will continue to focus on this, and we will continue to pursue our broad portfolio of work, in the meantime.

One area that we – and I – find particularly interesting is the impact that uncertainty has on consumers and their decision making. This doesn’t just apply to Brexit of course, but in a range of areas. In a wider political sense, for example, how political changes such as the pension reforms affect the way that people plan for their retirement. Or, in a more personal sense, how short periods of vulnerability, such as an illness or bereavement, can leave individuals feeling uncertain, and how this affects the decisions that they take.

One of the important tectonic shifts in this regard is in pensions, with the move from defined benefit to defined contribution. Recent work by the Institute of Fiscal Studies tells us that in their early 30s, less 10% of private sector employees born in the early 1980s were active members of a defined benefit scheme, compared with nearly 40% of those born in the 1960s.

As a result of this change, and the pension freedoms, most people are no longer required to buy an annuity at retirement, which is indeed liberating, but also means consumers are shouldering a great deal more uncertainty about how their invetemtns will perform and how long their savings will last than they used to.

How people deal with uncertainty in this context is a theme that we at the FCA will doubtless be exploring for some time to come.

Our future Mission

But this topic of uncertainty feeds into a wider question about the role of the FCA, how we set our priorities, and how we carry out our work. In November 2016, we published a document on our future Mission, and then spent several months consulting on this.

This is not about changing our objectives – these remain constant – it’s about making sure that our stakeholders understand what we are here to do and how we do it – and equally, what we don’t do, and why. Some of you, I’m sure, will have fed into the consultation, and thank you for doing that, the quality of engagement has been great.

We looked at a range of interesting questions – and as we review the responses to this consultation, we continue to debate these internally. We have also brought in external thought leaders, from industry, academia and other agencies at home and abroad to enrich these debates.

For example, one question - is how - in an environment where consumers are expected to take increasing responsibility for financial decisions - do we balance the responsibilities of firms and consumers and the role of regulatory protections?

There are no easy answers to this. but the Mission work is bringing important insights to bear from a range of disciplines including law, economics, finance and psychology.

The Mission document will help to explain how we interpret our objectives, and how we choose what our priorities are each year. This also feeds into our business plan, which we will be publishing in the next month, and which sets out our agenda for the year ahead.

Competition at the FCA

Competition in a market is not just about having low prices, or a high number of suppliers. And it is a lot more nuanced than simply ordering the breakup of dominant firms.

So let’s take a step back. What do we mean by competition? Our competition remit is not always well understood, and it’s been helpful to clarify this through our Mission consultation and related work.

Competition in a market is not just about having low prices, or a high number of suppliers. And it is a lot more nuanced than simply ordering the breakup of dominant firms.

Effective competition means firms battling on the multiple fronts of service, of quality, and of price. Like all the best competitions, firms are trying to win prizes – the prizes are customers, more customers means growth, higher turnover and ultimately profitability.

Competition is also a very powerful driver of innovation. Open markets allow firms to come in and do things differently, and as we’ve seen in sectors from travel to music, this  can genuinely transform the provision of service. This doesn’t just mean technology, although that is an important part of it. Innovation might be a new product, a simpler consumer interface or a business model no-one has tried before.

This process of rivalry is a kind of economic engine driving prices and costs down, quality and service standards up. It also drives innovation forward, which in turn drives productivity and economic growth. And it can drive access outwards, bringing quality services to increasing numbers of consumers.

This can be bad news for vested interests.

But can be an opportunity for all others, including consumers, efficient and innovative producers, and challengers. 

So what is our role in this? It is for us to enable that competitive state of play, not to control it. It is to support a healthy competitive process, not to dictate specific outcomes.

We do this by removing barriers to competition and malpractice that prevent a fair process of rivalry amongst firms. And we do it by empowering consumers to make effective choices.

Ultimately, we are promoters and enablers of competition in financial services and enforcers of competition law when egregious anti-competitive behaviour occurs.

Perfect competition may only be a theoretical construct, but the threats of impaired competition are only too real. And they are damaging and costly for consumers, challengers and the wider economy.

To return to the framework of objectives parliament has given us, our objective is to promote competition in the interests of consumers.  

That last part - in the interests of consumers - is critical: it distinguishes a healthy competitive market from a race to expand or sell at all costs.

A race to improve products and services, not a race to the bottom.

Our other objectives - market integrity and appropriate consumer protection - are also essential in making competition work well. Well designed regulation gives consumers and firms confidence to participate in financial markets, confidence that the game is not rigged against them. But ill designed regulation can get in the way of effective competition, protecting incumbents or creating barriers to entry.

So it’s important that we recognise that competition is not a direct alternative, but a complement, to regulation. And also how competition can boost our other objectives, such as protecting consumers. But equally, it’s important that our rules and interventions are proportionate and not an unnecessary barrier to competition.

Some of work is about leaning in to facilitate competition – for example through Project Innovate, which helps new and innovative firms to enter the market. Sometimes our role is to get out of the way, or to allow market forces time to work. And it’s very welcome when we do see this – for example recently when we saw ClearBank, the first new clearing bank in 250 years, enter the market.

Asset management market study

The asset management industry is large, and important... the prize of ensuring that the market is working efficiently and effective is vast, with the potential to have a material impact on the lives of millions of people both now and in the future.

I now want to turn to the asset management market study – which illustrates one of the ways we pursue our competition objective in.

The first thing I want to say about the market study is that this is a really significant piece of work for the FCA. That is because the industry is so large, and so important.

But it’s also because the prize of ensuring that the market is working efficiently and effective is vast, with the potential to have a material impact on the lives of millions of people both now and in the future.

The UK’s investment industry is the second largest in the world, managing almost £7 trillion of assets. Three quarters of UK households rely on it in some way, 10 million saving through workplace pensions, 11 million with some form of retail investment, many of them in stocks and shares ISAs relying on asset managers to help them grow their savings.

As you will know, we published our interim report in November, and the consultation on this report closed a few weeks ago. We are now in the process of reviewing the huge number of responses that we have received – we got over 150 written responses, some of them almost as long as the report itself, and that’s saying something! We also hosted nine roundtables and events hosted by others to ensure that we were getting a wide range of views on our work. I hope that some of you had a chance to contribute, and I thank you for doing so.

I know this work has attracted a lot of comment and attention, some of it positive, some of it less so, but this exactly the reason that we publish an interim report and go through the consultation process. At this point, our thinking is fairly well developed, but we have taken no final decisions – it’s a good moment to talk and debate the issues.

This really comes back to the question of why we do market studies. They are a way for us to explore a market in detail to see how effectively and efficiently it’s working – how it is working for its customers.

The starting position of a market study is not to automatically assume wrongdoing or to have a preconceived view on what we will find. It is a diagnostic exercise, that is detailed and evidence led, during which we employ a range of analytical methods to explore the workings of a market and the outcomes for consumers.

But I think it’s important to remember that the guiding question behind the study was, and still is, a pretty simple one. How do we make sure the asset management industry in this country works as well as it possibly can?

Now, one response to that question is that the market is already working pretty well. And up to a point, this is obviously true.

The UK’s investment industry commands worldwide respect. It’s also immensely important to the domestic economy.

But it is crucial that the market works well for everyone – particularly its end consumers.

It’s crucial because this is an industry that directly affects the lives of millions of investors.

75% of UK households have some form of pension which relies on the services of asset management firms.

And 11 million adults have some form of retail investment – many of these in stocks and shares ISAs – relying on the skills of asset managers to help them grow their savings.

So, in the context of the question of uncertainty, it is important to reassure people that we are confident in the ways that they invest their savings.

I’m not going to go into detail here on our findings.

But the top-line is that we’ve found competition is not working particularly well in the UK’s asset management market and is not driving value as hard as we might want. 

We found that there is limited price competition for retail actively managed funds - meaning that many retail investors and some institutional investors pay high charges for this service. It is not clear that - on average – this is justified by higher risk adjusted returns.

We also found that around half of retail investors that we surveyed did not know that they were paying asset management charges, let alone what those charges were.

Again, I don’t want to over simplify in the limited time that we have, but a key theme that came from our report is the need for increased transparency on this. Costs and charges matter – and even a small reduction in charges can have a significant impact on the amount of money that consumers will accumulate in their savings pots. It’s equally important that institutional investors can be certain of how much they are paying for the services that they are receiving.

We recognise that there are industry led attempts to develop greater cost transparency and we support the industry in continuing to work together with investor organisations to develop a standardised template to disclose asset management-related fees and charges.

Our discussion with stakeholders to date reveals a range of views on whether a voluntary solution will be enough, or whether regulation is needed. But either way, the involvement of both industry and investor organisations in developing something to give investors the information that they need is extremely welcome.


I’m aware that I’ve really sketched over the surface of our report, and I’m sure many of you will have further questions on this. We do recognise that the industry is operating in Uncertain Times, and the changing nature of the environment.

But our job as the regulator is to make sure that we get the shape of this market right, that it is efficient, and competitive, that it serves the needs of retail and institutional investors. And our findings suggest a need for reform. If anything, this is even more timely in light of Brexit.

As I’ve said, we are currently considering the responses we received to our interim report, and we will publish our final report in the summer. I hope that will bring to an end some of the uncertainty which I’m sure you are feeling right now. And I hope that setting out the framework of how and why we undertake our work helps to clarify why we are looking at this vitally important area.

I hope that this speech has also given you a bit of insight into our future Mission and the work that we do in the competition division, and why we do it.