FCA GAINS COMPETITION POWERS: WHAT DOES THIS MEAN
FOR FINANCIAL INSTITUTIONS?
On 1 April 2015 the Financial Conduct Authority (FCA) will
acquire powers enabling it to enforce competition law alongside
the UK’s primary competition law regulator, the Competition
& Markets Authority (CMA). These powers will complement
its existing statutory duty to promote effective competition.
Whilst the FCA and CMA will co-ordinate their work (as set
out in a Memorandum of Understanding between the two
organisations), we expect the FCA to undertake a greater
number of the competition investigations in the financial
services sector (whether or not they relate to regulated
activities).
It is clear that the FCA will look proactively to use its new
competition powers. Entities that operate in the financial
services sector need to be aware of the scope of these new
powers, in particular the ability to investigate markets in which
there is no suggestion of wrong-doing.
WHAT POWERS WILL THE FCA ASSUME?
The concurrent powers that the FCA will assume under the
Competition Act 1998 cover agreements and practices that
distort, restrict or prevent competition (including cartels), as well
as abuses of dominance by companies that have market power.
The powers also extend to the ability, under the Enterprise Act
2002, to refer markets to the CMA for a detailed investigation
even if, in the absence of anti-competitive practices, features
of a market are considered to lead to sub-optimal competitive
outcomes.
WHAT DOES THIS MEAN IN PRACTICE?
Firms subject to FCA supervision will not be faced by yet more
regulation and oversight as the FCA will simply gain powers that
the CMA already has, and has used – e.g. launching in-depth
market investigations into retail banking (specifically personal
current accounts and lending to SMEs) as well as into payday
lending. However, financial services firms can expect a greater
number of competition investigations given the FCA’s significant
resources and narrower focus.
INITIAL AREAS OF FOCUS
The FCA’s willingness to look into competition matters was
made clear in its recent announcement that, following its review
into competition in the wholesale sector, it will launch a market
study into investment banking and corporate banking services
in spring 2015 – i.e. at around the same time as it acquires
its competition powers. The focus of the market study will be
the impact of transparency and bundling on competition for
investment banking and corporate banking services. Preliminary
concerns which have been highlighted are that there is limited
transparency over price and quality making it difficult for clients
to assess value for money, and that bundling and cross-selling
of banking services lead to low levels of transparency and may
make it difficult for new entrants to compete in the relevant
markets.
Whilst one outcome of the market study may be that
competition is effective and no action is required, another
outcome is a further, more detailed, 18-month investigation
which could lead to enforced changes (as proposed last week
in connection with the payday lending market – see https://
www.gov.uk/government/news/cma-finalises-proposals-tolower-payday-loan-costs).
The FCA has also identified asset management as an area
worthy of investigation in the future.
We have extensive experience of advising on all aspects of
competition matters, including market studies and investigations.
If you would like further information please contact Marc Israel
in our Competition Group or David Berman in our Financial
Services Regulation Group, or your usual Macfarlanes contact .
CONTACT DETAILS
MARC ISRAEL
PARTNER
COMPETITION
DD: +44 (0)20 7849 2332
[email protected]
DAVID BERMAN
PARTNER
FINANCIAL SERVICES REGULATION
DD: +44 (0)20 7849 2733
[email protected]
MARCH 2015
MACFARLANES LLP
20 CURSITOR STREET LONDON EC4A 1LT
T: +44 (0)20 7831 9222 F: +44 (0)20 7831 9607 DX 138 Chancery Lane www.macfarlanes.com
This note is intended to provide general information about some recent and anticipated developments which may be of interest.
It is not intended to be comprehensive nor to provide any specific legal advice and should not be acted or relied upon as doing so. Professional advice appropriate to the specific situation should always be obtained.
Macfarlanes LLP is a limited liability partnership registered in England with number OC334406. Its registered office and principal place of business are at 20 Cursitor Street, London EC4A 1LT.
The firm is not authorised under the Financial Services and Markets Act 2000, but is able in certain circumstances to offer a limited range of investment services to clients because it is authorised and regulated by the Solicitors Regulation Authority.
It can provide these investment services if they are an incidental part of the professional services it has been engaged to provide. © Macfarlanes March 2015