Off the back of its new competition remit the Financial Conduct Authority in July 2014 launched a review of competition in the wholesale financial services sector. This briefing focuses on the thinking behind, and scope of, the review including a look at Markets and Market Infrastructure.

Rationale Behind Review

With regulatory bodies such as the European Commission commencing investigations in the credit default swaps' market, reviewing FOREX manipulation and LIBOR/EURIBOR fixing, the interplay between financial services and competition has noticeably increased.

When the FCA was established last year a new era began when it came to the regulation of UK financial markets. Now armed with a competition remit, part of the FCA's objectives are to promote effective competition for consumers in regulated financial services markets. As of April 2015, the FCA will have increased powers alongside the Competition Markets Authority to enforce competition in financial markets - which should make for an interesting dynamic between the competition and financial services market regulatory regimes.

The FCA review of competition in the wholesale financial services sector marks a significant shift where the regulator is now taking a 'head-on' proactive approach to this.


"Wholesale financial markets play a crucial role in our economy and it is important that competition works effectively within them."
Wholesale sector competition review — Call for inputs

Scope of Review

The scope of the FCA review is to assess where competition is weak or not working effectively in the following areas:

  • Markets & Market infrastructure;
  • Investment Banking;
  • Asset Management; &
  • Corporate Banking.

Markets and Market Infrastructure

The FCA will examine whether there are any issues relating to the production and distribution of data and whether all market participants have access to data. This is with a view to having standardisation and transparency brought to the fore.

The FCA will also examine arrangements between trading venues and clearing houses in Over The Counter and venue traded markets, as well as concentration in these markets which could raise barriers to entry.

Dovetailing into this is the FCA's review of whether the packaging of trading and clearing services prevents standalone providers in entering the market. Interestingly, benchmark activities - together with credit rating agencies and wholesale insurance - are excluded and will be the subject of another review.

Next steps

The FCA's wholesale review is a welcome development. It is clear that 'access', 'transparency', 'efficiency' and 'information asymmetry' will be key drivers of the review. Responses to the FCA's wholesale review are to be submitted by 9 October 2014.

The FCA will consider the industry views put forward and publish their findings hopefully by year's end. It is proposed that any market study that may arise from this will be launched in early 2015.


Further Areas Under Review:

Corporate Banking - the FCA's review highlights that, as at June 2013, the major UK lenders accounted for 70% of the stock of lending to businesses. With this in mind, the FCA review looks into the competition issues within this sector, namely, the likelihood of entry, demand for corporate banking and cross selling.

Asset Management - depending on the parameters agreed with their clients, asset managers often have a degree of discretion when managing their clients' assets. In that, asset managers also use a range of intermediaries in carrying out their functions. To this end, the FCA review looks at incentivizing asset managers to pay the correct price for the correct level of services in relation to governance services, transfer agency, dealing commission and ancillary services.

Investment Banking - given investment banks have a wide mandate in respect of financial services activities the FCA review focuses on certain competition issues, such as cross selling of investment banking services, costs of equity and debt underwriting and best execution.


The FCA's consultation: online at http://www.fca.org.uk/static/documents/market-studies/wholesale-sector-competition-review-call-for-inputs.pdf

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