FCA Investigating Competition in Wholesale Banking, Investment Sector

UK watchdog the Financial Conduct Authority (FCA) ) announced today that it is launching its first wholesale market study into investment and corporate banking to determine whether competition in the sector is working properly.

The FCA has determined it worthwhile following the publication of its review into competition in the sector. Their review covered markets, their infrastructures, asset managements and corporate and investment banking.

It found that limited clarity over price and quality of services may make it difficult for clients to assess whether they are getting value for their money. The review also pointed out that the bundling and cross-selling of services could make it difficult for new entrants or smaller, already established firms to challenge large established players in the wholesale market.

Director of Strategy and Competition Christopher Woolard said, “We have chosen this particular area because the benefits of effective competition in the market could be significant. The UK is a global Hub for investment banking, and this sector plays a crucial role in our economy, helping companies raise capital for investment, expansion and funding ongoing operations.”

He goes on to say, “What was clear from the discussions we had with stakeholders and firms was that there are unanswered questions about potential conflicts of interest and value for money in this market. This will form part of our wider work in the wholesale markets, alongside the Fair and Effective Markets Review.”

Feedback it has received to date includes concerns around transparency, conflicts of interest and bundled services’ impact on competition. During the wholesale sector review the FCA met with roughly 70 organizations and individuals via round-table discussions and one-on-one meetings.

The FCA will also consider undertaking a market study into asset management and related services later this year. For other potential competition issues, there are no immediate plans to conduct further studies into these areas as forthcoming regulations are expected to change the way competition works.

The FCA has had its hands full lately, trying to contain the blowback from the Swiss franc turmoil. The FCA was set up as part of Britain’s post-financial crisis restructuring efforts to better supervise and protect consumers and to increase market competition.