19 February 2015
The Financial Conduct Authority (FCA) is to investigate competition in the investment and corporate banking services sector, to see if it is working properly.
The regulator states that the review will be informed by views from industry, trade bodies and clients.
The decision to investigate has come as a result of the FCA’s investigation of the wholesale markets and forms part of its wider work into the financial markets. As part of this review, the regulator found that limited clarity over price and quality of services may make it difficult for clients to assess whether they are getting value for money, and that the bundling and cross selling of services could make it difficult for new entrants or smaller established firms to challenge established large players in the market.
Feedback received to date as part of its wholesale markets review included concerns around transparency, conflicts of interest and the impact that bundling services together has on competition, including new firms’ ability to enter the market.
In addition, other potential competition issues that might benefit from further investigation in the future that have been identified include: how purchasers get value for money when buying asset management services; the pricing and availability of data and related services; vertical integration of clearing and execution services; and the impact of a reduction in the number of clearing members and a lack of client clearing on over-the-counter (OTC) derivative markets.
Christopher Woolard, director of strategy and competition, 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.
‘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.’
The NAPF has welcomed the FCA’s decision to investigate; Will Pomroy, Policy Lead Corporate Governance, NAPF, said: ‘The NAPF previously raised questions about the potential competition issues in the investment banking sector, particularly those that arise from cross-selling and the potential cross-subsidy of services. There is a sense that the opacity associated with the current system hinders effective competition and accountability to clients, resulting in reduced oversight and potentially higher costs for end investors.’