Effective today, April 1, 2015, two of the UK’s financial services regulators – the Financial Conduct Authority (FCA) and the Payment Systems Regulator (PSR) – have assumed full concurrent competition law powers. This means that the FCA and the PSR now both have: (i) powers to bring cases against companies whose conduct they consider to be in breach of UK and EU competition law; and (ii) powers to initiate reviews into markets that they consider to be failing consumers.
In this update, we explore a few key points around the new powers assumed by the FCA and PSR. In short, there is every reason to believe that the FCA and PSR will take an activist approach to the use of their powers and that today’s reforms will mean that the UK’s cross-industry competition authority, the Competition and Markets Authority (CMA), will be able to commit more resources to investigating other sectors of the UK economy.
FCA and PSR already have significant knowledge of financial services and payments sectors
Starting almost from scratch last year, the FCA (which is responsible for policing the conduct of (among others) banks and insurers doing business in the UK) recruited a phalanx of competition specialists. Many of the FCA’s competition specialists have already been carrying out market reviews under powers granted to the FCA by the Financial Services and Markets Act. Most notably, the FCA has already:
(i) completed market studies into cash savings, retirement income and general insurance add-on products;
(ii) launched a market study regarding credit cards; and
(iii) published a “call for inputs” in relation to the wholesale banking sector.
So the FCA already has a good deal of insight into how the UK’s insurance and banking sectors operate, insight it will no doubt look to put to use in the context of competition enforcement activities.
Likewise, the PSR has developed a good deal of knowledge of the UK’s payments sector. Although the PSR has only become fully operational today, it had already consulted extensively with stakeholders in order to develop guidance and policy documents. Just last month, the PSR published a Policy Statement setting out how it will operate as a regulator, and a Policy Work Programme providing details of, among other things, two reviews the PSR will undertake – the first into the ownership and competitiveness of infrastructure provision in the payments sector; the second into the supply of indirect access to the UK’s major interbank payment systems.
FCA and PSR have significant budgets, so expect plenty of reviews and investigations
The FCA and the PSR are funded by way of fees they impose on the companies they regulate. They therefore have unusually large budgets, particularly in comparison with the CMA, which is funded entirely by the UK Government. The corollary of these lofty budgets will no doubt be a significant pressure to deliver results for UK consumers. That pressure will likely be intensified by the fact that the UK’s other sector-specific regulators have failed to enforce competition law effectively (only two competition infringement decisions have ever been taken by sector regulators). Indeed, the CMA now has the power to take cases back from the sector regulators (including the FCA and the PSR), and will prepare an annual report assessing the sector regulators’ competition enforcement activities. The pressure on the FCA and the PSR to take cases and deliver results could hardly be clearer.
Challenges in managing relationships with multiple regulators
The very concept of concurrency brings with it a risk of double (or, in this case, triple) regulation. The Government’s intention is that the FCA, the PSR and the CMA will consult one another in order to work out which regulator is best-placed to act. The FCA and PSR have even consulted on guidance intended to provide clarity on work allocation. However, it remains to be seen how any guidance will work in practice. Since the FCA and the PSR regulate neighboring sectors of the UK economy, and since the CMA’s powers encompass all sectors, there is significant potential for confusion. This is particularly concerning when one considers the obligations (imposed by FCA Principle 11 and PSR General Direction 1) on financial services and payments firms to notify the applicable sector regulator of arrangements or conduct that might be of interest from a competition law perspective. Managing relationships with competition regulators can be a challenge at the best of times, but with three regulators having apparently overlapping powers, the challenges will only be greater.
Reforms may lead to increased CMA activity in remainder of UK economy
Much of the CMA’s time (and the time of its predecessor agencies) has been taken up with investigations into the financial services sector. Examples include recent (and ongoing) investigations in relation to payday lending, retail banking and private motor insurance. Free of much of that burden, the CMA might now have more resources to devote to competition law investigations in the remainder of the UK economy. Perhaps reflective of this new-found freedom, the CMA only last week opened a new investigation into allegations of anti-competitive activity in the UK’s clothing, footwear and fashion sector. Other cases launched by the CMA in 2015 include investigations into passenger rail services and the commercial use of consumer data. The CMA has even announced a review of remedies imposed in cases going as far back as the 1970s. Proof, the authors of this update would posit, that the CMA does indeed have the capacity to initiate new investigations.