As of 1 April 2015, the Financial Conduct Authority (FCA) has acquired new functions and powers in relation to competition. The FCA’s new powers include:
- Powers under the Enterprise Act 2002 (the 2002 Act) to conduct market studies and make references to the Competition and Markets Authority (CMA)
- Powers under the Competition Act 1998 (the 1998 Act) to investigate and enforce against breaches of UK and EU competition law
The FCA’s powers are concurrent with the enforcement powers of the CMA under the 1998 and 2002 acts. The CMA’s powers were inherited from its predecessor, the Office of Fair Trading (OFT) on the OFT’s merger with the Competition Commission last April. From 1 April 2015 onwards, the FCA is able to carry out a market study under the 2002 Act wherever it appears that a particular area of the market is not functioning in the interests of consumers or market users more generally.
The CMA has not relinquished its role as the UK’s principal competition authority. However, it may be expected – given the FCA’s new powers and the fact that the FCA is under a duty to share information with the CMA – that FCA-regulated firms could now be subjected to more information requests and the amount of regulatory activity could increase. Certainly, the 50-strong FCA competition team suggests that there will be considerable resources to apply to expensive market studies. This suggests that the need for funding will create an even greater incentive and appetite for enforcement.
The FCA always had a duty to promote competition in the interests of consumers under the Financial Services Act 2012. However, as of 1 April 2015, the FCA has the same enforcement powers that the CMA already had under the 1998 Act (such as the power to issue fines, declarations of unenforceability, and other penalties). This means that regulated firms will not be subject to additional requirements, merely a different body wielding the same powers.
Initial indications suggest that the FCA is certainly eager to wield those powers. Even before acquiring the new powers, the FCA announced plans to investigate competition in the wholesale banking sector and has acknowledged that the additional powers granted to it will allow for a more comprehensive review of firms that would have otherwise fallen outside its remit.
In 2013, the FCA launched two market studies, focusing on the general insurance add-ons market and the cash-savings market. In February 2015, it announced the intention to review customer charging in asset management, starting with the wholesale purchase of asset management. There are also plans to look at charging in investment banking and corporate banking services. We can therefore expect to see enforcement in these areas relatively early on.
The retail banking sector could also be a target for the newly empowered FCA. Karina McTeague, the FCA’s director of retail banking, delivered a speech on 26 November 2014, the general theme of which was that the FCA, in exercising its new competition powers, will focus on those areas where consumer choice was being limited. This is likely to form part of the FCA’s wider attempts to create what, in its view, is a fairer and more competitive retail banking environment in the UK. We expect to work towards these objectives by, among other things, focusing on issues such as barriers to entry for challenger banks and improving payment systems.
In its relatively short history, this is not the first time that the FCA has been granted new powers. In April 2014, for example, it inherited consumer credit powers from the OFT and it made no secret of the fact that it intended to take a “tough approach to consumer credit, with stronger powers to clamp down on poor practice than the previous Office of Fair Trading regime”. Initial indications do suggest that a similar approach will be taken by the regulator in relation to anti-competitive conduct among regulated firms.
Another reason to anticipate a robust approach to enforcement could be that the FCA requested the 1 April 2015 implementation date some 18 months ago, to allow for a sufficient transition period to build up the necessary expertise. This means it is likely to be under increased pressure to enforce its new powers, particularly in the areas in which progress has already been made.
The FCA’s apparent approach and sector-specific focus is likely to mean that banks and financial institutions are now more likely than ever to have their practices scrutinised for potentially anti-competitive conduct