The Competition and Markets Authority (CMA) and the Financial Conduct Authority (FCA) have agreed a new Memorandum of Understanding (MoU) which sets out a framework for co-operation between the two regulators in relation to competition issues, consumer protection, access to payment systems and the sharing of information for the performance of their functions. The MoU, dated 12 June 2014, replaces an earlier MoU of April 2013 between the CMA's predecessor, the OFT, and the FCA.
The CMA and the FCA have different but complementary powers and recognise that, by working closely and effectively together, they can deliver greater benefits to consumers and businesses. Closer co-operation between both regulators has become particularly relevant following the FCA's new competition role obtained in 2013.
The FCA's current competition powers
Following changes introduced by the Financial Services Act 2012, which came into force on 1 April 2013, the FCA has a statutory objective and duty to promote effective competition in the interests of consumers in the markets for regulated financial services. This competition objective sits alongside the FCA's other overarching objectives of consumer protection and integrity. To the extent that this is compatible with these other objectives, the FCA has a duty to carry out its general functions in a way which promotes competition.
The Financial Services Act 2012 did not, however, go so far as to make the FCA a concurrent competition regulator (like Ofcom, Ofgem and Ofwat) with the power to investigate breaches of the competition law prohibitions under the Competition Act 1998 or make market investigation references under the Enterprise Act 2002 to the CMA for detailed review. But the FCA was given the power to request the CMA to consider a financial services market and whether this has features restricting competition. The CMA must publish a response to such a request within 90 days, specifying whether it has decided to take any action, and if so what action. The FCA can therefore currently conduct market studies, which could potentially result in a reference to the CMA, or in the FCA taking regulatory action under its general remedial powers.
The FCA has to date not been shy in using these competition powers, and has opened a series of market studies in a variety of areas (insurance add-ons, cash savings, retirement income, credit cards) as well as considering competition issues through its so-called "thematic reviews" in relation to a number of products or markets.
The new MoU sets out, on a high level basis, the principles for co-operation between the FCA and the CMA in respect of competition issues under the current regime, as well as for other areas where their roles have some overlap (such as consumer protection and access to payment systems). The aims are to: identify which organisation will take the lead in relation to a particular issue; promote consultation; provide for technical and policy assistance; identify the scope for exchange of information (subject to any restrictions on disclosure of information received in the course of conducting their functions); and encourage staff secondments.
The FCA as concurrent competition regulator
Pursuant to the Financial Services (Banking Reform) Act 2013, the FCA will have concurrent powers under the Competition Act 1998 to enforce the competition law prohibitions in relation to the provision of financial services, and under the Enterprise Act 2002 to make market investigation references to the CMA for detailed review of a particular market. The same powers, and a competition objective, were also granted to the new Payment Systems Regulator.
These concurrent competition law powers are expected to come into force in April 2015, in order to allow the FCA to acquire the necessary expertise to implement its new powers effectively. Under these concurrent powers, the FCA (alongside the CMA) will be able to investigate possible breaches of the Article 101 TFEU/Chapter I prohibition on anti-competitive agreements and the Article 102 TFEU/Chapter II prohibition on abuse of dominance. It will also be able to make market investigation references to the CMA if it identifies a feature or features of a market which give rise to an adverse effect on competition.
In line with the changes to the wider competition law concurrency regime which came into force on 1 April 2014, and which were designed to ensure that sector regulators make greater use of their competition law powers, the FCA will be required to consider whether it would be more appropriate to use its Competition Act 1998 powers before using its regulatory powers. The FCA must not exercise its regulatory duties where it uses its Competition Act 1998 powers.
The procedures set out in the Competition Act 1998 (Concurrency) Regulations 2014 and the CMA's guidance on the concurrent application of competition law to regulated industries will also become fully applicable to the FCA. The Regulations and guidance deal with issues such as case allocation between the CMA and the concurrent regulators (based on whether the CMA or the relevant regulator is better placed to do deal with a particular case), the transfer of cases between the CMA and the regulators, information sharing and use of staff and resources.
The latest MoU indicates that the FCA and CMA intend to enter into a new MoU to deal with these concurrency issues once the FCA's concurrent powers take effect.