At its own request, the FCA is set to be granted expanded competition powers under new legislation. These new powers will put the FCA on a par with the existing UK competition sectoral regulators, including Ofcom, Ofgem and Ofwat.
These sector regulators currently have 'concurrent' competition powers with the UK competition authority, the Office of Fair Trading, in relation to their specialist sectors (communications, energy and water respectively). Like them, the FCA would receive concurrent competition powers, in relation to the financial services sector, with the OFT's successor, the Competition and Markets Authority.
As a result, the FCA would acquire far greater autonomy in relation to competition investigation and enforcement once its new powers are implemented in April 2015.
The story so far…
Under existing legislation, the FCA does not have any explicit competition powers. Such powers currently lie with the Office of Fair Trading and the Competition Commission. These two UK competition authorities are soon to be merged into a single new competition regulator, the CMA. The CMA came into existence on 1 October 2013 under the Enterprise and Regulatory Reform Act 2013, but will operate in shadow form until 1 April 2014, at which point it will take over the competition functions of the OFT and CC.
Currently, the FCA only has the ability to refer matters to the OFT where necessary. The OFT then has 90 days in which to publish a response stating how it proposes to deal with the FCA's request and what, if any, action it proposes to take.
However, the FCA considers that these powers are insufficient to fulfil the competition objective bestowed on it by the Financial Services Act 2012. As set out in 'The FCA's approach to advancing its objectives', the FCA's competition objective aims to promote effective competition in the interests of consumers in the regulated financial services markets. The FCA believes this will help lead to lower prices, greater innovation and a wider choice for consumers, which will ultimately induce economic growth.
On 5 August 2013, the FCA therefore requested that it be given competition powers to support its competition objective. It asked that these be implemented in April 2015 in order to allow time for it to build up the necessary expertise to exert the powers effectively.
The FCA's wish looks to have been granted. It is likely to receive concurrent competition powers under the Competition Act 1998 and the Enterprise Act 2002, via an amendment to the Financial Services (Banking Reform) Bill 2013-2014, which is currently at Committee stage in the House of Lords. This Bill also seeks to impose a secondary objective on the PRA of facilitating effective competition as well as giving the new Payment Systems Regulator a competition objective and granting it concurrent competition powers in relation to participation in payment systems.
How will the FCA's concurrent competition powers work?
The FCA would operate its competition powers 'concurrently' with the CMA. The rules governing this relationship provide for co-operation between the two entities when exercising their competition functions, and stipulate that no objection can be raised regarding any action of the FCA under its concurrent competition powers on the basis that it could have been done by the CMA.
The specific competition powers that would be given to the FCA include:
- Enforcement powers under Part One of the Competition Act 1998 in relation to agreements or practices engaged in by companies operating in the UK which prevent, restrict or distort competition and in relation to companies that abuse a dominant position in a financial services market;
- The power to apply to court to make a disqualification order against a person who is a director of a company that has committed a breach of competition law; and
- The power under Part Four of the Enterprise Act 2002 to carry out market studies and make market investigation references to the CMA. The FCA would be required to consider whether it would be more appropriate to use its powers under the Competition Act before using its regulatory powers under the FSMA.
It should not exercise its regulatory powers if it would be more appropriate to proceed under the Competition Act. Where the FCA uses its Competition Act powers, it would no longer be under a duty to exercise its regulatory objectives under section 1B of FSMA. This would ensure the FCA is free to exercise its competition functions in relation to 'financial sector activities' without being bound by duties the CMA would not be bound by.
The FCA would also have the responsibility of keeping under review those markets in which it may exercise concurrent competition law functions.
The concurrent competition powers the FCA would exercise in 2015, alongside the newly established CMA, mark the beginning of a new era in terms of competition regulation.
The government hopes the FCA's competition powers will increase its credibility and therefore make it easier to persuade companies to alter their behaviour voluntarily. It is also hoped these powers will enable the FCA to become a member of the European Competition Network so that it is better placed to engage with regulatory issues at a wider European level.
Ultimately, the FCA's concurrent competition powers would bring it in line with other UK competition sectoral regulators, helping to ensure effective competition in the UK financial services markets and foster a culture of competition law compliance within the sector.