The Financial Conduct Authority (FCA) is currently preparing for the award of concurrent competition enforcement powers on 1 April 2015. From that date, both the FCA and the new Payment Services Regulator will be able to, amongst other things, investigate and prosecute anti-competition agreements and contracts.
Two recent developments have shown that the FCA intends to make full use of its powers from day one: a market study that has been launched into the wholesale banking sector (including elements outside the FCA's current scope) and a Memorandum of Understanding between the FCA and the UK's main competition regulator, the Competition and Markets Authority (CMA), that sets out how the two will work together to prepare for concurrency. Both developments strongly suggest that the FCA intends to use its competition powers not just against regulated firms, but also on those firms in the financial sector that have previously been out of its reach.
We discuss both developments and what they mean below.
Market study launched into wholesale banking
Market studies are launched by competition authorities in order to determine whether or not markets are functioning in the best interests of consumers and, if not, to propose remedies. Along with the CMA, the concurrent regulators each have the power to launch a market study and, if they consider that markets are not working well, refer that market to a full market investigation by the CMA.
While the FCA does not currently have power to enforce the prohibitions on anticompetitive agreements and abuses of dominance, it does have the power launch market studies into regulated activities. Since it launched its first market study in July 2013, the FCA has launched a total of four market studies and has been assisting the CMA with another (the CMA's investigation into SME banking). All of these investigations are currently open, although provisional findings have been reached in two of them. By way of contrast, the CMA website currently lists six open market studies that are not at the full market investigation stage, two of which concern Higher Education.
On 9 July 2014, the FCA launched the fourth investigation, into the wholesale banking sector. The FCA has stated that it will focus primarily on competition in wholesale securities and investment markets. The wholesale "sector" is huge, covering banking services between banks and financial institutions, many of which are not actually regulated by the FCA in any form at present.
The FCA expressly acknowledges its current inability to take on non-regulated firms in the sector in its "call for inputs" document and what it has to say is extremely interesting for those working the sector but not regulated by the FCA:
"This review covers some activities that are outside the FCA’s existing perimeter (as set out in the FSMA Regulated Activities Order 2001), particularly where they relate to other parts of the investment chain. In addition, when we gain further competition powers in April 2015, we will be able to consider competition issues within financial services, beyond the current set of regulated activities. Currently, any such competition issues are within the remit of the Competition and Markets Authority (CMA), however, from April 2015 both the FCA and the CMA will be able to consider them. We will consider the most appropriate way to address any responses we receive on areas that are not currently within our regulatory perimeter."
In other words, the FCA acknowledges the limits of its powers, but it does not see this as any particular constraint, as its powers will be expanded to cover competition in the financial sector as a whole in April 2015 and, in the meantime, it can work with the CMA.
A statement of intent can also be implied here: it does not matter whether a firm is regulated or not, the FCA will use its competition powers to follow the issues in the financial sector that it wants to investigate.
The call for inputs closes on 9 October 2014.
Memorandum of Understanding
On 12 June 2014, the CMA and FCA entered into a Memorandum of Understanding (MOU).
Although technically non-binding the MOU aims to draw together the two organisations' "mutual understanding and co-operation… in relation to competition issues, consumer protection, access to payment systems and exchanging information". The document should be understood as a statement of intent by the two organisations, entered into less than a year before the FCA gains concurrent competition enforcement powers.
We have previously noted that the FCA has used its regulatory powers in cases where competition powers might otherwise have been used (for example in LIBOR cases, where the FCA has imposed fines for ostensibly the same behaviours as those where the European Commission has imposed competition fines). Given that the FCA's only real competition power at the moment is to launch market studies, as might be expected, the MOU mainly concentrates on cooperation in this area.
However, there are also more general provisions contained within the MOU, such as for the sharing of draft documents that may have a significant effect on the other authority as well as an acknowledgement that the FCA and the CMA must prepare for concurrency. One example of this is a provision for the sharing of staff between the two authorities in the run up to concurrency: it is likely that there will be numerous secondments between the two organisations in order to facilitate the development of personnel with expertise in both competition and in financial regulation. Further, the two authorities have agreed to defer to each other where their opposite number is the authority with the appropriate powers to deal with an issue. This of itself will no doubt give rise to some interesting discussions amongst the two regulators, although the CMA is well used to similar such arrangements with regulators that have concurrent competition powers in other markets.
The two aforementioned developments underscore the fact that the FCA is already looking into competition enforcement issues to the extent that it is able to using its current powers and will start its career as a competition enforcement authority with a full in-tray. Added to this is the FCA's pattern of recruitment (with a stated aim for around 50 personnel working on competition issues at the FCA by the end of 2014, three months before it gains concurrent enforcement powers) and its involvement in international cases in place of the CMA where its opposite numbers in other jurisdictions are often competition and not financial regulators.
The concurrent powers of the FCA do not look like powers that will be left unexercised (a charge that might be levelled at some of the UK's other concurrent regulators) and it seems certain that it will hit the ground running.