On 9th July the Financial Conduct Authority (FCA) issued a call for inputs on the wholesale financial sector and related industries such as corporate banking. This call for inputs marks the first step in the FCA’s review with the possibility of a full market study if warranted to be launched early next year. This news is of significance to business in this sector as representations made now to the FCA may shape the FCA’s stance in any forthcoming market study.
The FCA’s call for input is wide and they welcome input on the competitiveness of the following markets. Below are some of the issues the FCA wish to focus upon:
- Corporate banking – Whether new competitors are able to enter the market and the ability of existing customers to expand.
- Investment Banking – Whether the practice of bundling financial products together impedes competition and the ongoing costs of debt and equity underwriting.
- Asset Management – Whether asset managers are properly incentivised to negotiate the best deal for their investors.
- Markets and infrastructure – Whether the market for data services is competitive as well as the trading and clearing services market and whether the over the counter and venue-traded markets are too concentrated.
If a market study is launched into wholesale markets it will be only the FCA’s second after their first investigation into cash savings.
In April 2015 the FCA’s role and powers increase when they become a concurrent competition regulator with the Competition and Markets Authority with the ability to carry out market studies and make market investigation references under the Enterprise Act 2002 rather than using their current FSMA 2000 powers.
Of particular concern to the FCA seems to be the practice of co-location in high frequency trading where traders pay to store their servers in the same proximity as the trade’s computers, thus gaining a small but valuable lead on their rivals’ trades. The FCA is worried that the market for the provision of these services is not functioning as competitively as it should and that the practice can act as a barrier to entry. The relevant US authorities have already started looking at competitive concerns in this industry.
Interested parties have until the 9 October 2014 to respond to the FCA’s call for inputs.