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29th June 2016

Competition Policy in Financial Markets

Earlier this month, the FCA gave a speech on Competition Policy in Financial Markets by Mary Starks, the Director of Competition at the FCA.

Delivered at the Centre for Competition Policy Conference in Norwich, Ms Sparks discussed how the regulator came to have a competition remit and addressed the work the FCA has undertaken in carrying out its competition mandate.

The FCA’s Competition Mandate:

The regulator’s statutory framework comprises of a “overarching” strategic objective to ensure that markets function well along with three operational objectives, these being:

to protect and promote market integrity
to secure an appropriate degree of consumer protection
to promote competition in the interests of consumers

And, underlying all this is a duty of competition. This means, as Ms Sparks informed that the FCA takes as pro-competitive approach as possible with regards to their activities including those that are in pursuit of the FCA’s other objectives. Together the objective and duty for competition is considered the FCA’s ‘competition mandate’.

The Challenge of Financial Advice

Ms Sparks speech also described some of the challenges that the FCA has encountered along the way, and also provided an outline of some of the big picture questions that need to be addressed in the future – one of these being financial advice.

For financial advice, Ms Sparks said the challenge is that “a traditional face-to-face professional service is beyond the means of the ordinary mass market consumer.” She also informed that it is clear “the response to this challenge will be technology-driven, involving automation in some form” – something that has been dubbed ‘robo-advice’.

Competition: A new perspective

Ms Sparks also provided more detail on market studies that have been undertaken by the FCA which has resulted in the regulator’s change in stance from a firm-based view to a more markets-based view. In addition the FCA is considering the points of view taken by innovative entrants and those of consumers.

From her speech, it seems that on all three of these perspectives, the FCA is aware that there is plenty more work still to be undertaken and that the big questions for Competition in the future largely seem to relate to firm exit – allowing firms to fail as well as succeed – and on the distribution of the benefits of competition.

In closing her address to the Competition Policy Conference, Ms Sparks said that “in designing competition policy in financial markets we need to think beyond the status quo. Rather than targeting a specific outcome we need to be open to a range of possible futures, open to taking leaps of faith.”

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