Taking a closer look at the FCA's competition agenda in 2017, Phil Deeks argues the regulator's remit now means any financial services market is potentially open to investigation and intervention
The duty of the Financial Conduct Authority (FCA) to promote effective competition in the interests of consumers dates back to its inception in 2013. The consideration of competition is also implicit in the regulator's remaining operational objectives and its overarching strategic objective.
It should therefore come as no surprise that competition is a common theme throughout the FCA's 2017/18 Business Plan, which was published in April. Most explicitly, its competition agenda is highlighted within its cross-sector priorities, where it is suggested that promoting innovation will stimulate healthy competition and lead to improved value for money for consumers.
What has the FCA achieved so far?
The asset management market study was the first time the industry really got a taste of the FCA's approach to meeting its competition objective and it was also the first time we saw the regulator try to change something fundamental within a specific market.
When looking at the outputs of both the asset management and retirement income market studies, it is clear the FCA's competition division has a number of focuses, primarily around customer decision-making and encouraging efficiency and innovation.
The first type of remedy, which includes helping customers obtain the information they need to make informed decisions, aims to engage and inform consumers so they can drive effective competition through their choices, while the second type looks to drive competition at firm-level.
The introduction, and use of, behavioural economics is arguably one of the most important things the FCA has done within the competition space. Used to inform the FCA's approach to policy and supervision, it plays a key role in determining the most appropriate response or remedy to an issue the regulator is looking to address.
The FCA has undertaken a fair amount of work into the types of intervention that work best in different situations, which has been central to driving its approach to addressing competition issues.
Another way the FCA pursues its competition objective is in its interaction with firms across the breadth of the industry. This can range from informal discussions to steer a firm along the right path, to more formal measures including advisory letters and on-notice letters.
Market studies may be what the competition division is most well-known for but these other interactions are central to helping the regulator understand business practices and identify competition issues as they arise.
What next for the competition division?
One of the most effective ways for the FCA to determine whether markets are working well is to conduct competition-focused market studies. Where competition is deemed to not be working well, the regulator will look to introduce remedies.
Remedial actions can be wide-ranging, depending on the reason for the lack of competition - for example, if it is due to customer inertia, the FCA is likely to seek to improve consumer engagement. If there is not enough choice for consumers, the FCA may promote innovation and new market entrants through Project Innovate.
Until now, the FCA has maintained it is not a price regulator - however, price is wrapped up in value for money, which can impact consumer engagement. We have already seen the regulator considering value for money across a number of industries, particularly within the insurance and asset management sectors, and the impact of the price remedies is likely to be seismic once they are implemented.
More generally, the FCA's focus is very much on identifying and addressing issues that inhibit the ‘virtuous circle of competition', which is where effective competition incentivises firms to meet customer needs and where customers are well informed and appropriately engaged - and so drive more effective competition. That means any market is potentially open to investigation and intervention under the FCA's competition remit.
Phil Deeks is technical director at TCC
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