UK watchdog to study competition in investment banking

[LONDON] Britain's Financial Conduct Authority (FCA) said on Thursday it will review competition in investment banking and corporate banking services, citing"unanswered questions about potential conflicts of interest and value for money in this market".

The watchdog said that limited clarity over price and quality of services may make it difficult for customers to see if they were getting value for money. Bundling and cross-selling of services could also hinder competition from new entrants, according to the FCA.

The study adds to ongoing government pressure for more competition in banking. Personal accounts and small business banking is already the subject to a full investigation by Britain's main antitrust watchdog, the Competition and Markets Authority (CMA).

The FCA said its market study was "appropriate" as "the benefit from improvements in the way competition works could be high".

Revenues from investment and corporate banking services in Britain totalled 10 billion pounds in 2013.

"The UK is a global hub for investment banking, and this sector plays a crucial role in our economy, helping companies raise capital for investment, expansion and funding ongoing operations," said Christopher Woolard, director of strategy and competition at the FCA.

"What was clear from the discussions we had with stakeholders and firms was that there are unanswered questions about potential conflicts of interest and value for money in this market," he added.

The British Bankers' Association said banks already compete vigorously for new clients every day and London has one of the most competitive markets in the world.

"All banks will co-operate fully with this investigation, but we would urge the regulator to take into account the considerable and fast-moving changes that are currently taking place in wholesale markets," BBA Deputy CEO Sally Scutt said.

Thursday's announcement was partly expected as it follows an initial review by the FCA of competition in the wholesale sector started last July.

From April the FCA will have new competition powers to take enforcement action against financial firms that breach UK competition law, and refer a market to the CMA for an in-depth investigation.

"I don't think this is a surprise and it's fairly clear it's a reasonably concentrated market," said Jonathan Herbst, global head of financial services at Norton Rose Fulbright law firm.

"Clearly people should take the new competition powers seriously. It's going to be a lot of work for the banks," Mr Herbst said.

A banking source said the wholesale sector was not concentrated with the FCA's own figures showing 10-15 players accounting for 81 per cent of debt and equity capital markets.

"We feel this study is more about going through the motions to show they are using their new powers," the source said.

The FCA has said it does not want to intervene in markets to control prices, raising questions over what it could actually do instead to boost competition, Mr Herbst added.

The review will dovetail with the Fair and Effective Markets Review of conduct in commodity, currency and bond markets by the FCA, the Bank of England and British government, launched after banks were caught trying to rig interest rate and currency market benchmarks.

Terms of reference for the competition review will be published in coming weeks. "We also consider that a market study into asset management and related services would be appropriate in the future," the FCA said. "This would focus on how purchasers get value for money when buying asset management and related services."

REUTERS