Competing agendas? How the FCA, PSR and CMA plan to work together

In mid-February, the UK investment and corporate banking sector braced itself for yet another regulatory investigation, as the FCA announced its plans to launch a wholesale market study into the industry in Spring 2015.

In mid-February, the UK investment and corporate banking sector braced itself for yet another regulatory investigation, as the FCA announced its plans to launch a wholesale market study into the industry in Spring 2015.

This marks the FCA's first opportunity to use its new competition powers in relation to the UK financial services sector (deriving from the Financial Services (Banking Reform) Act 2013), which it will be able to exercise concurrently with the CMA from 1 April.

Similarly, the new Payment Systems Regulator (the "PSR") - incorporated by the FCA in April 2014 - will also obtain the full range of concurrent competition powers from 1 April, exercisable in relation to participation in payment systems.

In the face of this changing regulatory landscape, both the FCA and PSR have recently launched consultations on draft guidance relating to their respective new powers.

What effect will these powers have?

Once the FCA inherits its new concurrent competition powers under the Competition Act 1998 and the Enterprise Act 2002, its remit will become more aligned with the other sector regulators such as Ofcom, Ofgem and Ofwat.  However, it is already conducting competition work under its existing mandate (in line with its statutory objective to promote competition in the interest of consumers and a duty to promote competition when discharging general functions).

Specifically, the FCA seeks to promote competition through the use of market studies.  The FCA has indicated that its forthcoming market study into the UK investment and corporate banking sector will focus on possible competition issues in relation to the transparency of information and the bundling or cross-selling of services, as well as possible conflicts of interest.

The PSR's market investigation powers became operational on 1 April 2014, but it has not yet exercised these.

What are the FCA and PSR doing now?

On 15 January, the FCA published a series of consultations on its proposed guidance relating to the exercise of its concurrent competition powers, including:

• Draft guidance on the FCA's powers and procedures under the Competition Act.  This explains the relationship between the FCA's concurrent competition powers and its regulatory powers under FSMA.  It also explains the FCA's proposed approach to selecting, conducting and concluding investigations (including settlements);
• Draft guidance on market studies and market investigation references.  This explains how the FCA will conduct market studies under either its FSMA or Enterprise Act powers, the differences between these market studies, and how the FCA might select which of its powers to use.  The draft guidance also explains the factors that the FCA will consider when deciding whether to make a market investigation reference; and
• A draft legislative instrument to introduce minor amendments to the FCA Handbook.  In particular, regulated firms will now be explicitly required to disclose competition law infringements to the FCA.

The PSR launched its own consultation on proposed guidance relating to the exercise of its concurrent competition powers (modelled on the FCA's draft guidance) on 26 January.

The FCA and PSR have invited comments on these draft documents by 13 March and 20 March respectively.  The PSR has also stated that it will provide on request versions of its draft guidance document highlighting the differences between this document and its FCA counterpart.  The FCA and PSR have both indicated their willingness to receive submissions dealing with both sets of guidance documents jointly.

Comment

It will be interesting to follow how the FCA, PSR and CMA learn to interact with and adapt to each other, under the new competition and regulatory framework that has been established within the UK financial services and payment systems sectors.  In particular, market participants will be awaiting the outcomes of the FCA and PSR consultations on their draft guidance, as these are likely to determine the frequency and extent to which those regulators will seek to exercise their concurrent competition powers.