Promotion of competition at the centre of new FCA's remit
Last week the FSA published - "to inform public debate and facilitate stakeholder engagement" - the initial thinking behind how the new FCA, which is expected to be established by end-2012, will approach delivery of its objectives.
Although neither a strategic nor operational objective, 'competition' features heavily.
Under the Government's proposed new regulatory architecture, the Bank of England will assume responsibility for protecting the stability of the financial system as a whole, along with macro-prudential regulation. The FCA will be responsible for regulating conduct in retail and wholesale markets and for the prudential regulation of any firms not falling under the remit of the Bank of England's Prudential Regulation Authority (essentially, deposit takers, insurers and a small number of significant investment firms will fall under the PRA).
The FCA's single strategic objective is to protect and enhance confidence in the UK financial system through the following three operational objectives:
- securing an appropriate degree of protection for consumers (the term 'consumer' is broadly defined to include retail consumers, investors and wholesale consumers (i.e. corporates) buying financial products or services);
- promoting efficiency and choice in the market for financial services; and
- protecting and enhancing the integrity of the UK financial system.
Interestingly, whilst not impacting on either the strategic or core operational objectives, the FCA will also have a duty to discharge its functions, so far as compatible with those objectives, in a way that promotes competition. The word 'competition' is mentioned 32 times and, in a section entitled 'Competition' (in the chapter on 'Objectives and powers'), the paper states: "the FCA will need to consider options to strengthen competition where these may be relevant to resolving particular market failures it has identified". The language adopted, particularly references to a 'duty to promote competition' is somewhat evocative of the debate into the proposed changes to the NHS and the role of the new health regulator, Monitor.
In practice, there is no suggestion that the FCA will acquire new powers (for example, the FCA will not acquire concurrent competition powers alongside the OFT, but will rather have the ability to refer appropriate matters to the OFT for consideration). Nonetheless, there is recognition in the consultation that the FCA will need a sound economic understanding of the way relevant markets operate in order to promote competition and effectively address any competition issues identified under its regulatory remit.
It remains to be seen how the FCA proposes to acquire this sound economic understanding and to what extent active promotion of competition can sit alongside its core objectives.