UK’s FCA faces serious challenges in meeting competition objective, survey warns

Industry survey highlights ‘scale of challenge’ for conduct regulator in promoting competition; says many measures taken so far may actually be anti-competitive
Martin Wheatley
Martin Wheatley

A minority of firms has confidence that the UK's new Financial Conduct Authority (FCA) will meet its statutory objective to promote competition in financial services, an industry survey has found.

The FCA has three statutory objectives: protecting consumers; promoting the integrity of financial services firms; and encouraging effective competition between firms.

The survey finds that firms are much more confident in the FCA's consumer protection objective than they are about its competition objective, with promoting integrity falling in between.

Larger, more systemically important firms have their relationship ‘managed' by the FCA. Of these firms, of which 195 responded to the survey, only 28% believe the FCA will "deliver" on its competition objective, compared with 70% on the consumer protection objective. Among the 1,275 non-relationship-managed firms that responded, just 26% think the FCA will deliver on competition and 49% on consumer protection.

"High impact firms", the largest and most systemically important surveyed, are more pessimistic. Of these, 63% actively say they think the FCA will fail to meet its competition objective, with just 16% saying it is too early to tell. The survey says this is particularly concerning as these firms are also the most knowledgeable about the FCA.

It is critical that the FCA works to put in place a clear action plan on how it will tackle its competition objective

Graham Beale, chief executive of Nationwide Building Society and chairman of the FCA practitioner panel that published the survey, notes that the FCA had not been granted its statutory powers when the survey was conducted, in February and March this year. However, he highlights the "scale of the challenge" and the need to "embed an attitude to competition within the whole regulatory approach".

"It is critical that the FCA works to put in place a clear action plan on how it will tackle its competition objective, and promote that in the wider community and within the regulator itself," Beale says.

Martin Wheatley, the FCA's chief executive, calls the survey a "valuable snapshot" of how firms view regulation. However, he suggests the negative opinions were based on the failings of the FCA's predecessor, the Financial Services Authority. He says the new regulator is more "forward-looking, predictable and engaged", adding: "We are also developing our approach to our competition objective."

Many firms complain about the impact of regulation, which has driven up costs and diverted staff towards compliance roles. But the survey also identifies an "important anti-competitive theme", as many report that tighter regulation has put them at a competitive disadvantage compared with firms overseas. Around 20% of the smaller firms also say they have been forced out of certain markets due to the regulatory burden.

Communication is also essential, the survey finds. Relationship-managed firms have a much clearer understanding of the FCA's role, implying the need for improved communication with smaller firms. Furthermore, 80% of firms surveyed identify clearer regulation as "very important".

Beale says the FCA has made a "promising start", but a low average score for perceived effectiveness (4.6 out of 10) "sets an important baseline for the future".

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