01 April 2015

Use it or lose it: Competition law enforcement in the financial services sector

New powers for the FCA

From 1 April 2015, the Financial Conduct Authority (FCA) gains “concurrent” competition law powers in the UK financial services sector. 

In short, from today the FCA will have the ability to enforce the prohibitions against anti-competitive agreements and abuses of dominance under the Competition Act 1998 (CA98). Under the Enterprise Act 2002 (EA02), the FCA can conduct market studies and make market investigations references to the Competition and Markets Authority (CMA) if it has reasonable grounds to suspect features of a market are adversely affecting competition.

A new regime?

The FCA’s new competition enforcement role is being heralded as the dawn of a new day.  But is it? 

The laws that the FCA will be able to apply are enforced already by the CMA. Concurrency merely means that the FCA will be able to apply them instead, where it is agreed between the CMA and the FCA that the FCA is best placed to do so.

Put simply, financial services firms will not be facing any additional rules under CA98/EA02 than exist at the present time.

Moreover, the FCA already has the ability to use its regulatory powers in pursuit of its competition objective to promote effective competition in the interests of consumers. This already allows it to use regulatory market studies as a key investigative tool. Examples include its current credit card market study and its final findings of the FCA’s retirement income market study and proposed remedies. 

Shaking up the status quo

That said, there will invariably be a change in focus when a regulator with sector expertise and very considerable resources and manpower assumes its powers. The FCA can be expected to try and make its mark quickly, possibly engaging in a turf war with the CMA as to who is best placed to lead the investigation. 

Concurrency also comes with a "use it or lose it" requirement. This means the powers can be withdrawn in circumstances where the Government considers that it is appropriate to do so for the purposes of promoting competition for the benefit of consumers. This threat may encourage the FCA to take on more investigations in the sector than the CMA before it.  

Financial services firms should therefore be prepared for more oversight, especially in the early days of the new regime.

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