28 May 2015

FCA’s terms of reference for investment and corporate banking market study

On 22 May 2015, the Financial Conduct Authority (FCA) launched an investment and corporate banking market study pursuant to its powers under the Financial Services and Market Act 2000. The FCA had announced its intention to launch the market study in its feedback statement to its wholesale sector competition review earlier this year.

The FCA’s Terms of Reference for the market set out the issues that the FCA will focus on in the study. In particular, the market study will explore whether competition for investment banking and corporate banking services is working well, focusing on primary markets (equity capital markets, debt capital markets, mergers & acquisitions and acquisition financing) in the UK by the investment and corporate banking industry. Related activities, including corporate broking and lending and ancillary services, will be considered insofar as they affect competition for primary market activities.

The FCA chose to focus this study on primary markets rather than secondary markets in response to the issues which came to light during its wholesale sector competition review. The FCA also considered that the proposed changes to legislation at a European level and their potential effect on competition in secondary markets made it inappropriate to focus the investigation on the secondary markets at this stage. However, the FCA has noted that if areas which are not the focus of its analysis, such as secondary markets, cause ineffective competition in primary market activities, it may need to investigate these areas further.

The FCA's market study will pay particular attention to competition issues in the three following areas of primary market and related activities: 

  1. Choice of banks and advisors (including the competitive landscape, clients’ purchasing behaviour and the impact of syndication and barriers to entry/ expansion);
  2. Limited transparency (including the adequacy of information, the transparency of the allocation process and the IPO process); and
  3. Whether bundling and cross-subsidisation occurs (and, if so, the extent to which it has adverse effects on competition and clients).

Although the FCA is not formally consulting on the Terms of Reference, it is keen to hear from clients of different sizes about their experiences and has invited comments on the issues by 22 June 2015. The FCA will be hosting a series of roundtable meetings with stakeholders in the coming weeks. The FCA aims to publish any interim findings along with any proposed remedies towards the end of the year, before publishing a final report in spring 2016.

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