New year, new powers - the FCA’s new competition functions

Posted: 1st January 2015

The FCA is gaining new competition functions in April 2015. We will see the regulator carry more clout as it holds firms to account for any ‘anti-competitive practices’ or ‘abuse of a dominant position’.

This is good news for consumers. Improved competition practices could mean a wider choice, reduced prices and improved quality. New entrants to the financial services market could also reap the benefits as the FCA look to address any barriers to entry holding them back. For incumbent firms, the regulator will investigate and help to balance out any unfair competitive advantages – existing and emerging.

If your firm does hold any substantial market power, you’ll need to be aware of the areas the regulator will be looking at and why, so as to avoid its stern gaze and even possible enforcement action. However, before we break down exactly what the new powers will bring, we’ll first take a look at the current position of competition at the FCA.

It has a competition objective “To promote effective competition in the interests of consumers,” something that its predecessor, the Financial Services Authority (FSA), did not have. Since this objective was introduced, the FCA has already demonstrated many meaningful developments including:

• Completing a market study into general insurance add-on products
• Issuing an interim report in its cash savings market study and retirement income market study
• Launching a study into credit cards
• Publishing a call for input on the wholesale sector

Taking power

Thus far the regulator has been out of line with other sector regulators such as of Ofcom and Ofgem who have held such powers and objectives for well over a decade; namely, objectives to promote competition, as well as hold the enforcement tools to tackle competition failures.

Last summer it actively and successfully pursued these new powers, deeming its current powers insufficient to fulfil its competition objectives, and as of 1 April 2015, its new functions will be to:

• Conduct market studies and make market investigation references under the Enterprise Act 2002
• Enforce against breaches of the prohibitions on anti-competitive behaviour set out in the Competition Act 1998 and Treaty on the Functioning of the European Union

This means that now, as well as reviewing the markets and making recommendations, the FCA can take action. This includes enforcement action against any breaches of the Competition Act as well as referring markets to the CMA for in-depth investigation. Breaching ‘prohibitions’ would mean enforcement action on any agreements between businesses the FCA deems ‘anti-competitive’. We will also see it able to intervene in any abusive conduct by firms who have a dominant position on the market who, for example, make entry or expansion by competitors difficult.

Competitive thinking?

“Competition does not sit as a discrete function within the FCA. Instead we have to bring competition thinking, as it relates to our objectives and remit, into every decision, rule, and action we take.”

Clearly, competition issues are serious business at the FCA; competition has become interwoven into everything it does. As the regulator thinks competition, it expects your firm’s own thinking to reflect this. Assess whether your firm’s practices demonstrate competitive behaviour and take heed of the regulator’s Principle 11 in dealing with it openly and cooperatively by reporting any infringements of the prohibitions contained in the Competition Act.

The FCA clearly envisions lower prices, greater innovation and a wider choice for consumers which could all ultimately induce economic growth. We are unmistakably approaching a new era in terms of competition regulation which must not go unnoticed.