Ever since its first market study in 2014, the FCA has pursued a line of reasoning that suggests a lack of choice leads to poor consumer outcomes. Its assumption is that better competition in the mortgage, cash savings or platform markets will mean better results for individuals.
The shift from a relatively toothless Financial Services Authority, whose failings were exposed by the financial crisis, towards a new regulator focused on improving consumer choice is no coincidence: nowadays, the regulator has a mandate to promote competition.
After the crisis, the Independent Commission on Banking – led by Sir John Vickers – recommended the new-look FCA should make competition an operational objective. As Christopher Woolard, executive director of strategy and competition at the regulator puts it, the competition remit is “to deliver markets that deliver for consumers”.
The regulator declined to comment for this article, but its focus appeared to be re-emphasised in September with the appointment of Sheldon Mills, currently senior director, mergers and state aid at the Competition and Markets Authority (CMA), as its new director of competition .
Mr Mills will be tasked with delivering market studies – for example, those ongoing into the mortgage, investment platforms, and wholesale insurance brokerage markets, as Chart 1 details – and will “assume responsibility for the FCA’s activities to enforce prohibitions on anticompetitive behaviour within the financial services industry”.
He said at the time of his appointment: “Financial markets face major change and complexity, so the FCA’s competition work is essential”. Certainly, the 23-page FCA document, ‘FCA mission: Our approach to competition’, published in December last year, underlines the importance of promoting and policing effective competition in the UK’s financial markets.
Taking this at face value – lack of competition, bad; more competition, good – the reasoning behind a shift in approach towards eradicating anticompetitive behaviour is laudable. It seems perfectly in line with Adam Smith’s “invisible hand” of competition and self-interest driving effective economic activity.
But has the City watchdog achieved the right balance between regulatory activity, promoting competition and protecting consumers?
Angus Goldie, financial services risk and regulation conduct and culture leader at PwC, comments: “Ensuring effective competition is one of the FCA’s three operational objectives, all of which carry equal weight. Clearly there may be times when pursuing a competition agenda could contradict with another objective, and we see the FCA trying to balance this.”
The regulator, when pursuing this competition mandate, asks a series of questions as to ‘what good looks like’; this drives its approach to assessing the scope of choice of product and services for consumers, and fulfils a regulatory objective towards protecting consumers (see Box 1).
Some industry commentators note a move away from the watchdog’s written policy statements – with their overtones of enforcement action – towards issuing market studies, with the intention of promulgating effective competition.
Steven Cameron, pensions director at Aegon, says: “We are seeing the FCA making more use of its competition powers – a new division effectively – and those of us who have been around for a while, responding to consultations and liaising over policy papers, have noticed the shift.