FCA Approach to Competition

The Financial Inclusion Centre has submitted its response to the FCA’s Approach to Competition paper. This is a very important paper as it sets out how the FCA intends to use competition interventions to meet its statutory objectives.

We have registered our concerns that the regulator now seems to place too much emphasis on the potential for competition interventions (particularly demand side interventions) to fix harm and improve markets. There seems to be a worrying ‘dialing down’ of the regulator’s determination to use robust, effective regulatory interventions, and the emergence of a competition mindset.

It is important to understand the sequence in which improvements in markets take place. Failure to ensure markets operate to consistently high standards of conduct means that firms that behave badly can take advantage of firms which try to behave in a consumer-centric way – a race to the bottom.

In other words, good conduct is a prerequisite for real competition. But, we also know from experience that good conduct has not provided firms with a competitive advantage. Therefore, if we want to see real competition, tough regulation is needed to embed the right conduct and cultures across the market – only then is the platform created for effective competition to take place.

The FCA’s use of market studies is a particular concern. These can be very slow – in terms of the time taken from inception to actual interventions and changes in market behaviour taking place. Moreover, by their very nature, market studies:

  • further inculcate a competition mindset in the regulator;
  • rely on theories of harm derived from competition theory to explain market failure and detriment; and
  • lead the FCA towards interventions to create the conditions for competition rather than robust, direct regulatory interventions proven to make markets work.

We conclude that the emergence of this competition mindset, and emphasis on competition and demand side interventions, is a retrograde step and could be threat to the effectiveness of the FCA.

We have urged the FCA to reassure consumer advocates that it is not relying on competition interventions to make markets work. We have called on the FCA to:

  • continue to prioritise direct regulatory interventions which have improved the culture in financial services;
  • make greater use of proven regulatory tools such as product governance and price caps; and
  • use tougher sanctions to drive out bad practice and create a clean market for firms which want to compete fairly.

Our response can be found here: Financial inclusion centre response to FCA Approach to Competition final