Antitrust Law Daily Wrap Up, ANTITRUST NEWS: U.K. agency to study competition in investment and corporate banking services, (Feb 20, 2015)

By Lene Powell, J.D.

After meeting extensively with industry participants and publishing a report on competition in the wholesale sector, the U.K. Financial Conduct Authority said it is launching a study into investment and corporate banking to assess whether competition in the sector is working properly.

“What was clear from the discussions we had with stakeholders and firms was that there are unanswered questions about potential conflicts of interest and value for money in this market. This will form part of our wider work in the wholesale markets, alongside the Fair and Effective Markets Review,” said Christopher Woolard, director of strategy and competition.

This coming April, the FCA will gain new powers letting it bring actions for violations of the Competition Act and refer markets to the Competition and Markets Authority for further investigation.

Opacity and bundling. Last July, the FCA published a report that suggested that competition may not be working effectively in this sector. One issue is that limited transparency over price and quality may make it hard for clients to assess value. For example, an investment bank may offer corporate broking services at a low cost or for free, in anticipation that the corporate client will purchase equity capital markets (ECM) services in the future. The client might not be able to assess the stand-alone cost of the services, making it hard to evaluate the value for money of corporate broking services and subsequent ECM services.

In addition, bundling and cross-selling of services may make it difficult for new entrants to compete. Bundling might be used by a firm with significant market power in one aspect of the bundle to crowd out competitors. Where below-market price lending is offered with the understanding that the firm receiving the lending will buy other, more profitable services over time, this can cut down on competition for the additional services.

Study. Terms of reference for the study will be published in the spring, and will be informed by input from industry, trade bodies and clients.

Market competition issues were also identified in asset management and related services. The FCA expects that upcoming regulations will affect the way competition works, so they do not have immediate plans for further studies in these areas.

News: Antitrust