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FCA to investigate investment banking sector

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20/02/2015
The Financial Conduct Authority has today launched an investigation into the investment and corporate banking sector, to determine how competitive the industry is.

The Authority also believes that the bundling of services by investment banks could make it difficult for new entrants to enter the market, or for smaller players to challenge larger institutions.

“We have chosen this particular area because the benefits of effective competition in the market could be significant,” Christopher Woolard, the FCA’s director of strategy and competition, said. “The UK is a global hub for investment banking, and this sector plays a crucial role in our economy, helping companies raise capital for investment, expansion and funding ongoing operations.”

The FCA inquiry increases governmental pressure on the banking sector for greater competition. There are already ongoing investigations into personal accounts and small business banking by the Competition and Markets Authority (CMA).

The FCA said concerns had also been raised about investment banking transparency; Mary Starks, director of competition, said “a number of stakeholders raised questions….it’s too early to say whether these stack up, but they certainly seem to us worthy of investigation.”

The terms of reference for the FCA investigation will be made public next month; a final report is scheduled for publication before the end of the year. However, Starks stated that the Authority would be speaking to four major investment banks, 14 smaller bodies, and a large number of other institutions that the watchdog regulates. An examination of the asset management industry is also believed to be under consideration.

From April, the FCA will have new competition powers to take enforcement action against financial firms that breach UK competition law, and refer a market to the CMA for intensive scrutiny.

“I don’t think this is a surprise. It’s fairly clear it’s a concentrated market,” said Jonathan Herbst, global head of financial services at Norton Rose Fulbright. Banks should “take the new competition powers seriously,” Herbst concluded.

 

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