The FCA’s competition agenda and the risks of regulatory read-across

15 November 2017

The Financial Conduct Authority’s (FCA) competition agenda continues to take firms by surprise. Firms are having to adjust both their expectations and horizon monitoring to keep an eye out for both expected and unexpected impacts from this new stream of activity.

This year asset management firms will have focused on, and engaged with, the FCA’s sector-specific market study. But the evolution of this study – and its consequences - should cause all firms to think about what they pay attention to, and when and how they need to engage with the regulator.

The original Terms of Reference for the asset management market study focused perhaps unsurprisingly on the ‘core’ asset management sector. But as part of the extensive data collection exercise, many firms observed that the end value delivered to customers had a wider range of actors – from platforms to advisers to consultants.

The FCA took this on-board and recommended bringing investment consultants within the scope of the Financial Services and Markets Act, ultimately resulting in September’s referral to the Competition and Markets Authority. It also spawned a separate market study into the platforms market.

But the FCA’s final report raised other issues. The original scope of the study focused on pure asset management products. But given the potentially substitutable nature of certain insurance products in the eyes of an end-consumer, where there are very similar features and characteristics, the FCA questioned whether the asset management remedies should be applied more widely. I agree with the FCA’s consumer-centric view, although I’m not convinced that the same issues exist in the insurance sector.

I was more surprised to see the FCA’s comments about legacy trail commission payments to intermediaries. This is a completely separate issue. Banning legacy trail commission could be potentially destabilising for a sector of the market where acquisitions often hinge on such payments.

Returning to the new platforms market study, I was struck by the extremely wide-ranging terms of reference. ‘Platform service provider’ has a formal regulatory definition; the terms of reference rides over this, using a definition capturing pretty much anything that feels like an investment (products and services), delivered through pretty much any IT system, regardless of the provenance (own, or third party) of the underlying offering. I appreciate that a consumer-centric view may capture a wide cohort of firms, but I had some clients who were extremely surprised to find themselves classified as a platform!

While I commend the regulator for thinking about the end customer, I question the impact that this approach may have on firms.

Asset management firms may be comfortable with the outcomes of ‘their’ market study but there is a range of other firms who justifiably may feel side-swiped. Why would a small independent financial adviser with legacy commission payments have engaged or monitored the original asset management market study?  Why would an insurer with a with-profits book have worried?

This example demonstrates the consequential breadth of impact of regulation, and the wide-ranging competition mandate afforded to the FCA. A concern for some are the unknown-unknowns. Aside from those that have been announced, what other market studies are planned, which in two years could expand into the asset management or other sectors? And how do firms manage this risk, and regulatory engagement?

The FCA’s competition powers are just beginning to bite. What is important now is for firms to recognise the bigger picture.

Andrew Strange | Director
Profile | Email | +44 (0)20 7804 6669
Follow @astrangepwc
Twitter
LinkedIn
Facebook
Google+

Comments

Verify your Comment

Previewing your Comment

This is only a preview. Your comment has not yet been posted.

Working...
Your comment could not be posted. Error type:
Your comment has been saved. Comments are moderated and will not appear until approved by the author. Post another comment

The letters and numbers you entered did not match the image. Please try again.

As a final step before posting your comment, enter the letters and numbers you see in the image below. This prevents automated programs from posting comments.

Having trouble reading this image? View an alternate.

Working...

Post a comment

Comments are moderated and will not appear until the author has approved them.