UK banks braced for regulatory onslaught

British banks and markets are bracing themselves for a fresh onslaught from their regulator after it assumed extra powers to police competition in financial markets yesterday.

The Financial Conduct Authority (FCA), launched in 2013 to shake up supervision after the 2007-2009 financial crisis highlighted failures, already has competition as a core aim.

But the changes yesterday mean the watchdog can back this up by being able to punish firms that breach UK and European Union competition law, break up markets, or refer a market directly to Britain’s lead competition body, the Competition and Markets Authority (CMA).

Lawyers working in the sector expect relatively quick results as the British government presses the FCA to boost competition in a banking sector dominated by the “Big Five” high street lenders as new challengers take time to build up market share.

Two reviews, in particular, will be shaped by the new powers. The FCA has announced an investigation into wholesale banking and will be able to use its new powers to make changes.

And a separate Fair and Effective Markets Review makes recommendations in June which the industry hopes will be limited to revising voluntary codes of conduct.

“What the new powers do is give them real meat to their competition objective and if you think about FEMR and right across the wholesale and retail space, it will be an issue,” said Jonathan Herbst, global head of financial services at law firm, Norton Rose Fulbright. “They don’t wish to be price regulators, so how they are going to navigate that remains to be seen.”

Deb Jones, the FCA’s director of competition, has said competition won’t be a standalone matter for her 50 staff. “Instead, we have to bring competition thinking, as it relates to our objectives and remit, into every decision, rule, and action we take.”

But lawyers say the FCA will be under pressure to show results.

“Those 50 people will be put to use very quickly,” said Jacqui Hatfield, a financial services lawyer at ReedSmith.

“They can go anywhere they like as the only reason they have to give is that a particular area is not working for consumers or market users. They will go for wholesale and then retail banking, perhaps at the same time.”

The new powers will also reinforce day-to-day supervision with firms aware their watchdog has powers to take more radical action than before. More enforcement actions are also expected as the watchdog seeks to justify the extra staff, lawyers added.

The CMA is already looking at competition in retail and small business bank accounts, but lawyers expect most of the intervention on competition issues in financial services to come, now on, from the FCA as it is far more familiar with the sector.

Reuters