British regulators have launched a sweeping review of the state of competition in wholesale financial markets that will look at everything from market structure to investment banking and asset management, in a bid to find areas where there may not be adequate competition.
The UK Financial Conduct Authority (FCA) Wednesday announced a review of competition in the wholesale sector that will be looking to identify areas where competition may be weak or not be working properly. It says that the review is an exploratory exercise that aims to ferret out areas for further in-depth study.
The FCA says that it is interested in features of a market, or behaviour, that could inhibit, or distort competition, such as barriers to entry or expansion, information asymmetries, conflicts of interest, and cross-selling or bundling of services. It suggests that this could include market structure issues such as co-location, which may give high-speed traders an advantage; the production and dissemination of market data; arrangements between trading venues and clearing houses in both over-the-counter (OTC) and exchange-traded markets; and, the packaging of trading and clearing services by dealers.
In terms of investment banking, it intends to examine cross-selling, the cost of equity and debt underwriting, and best execution. In asset management, it will look at the incentives asset managers have to pay fair prices for certain services such as dealing commissions, governance services, and others.
“It is vital that wholesale financial markets are efficient, fair and competitive. We are publishing this call for inputs today to seek views and evidence from stakeholders on areas where they think competition may not be working effectively,” said Christopher Woolard, director of policy, risk and research at the FCA.
“Effective competition within the wholesale sector can lead to an increase in institutional efficiency, lower prices, greater innovation and can improve the quality and range of financial services provided. Improvements in competition should contribute to the sustainable development of the financial system, and have positive knock-on effects for retail consumers and real economy businesses,” he added.
The review will not focus on trading practices, as this is already being examined in a joint review between the FCA, the Bank of England, and the UK Treasury, which was announced last month. Feedback on the wholesale markets review is sought by October 9.