FCA as a regulator

Simon Morris & Susan Hankey 27 February 2014 Looking at….

1. The FCA focus 2. Integrating into the FCA model 3. Competition issues 4. Final thoughts

2 FCA’s competition objective in context

1. Regulation by rulebook 2. Principles based regulation 3. Outcomes that matter 4. Enforcement–led regulation 5. Regulation by theme and campaign 6. Competition-led regulation

3 How the FCA sees the competition power

“We will have a wide range of tools to promote competition . From general rule-making powers, such as requiring firms to submit information to price comparison websites, to firm-specific orders, such as requiring a firm to change practices that prevent switching, or to cease or divest certain operations ...”

Martin Wheatley March 2013

4 And how it will use it…

“ ... We’ll be far more focused in future on ... putting the customer at the heart of everything we do, and expecting the same attitude from firms.” Martin Wheatley March 2013

5 Competition as the new tool in the toolkit

1. On authorisation a) competitive position 2. On individual approval a) your understanding 3. In supervision a) both of these plus b) the market study process 4. In enforcement a) Indirectly – the supervisory order 5. And the PRA as well

6 The competition context – the rules and the changing UK landscape Competition issues

− The competition context – the rules and the changing UK landscape − The FCA’s competition objective − Concurrency – the relationship between regulation and competition − Preparing for the FCA as competition authority − Current enforcement themes − Themes to think about

8 Focus on competition law

− TFEU articles 101 and 102 − Competition Act 1998 − Enterprise & Regulatory Reform Act 2013 • Competition and Markets Authority (CMA) April 2014 • various reforms

9 Rules and Consequences

− Prohibition against anti-competitive agreements − Prohibition against abuse of a dominant position − Self assessment − Fines < 10% group worldwide turnover − Direct and follow on actions in national courts − Criminal offence

10 Why is this important for FCA?

− Financial services = area of key interest in recent years − Many market/sector studies and competition law investigations − But competition law powers confined to competition authorities − Limited ability to tackle wider market issues

− Now increased UK emphasis on sectoral regulators using competition powers through “concurrency” − Part of review and refocus of UK competition practice

11 Review and refocus in the UK

− CMA starts 1 April 2014 − Plethora of statements, guidance, Steers, Frameworks − New sectoral regulators with full competition powers − New UKCN − Draft Competition Act 1998 (Concurrency) Regulations 2014 − Government Steer - CMA to assess specific sectors where enhanced competition could contribute to faster growth (knowledge intensive sectors, financial services , infrastructure sectors) with Regulator where appropriate − Brings new powers and increased action in financial services

12 What’s “concurrency”?

− Concurrency: • the power to investigate and fine anti-competitive agreements and abuses of a dominant position • using UK and EU competition law

− Just like the OFT/CMA − All the UK and all the EU regime − FCA will be come a “concurrent regulator”

13 New regime, new Network

− UK Competition Network (UKCN): • CMA, CAA, FCA , Ofcom, Ofgem, Ofwat, ORR and NIAUR • all have statutory duty to promote competition in the interests of consumers

− Statement of Intent December 2013 – UKCN areas of focus: • strategic dialogue • enforcement cooperation • enhancing capabilities • sharing best practice • advocacy • annual concurrency report

14 New Regulations

− Draft Competition Act 1998 (Concurrency) Regulations 2014 − Implement principles to encourage regulators to use competition powers − Themes: • information sharing • cooperation, secondments, closer engagement • where cannot agree which regulator deals, CMA decides • CMA may take over (pre SO)

− Proposal to give regulators powers to carry out market studies and make market investigation references to CMA

15 The FCA’s competition objective and its new powers The FCA’s competition objective

− One of the FCA’s three statutory operations objectives − “Promoting effective competition in the interests of consumers” − Factors FCA may have regard to • needs of different consumers • ease of switching • access to services • ease of market entry • innovation

17 The competition objective – how does it work now?

− Duty to discharge functions in a manner consistent with the objective − Provides FCA with wide mandate to consider competitiveness of markets − Will shape regulatory interventions − Does not give FCA full competition law enforcement powers − Only OFT/CMA and can currently investigate competition law infringements and impose fines − This is what will change

18 Consumers, not competitors

− Consumer based outcomes − Consumers • retail consumers • retail investors • wholesale consumers − FCA will prioritise actions according to • greatest consumer harm • ability of FCA to intervene and help consumers

19 Before and after 1 April 2015

− What will happen before 2015? • close working relationship with the OFT (CMA) • memorandum of understanding • significant amount of market analysis work − What will happen in and after 2015? • concurrent powers take effect in Spring 2015 • the FCA will be the same as the OFT/CMA • FCA will be expected to use competition powers over regulatory powers

20 The practical impact today

− Significant training and development of a competition function within the FCA − Market studies (e.g. general insurance add-on market study) − Market analysis work − Regulatory intervention − Referral to the OFT − Co-operation with other authorities (OFT, CMA, European Commission)

21 Preparing for the FCA as competition authority What does this mean for the sector?

− Increased scrutiny − By a well-informed (competition) regulator − Market studies: • requests for information • caution: fishing expeditions? − Emphasis on consumer outcomes − Focus on competition law compliance − Specific targets?

23 Current competition law enforcement themes Current market studies and information gathering (i) the OFT

− OFT retail banking work programme – objective = a more competitive and consumer focused retail banking sector • Spectre of reference to Competition Commission (CMA) − Actions to date: • personal account market in UK – review completed January 2013 • info gathering on competition and innovation in payment systems – published July 2013 • market study on SME banking – details published September 2013 - collaboration with FCA • advice to HMT on challenger banks – published September 2013 − Defined contribution workplace pensions • - started January 2013 - findings September 2013 and February 2014

25 Current market studies and information gathering (ii) the FCA

− General insurance add-ons • financial and general products – costs/appropriateness/sales techniques - report expected spring 2014 − Cash savings products • switching behaviour and costs , transparency, variety, comparability, sales channels – prelim findings expected spring 2014 and report autumn 2014 − Retirement products • started February 2014 – evidence gathering to 14 March − Wholesale banking • Chris Woolard’s promise

26 Regulatory cooperation across authorities and across borders

− LIBOR /other benchmarks / forex • FS regulators • Competition authorities • Many jurisdictions − The shape of things to come?

27 FCA Competition Action Plan FCA Competition Action Plan

− Does your organisation have a culture of compliance? − Do you have sufficient oversight of commercial activities? − Are the internal decision making structures fit for purpose to mitigate competition risks? − Des your regulatory/compliance team understand the competition objective and competition law? − Does the business understand the competition objective and competition law? − Have you conducted an assessment of competition risks? − Does your organisation understand how and when the FCA can investigate? − Are broader competition considerations involved in product strategy and new product development?

29 FCA as a

Simon Morris & Susan Hankey 27 February 2014