The Financial Conduct Authority has set out how it will judge whether markets are competitive based on factors such as access to financial services and the adverse effects of regulation.
In a paper today setting out the FCA’s objectives, the regulator says it will look at a number of factors when assessing whether market competition is working well for consumers.
These include market power held by providers, low switching rates, and why consumers do not buy certain financial products. The FCA says too little product take-up could reflect problems with access to financial services, lack of consumer awareness, unsuitable products or anti-competitive restrictions on product availability.
It also cites existing regulation, such as where regulatory measures make it more difficult for firms to enter and grow.
Where the FCA thinks it needs to intervene, the FCA will carry out a detailed market study to analyse market competition. The study will set out the regulator’s “theories of harm” on the potential negative effects on competition and the regulator’s rationale for getting involved.
If it finds competition is not working well, the FCA can make policy changes, take enforcement against specific firms, and publish guidance. It has also suggested proposals for better “self-regulation” by the industry, though has not expanded on how it would use this power in practice.
The FCA says it will also work with the Office of Fair Trading to examine a market, and will flag any evidence that a cartel is involved to the OFT.