The practice of banks cross-selling products to corporate clients is set to be a focus of the UK financial regulator’s probe into investment and corporate banking.
The Financial Conduct Authority said it would look at the choice, transparency and bundling of services - such as when a bank raises money for a client on the condition it becomes their adviser on mergers and acquisitions.
The UK financial regulator will focus on choice, transparency and bundling of services as part of its market study into competition in investment and corporate banking.
Christopher Woolard, the FCA’s director of strategy and competition, said the regulator wanted “to see a sector that benefits the real economy by helping businesses of all sizes access capital”.
“That means offering real choice, transparency and good service at every level,” he said. “It is also essential that the regulatory framework encourages competition, and we will engage with banks, advisers, clients and investors throughout the review to assess which aspects of the market work well, and identify areas for improvement.”
The FCA stressed it was not targeting a particular company or group of companies and that the study was a consultative process rather than anything intended to lead to enforcement action.
However, it said that if it concluded that “competition is not working well” it could intervene to promote effective competition — such as changing rules or proposing enhanced industry self-regulation. It might also refer any issues to the Competition and Markets Authority for a fuller investigation.
Any rule changes would require further consultation.
Having received 40 written responses and met more than 70 market participants in drawing up its list of subjects for its study, the FCA said it would address the following issues:
● Transparency, particularly the transparency of the allocation process in debt and equity issues and the impact of established market practice and regulations on transparency in initial public offerings.
● Client choice and behaviour and the impact of syndication.
● Assessing whether and how bundling and cross-subsidisation affects competition.
● The potential benefits of reducing regulatory barriers to firms entering or expanding into primary markets.
The regulator said it would consult a “wide range of firms, from full service banks to boutiques and public sector and corporate clients of all sizes” but stressed it was particularly keen to hear from smaller firms and new entrants in the market by June 22.
It expects to publish interim findings and any proposed remedies at the turn of the year ahead of a final report early in 2016.
The study will also take into account domestic and international work, including the Fair and Effective Markets Review which the government established last June to assess the operations of the wholesale financial markets.
EU legislation, particularly the new Markets in Financial Instruments Directive, and the Capital Markets Union will also influence the study, the FCA said.
David Heffron, head of financial regulation at law firm Pinsent Masons, said: “The study is not without its challenges as many of the services that will fall within its scope are global in nature, particularly in investment banking, but the FCA believes that many of the issues can be considered at a national level. Also, some of the elements are services that are bundled fall outside what the FCA regulate but they will look at how these are bundled with services it does regulate.”
The study is only one part of the regulator’s plans for this year. In March it said it would investigate “dark pools”— private trading venues that compete with exchanges — asset management fees, pensions and how insurers gather data on their customers.