19Dec

The Financial Conduct Authority (FCA) has published documents explaining its approach to authorisation and its approach to competition.

The FCA links the two subjects by saying that reducing barriers to obtaining authorisation is vital to ensure effective competition in financial markets.

The approach to authorisation document asks if there is a widespread understanding amongst new firms of the Threshold Conditions for authorisation, and whether the regulator needs to provide additional support to new firms.

It also says that one of the FCA’s key considerations when assessing a firm’s authorisation application is its corporate culture. Has the firm been able to demonstrate that it has an appropriate approach for rewarding and managing people, and that it has effective governance arrangements?

The document reminds individuals applying for authorisation to carry out controlled functions that they must meet a series of tests regarding: honesty, integrity and reputation; financial soundness; and competence and capability.

The approach to competition document notes that, while the FCA is not a price regulator as such, it may intervene in areas such as exit charges or loan charges.

The FCA has conducted a number of market studies regarding the competitiveness of different financial sectors. Examples of recent studies include mortgages, credit cards, cash savings and asset management.

The regulator says it is most likely to intervene where the lack of competition could result in significant consumer detriment, or where vulnerable customers could be particularly badly affected.

The regulator says that lack of competition can cause detriment in a number of ways, including:

  • Concentration – where one or more firms enjoy significant market advantages
  • Barriers to entry and growth, preventing challenger firms from entering a sector
  • Barriers to switching between firms, such as prohibitive exit fees or unwieldy and bureaucratic switching processes
  • Complex products leading consumers to follow the ‘path of least resistance’ rather than make active choices

In the document, the FCA asks for proposals on additional tools it could use to tackle uncompetitive markets.

A consultation on the two documents runs until March 12 2018.

Andrew Bailey, FCA Chief Executive said:

“As part of our Mission, we committed to being more open and transparent about how we regulate and how we make decisions.

“Authorisation is the gateway for firms that want to operate in the financial services industry. We use it to prevent harm from occurring by ensuring that all firms meet our minimum standards before they are allowed to start doing business. It’s vital that we get it right to keep out firms that are not up to scratch and allow the right ones through.

“Effective competition in financial services benefits consumers and firms. We are one of the few financial regulators in the world with a core objective to promote competition and it applies to all the work we do.”

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.