The Competition and Markets Authority published a provisional decision on market issues regarding personal current accounts and retail banking services for small-and medium-sized enterprises. The decision is part of the CMA’s retail banking investigation which commenced on June 19, 2013. The decision outlines proposals to combat issues hindering competition in personal current accounts and in banking services for SMEs. The CMA considers that competitive pressures in retail banking are weak and that diversification of the banking sector is not the most efficient and accurate way to increase competition.  Instead, the CMA is proposing a package of remedies, focused on innovation and the provision of information to customers, coupled with technological development. 

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The Financial Conduct Authority published its interim report on the investment and corporate banking market study, which includes proposed remedies to the deficiencies identified. The FCA proposals include removing the practice of banks using contractual clauses to restrict client choice, reducing barriers to entry for non-universal banks without undermining the efficiency benefits of cross-selling and improving the credibility of league tables for investment and corporate banking. The FCA also intends to investigate further whether individual banks whether there are any issues in conflicts management in the allocation of Initial Public Offerings. 

The UK Government launched a consultation on a draft innovation plan for financial services. The innovation plan covers the work of each of the financial services regulators – the Financial Conduct Authority, the Payment Systems Regulator, the Prudential Regulation Authority and the Bank of England – setting out the steps that each regulator has taken or intends to take to adapt to new technologies and disruptive business models to encourage competition and growth and to better utilize technologies to reduce burdens on business and create efficiency savings. The consultation seeks feedback on the UK's regulatory environment for financial services supporting innovation, whether the regulators understand innovation and where new technologies might emerge, if there are any gaps that the regulators should focus on and if there are ways that the regulators could better utilize technologies. Responses are requested by May 6, 2016.

The UK Payment Systems Regulator published its interim report relating to its market review into the supply of indirect access to payment systems. The PSR considers that competition in the supply of indirect access is going in the right direction for indirect payment services providers. However, the regulator has concerns about choice, service quality and the ability of indirect payment services providers to switch providers. Responses to financial crime regulation is limiting the provision of indirect access. The PSR does not intend to take regulatory action at this stage but will monitor developments in the industry to assess whether its concerns are addressed. The PSR is seeking feedback on its interim findings and its approach and comments are due by May 5, 2016.

View the PSR's interim report.

The Prudential Regulation Authority and Financial Conduct Authority jointly announced that they will comply with all aspects of the European Banking Authority's Guidelines on Sound Remuneration Policies published in December 2015, save for the approach related to the Bonus Cap. The Bonus Cap approach relates to provisions that establish that the limit on awarding variable remuneration to 100% of fixed remuneration, or 200% with shareholder approval must be applied to all firms subject to the Capital Requirements Directive. The PRA and FCA favor a risk-based approach in the application of the Bonus Cap, which under CRD principles allows for firms to comply in a way that is proportionate and appropriate to the firm's size, internal organisation, nature, scope and complexity of business. As the EBA Guidelines represent an interpretation of the CRD with which the PRA and FCA do not agree, the PRA and FCA will continue to use the current approach which requires smaller firms to determine an appropriate ratio between fixed and variable remuneration. The Guidelines are applicable to banks and investment firms and cover all staff, with particular aspects focusing on staff whose professional activities have a material impact on a firm's risk profile. The Guidelines set out detailed requirements for remuneration policies and related governance arrangements for implementing remuneration policies and apply from January 1, 2017.
 
View the EBA's Guidelines on Sound Remuneration Policies.
 
View the PRA and FCA's joint statement.

The Competition and Markets Authority announced that it is likely to extend the timetable for its investigation into the retail banking market. A decision on the extension is expected to be taken in March 2016, when a timetable for publication of the final report will also be published. The report was originally scheduled for publication in February 2016. A provisional report, published in October 2015, identified several competition issues in the Personal Current Accounts and Small and Medium-sized Enterprises banking market, including: (i) small numbers of customers switching to different bank accounts, due to banks not being under sufficient competitive pressure to attract customers; (ii) new banks and new products not attracting new customers; and (iii) high numbers of SMEs holding their business accounts in the same banks as their PCAs, with low levels of switching. The CMA states that, further to its provisional findings, a number of new suggestions have been made for achieving better outcomes for current account customers and that it wishes to ensure that there is enough time to hear from interested parties so that all of the proposals can be considered properly.
 
View the press release.
 
View the CMA's provisional report.

A letter addressing possible competition issues between established and challenger banks dated October 7, 2015 sent from the Chairman of the Treasury Committee, Mr. Andrew Tyrie, addressed to the Deputy Governor for Prudential Regulation at the Bank of England, Mr. Andrew Bailey, was published. The letter refers to the potential difficulties challenger banks may face in satisfying the conditions required to use the Internal Ratings-Based approach for calculating credit risk. Mr. Tyrie is concerned that newer banks may be at a competitive disadvantage to more established banks, given that the IRB approach leads to lower capital requirements compared to the Standardized Approach which newer smaller banks would be able to use more easily. The letter asks whether: (i) the new corporation tax regime for banks encourages competition between new and established banks; (ii) adaptations made by the Prudential Regulation Authority's to capital requirements for new banks will be effective in overcoming the competitive disadvantage that new banks may face; (iii) the PRA has plans to make further adjustments to capital or other requirements for new banks; (iv) the PRA is restricted, and if so, to what extent, from making further adjustments to newer banks' capital requirements under the Capital Requirements Directive IV or other EU legislation; and (v) there has been a reduction in requests for pre-application discussions with the PRA and Financial Conduct Authority since the new tax regime was announced in July 2015.
 
View the letter.

The Financial Conduct Authority launched its market study into asset management by publishing the Terms of Reference for the study. The FCA announced its intention to conduct the study in its 2015/2016 business plan following feedback it received during the wholesale sector competition review. The Terms of Reference state that the FCA will investigate three core areas: (i) how asset managers compete to deliver value; (ii) are asset managers willing and able to control costs and quality along the value chain; and (iii) how investment consultants affect competition for institutional asset management. The FCA will also be looking at whether there are any barriers to innovation that prevent investors from obtaining better results. The Terms of Reference are not being formally consulted on but the FCA will accept comments received by December 18, 2015 on them and the issues raised. An interim report is expected to be published in summer 2016 setting out preliminary conclusions and possibly remedies to address any identified issues. The final report is expected in early 2017.
 
View the Terms of Reference. 

The Competition and Markets Authority published a provisional report related to its investigation into the supply of Personal Current Accounts and of banking services to Small and Medium-sized Enterprises. The report identifies several competition issues in the PCA and SME banking market, including: (i) small numbers of customers switching to different bank accounts, due to banks not being under sufficient competitive pressure to attract customers; (ii) new banks and new products not attracting new customers; and (iii) high numbers of SMEs holding their business accounts in the same banks as their PCAs, with low levels of switching. The report also states that customers that are holders of more expensive accounts are not switching to better value and better quality cheaper accounts, which would be expected in a well-functioning market. The CMA is proposing remedies which include: (i) requiring banks to prompt customers to review the service they receive by receiving individual messages at certain "trigger points"; (ii) encouraging consumers and businesses to compare bank products by using Midata, an industry online tool, that allows consumers to easily access their banking data and compare it with other services; and (iii) creating a price comparison service for SMEs. Responses to the report are invited by November 20, 2015. The CMA also announced that it intends to review the undertakings put in place after the 2002 Competition Commission review into PCA banking in Northern Ireland and into SME banking generally.

View the CMA's report.

The UK Payment Systems Regulator published final guidance on its concurrent competition powers and on its approach to market reviews. The PSR has concurrent competition powers with the Competition and Markets Authority. The final guidance on the PSR’s powers and procedures under the Competition Act 1998, known as the CA98 Guidance, explains how the PSR will use its concurrent competition powers for participation in payment systems within the UK, in particular the enforcement processes it will follow and how they relate to its other powers and duties. The final guidance on the PSR’s powers and procedures for market reviews, market studies and market investigation, known as its Markets Guidance, explains the PSR’s powers to carry out market reviews, how the PSR will choose which powers to use, how the PSR will carry out market reviews and studies, including its approach to disclosure and use of information and how the PSR will make market investigation references.

View the CA98 Guidance.

View the Markets Guidance.

The FCA published final guidance and amended rules on its new competition law powers. The FCA obtained concurrent competition powers for the provision of financial services on April 1, 2015 which allow it to: (i) conduct investigations under the Competition Act 1998 and the Treaty on the Functioning of the European Union; and (ii) carry out market studies and make market investigation references to the Competition and Markets Authority under the Enterprise Act 2002. The finalized guidance clarifies how the FCA intends to use its new competition powers. The final rules, which come into effect from August 1, 2015, impose an obligation on authorized firms to report to the FCA any significant infringement of any applicable competition law.
 

View the Shearman & Sterling client publication on the FCA’s Concurrent Competition Powers.

View the FCA Policy Statement, including final rules.

View the final guidance on the FCA’s powers and procedures under the Competition Act 1998.

View the final guidance on the FCA’s market.

The  Financial Conduct Authority published the terms of reference for its upcoming market study into competition in investment and corporate banking. The need for the market study emerged during the FCA’s review of competition into the wholesale sector. The aim of the market study is to assess whether competition for investment banking and corporate banking services is functioning well, focusing on primary market and related activities provided in the UK. The market study will concentrate on: (i) choice of banks and advisers, including the competitive landscape, clients’ purchasing behavior and entry and expansion within the sector; (ii) limited transparency, including the adequacy of information available to clients, transparency of the allocation process and the impact of established practices, processes or regulation on transparency in the IPO process; and (iii) bundling and cross-subsidization of investment and corporate and banking services, including whether there are any resulting adverse effects on competition and clients. The outcome of the market study may lead the FCA to adopt measures to promote effective competition. However, the FCA will be taking into account related initiatives such as the Fair and Effective Markets Review, the implementation of MiFID II and the Capital Markets Union, and may decide that no further action is required if any concerns arising from the market study are likely to be satisfied by upcoming legislative measures or otherwise. The FCA will be accepting comments on the terms of reference until June 22, 2015, although the regulator is not formally consulting on the terms. The FCA intends to publish an interim report, including any proposed remedies that may be necessary, by the end of the year and a final report in spring 2016.

View the terms of reference.