Caroline Hobson, Samuel Robinson and Rachel Malloch

The FCA has recently published for consultation two documents setting out its approach to competition and authorisation. The documents are the latest in a series as part of the FCA’s commitment to be transparent in how it regulates and follow on from the FCA’s approach to consumers published back in November. A central theme across both documents is that the FCA wants to understand how and when regulation can inhibit new entry and innovation so that its regulatory framework evolves with financial services, rather than holding them back.

In the Approach to Authorisation document, the FCA explains the purpose of and its approach to authorisation. The FCA sees authorisation as a tool, primarily to prevent harm from occurring by ensuring all regulated firms and individuals meet certain minimum standards but also to improve conduct and culture while promoting competition and innovation.

The FCA says it recognises the challenges start-ups may face in meeting some of the conditions necessary for authorisation. It will look to support newly-established and innovative firms, for example, by providing support during pre-authorisation, authorising subject to certain restrictions, limitations or requirements or through its regulatory sandbox which allows firms to pilot and test new financial products, services or business models in a live but supervised environment.

The FCA also highlights that it has a major programme underway to improve its approach including by making it easier for firms to apply for authorisation. It is also seeking to develop its use of technology and data, provide an easier-to-navigate FCA handbook and improve the public register.

The FCA is inviting responses on:

  • whether there is a clear understanding of the threshold conditions that firms and individuals must meet for authorisation and, if not, where the FCA could be more specific;
  • whether there are any views on the FCA’s approach to supporting firms and individuals to meet minimum standards and how this could be improved;
  • whether the FCA has proposed the right commitments it will make to firms applying for authorisation and, if not, what other commitments it could make; and
  • whether the FCA has prioritised the right strategic goals and, if not what other goals would add the most public value.

In the Approach to Competition document, the FCA explains its competition objective to promote competition in the interests of consumers and not for its own sake. The FCA has three tools at its disposal to advance this objective: it looks at market structure and dynamics through market studies, it investigates anti-competitive behaviour under the Competition Act 1998 and its EU equivalent, and it puts in place regulation aimed at encouraging competition. The FCA, as one of very few financial regulators with a core competition objective is tasked with striking the right balance between promoting innovation and competition on the one hand and ensuring market integrity and financial stability on the other. This can be seen, for example, in the FCA’s work in the retail insurance space on big data and the FCA says it will continue to regularly monitor developments in big data across all financial services as part of its annual sector views.

The FCA is inviting responses on:

  • whether the FCA’s competition remit, powers and aims in advancing its competition objective are clearly understood and what more could be done to explain them;
  • what indicators of potential harm should be considered in the FCA’s preliminary assessments of competition;
  • what other tools could be considered when designing remedies packages; and
  • whether any further clarifications of the FCA’s approach to competition are needed.

Consultations on both documents will run until 12 March 2018 with the final versions to be published later this year. You can access the consultations here.