The City reacted with fury yesterday after the Financial Conduct Authority (FCA) launched a competition inquiry into investment and corporate banking.
Bankers described the prospect of another regulatory shake-up as “overkill”, complaining that the sector is already grappling with a plethora of reforms and arguing that there are few more competitive people than investment bankers.
The City watchdog said it was concerned about the way in which banks “bundle” together a variety of services, which it fears could disadvantage smaller new entrants.
It said there were “unanswered questions” about potential conflicts of interest and voiced concerns about what it described as “limited clarity” in the price and quality of services offered to business clients.
Christopher Woolard, the FCA’s director of strategy and competition, said: “We have chosen this particular area because the benefits of effective competition in the market could be significant. The UK is a global hub for investment banking, and this sector plays a crucial role in our economy, helping companies raise capital for investment, expansion and ongoing operations.”
The FCA’s intervention comes at a time when banks are already grappling with the installation of “ring-fences” around retail banking, an investigation into current accounts by the Competition & Markets Authority (CMA), and the Bank of England’s Fair and Effective Markets Review.
Despite this, the Government is pushing strongly for improvements in competition in banking, and it is through its competition remit that the FCA has launched its action.
But one senior banking industry source said: “Don’t they have enough to be doing? It’s bizarre. You’d expect people to exit investment banking given the extra regulation, but almost nobody has stopped offering these services.
“There are loads of boutiques around and investment bankers compete like hell for every bit of business.”
Sally Scutt, deputy chief executive of the British Bankers’ Association, said: “Banks compete vigorously for new clients every day, and we believe that the market in London is one of the most competitive in the world. All banks will co-operate fully with this investigation, but we would urge the regulator to take into account the considerable and fast-moving changes that are currently taking place in wholesale markets.”
David Buik, at the stockbroker Panmure Gordon, said the regulatory blowback from the financial crisis had now gone too far and could actually damage competition – and the City. “This is just killing any incentive to expand, to build, to open a new bank. The level of regulatory controls now, it is overkill. There is plenty of competition out there.”
Depending on the outcome of the year-long study, the FCA could impose fines on banks found to have engaged in anti-competitive practices, or refer the sector to the CMA.
The corporate sector was more sanguine about the review. Oliver Parry, of the Institute of Directors, said: “The IoD broadly welcomes the FCA’s decision to investigate competition within the investment banking industry. However, we believe that the FCA should prioritise looking at the fund management industry … Greater clarity is required about their pay, fees… and their voting record.”Reuse content