The UK’s financial regulator, the Financial Conduct Authority (FCA), has published its feedback statement on the potential competition impact of Big Tech entry and expansion in retail financial services. 

On 11 July 2023, the FCA published its feedback statement (FS23/4) on the potential competition impacts of Big Tech entry and expansion in financial services.

The statement follows the FCA’s publication of a discussion paper last October in which the FCA invited comments on the entry of Big Tech in the retail financial services sector (see our previous blog post here). 

Big Tech, financial services and competition

Feedback on the potential competition benefits of Big Tech entering financial services was mixed: some respondents agreed that consumers would benefit from innovations and the increased incentive for other market participants to improve quality and reduce prices; others thought DP 22/5 overstated potential benefits and understated potential harms.

The FCA acknowledged that the unique characteristics of Big Tech firms were already being considered by competition authorities around the world. The FCA referenced the new Digital Markets, Competition and Consumers Bill as a means by which the UK competition regulator (the CMA) could address such concerns. The Bill’s powers would also see the FCA working alongside the CMA as part of broader regulatory coordination in relation to competition issues.

The FCA acknowledged feedback that its regulatory perimeter would need to evolve following entry and expansion of Big Tech firms in financial services, given that such firms typically operate outside or at the boundary of the financial services perimeter. The FCA noted that where competition harms arose in financial services that were beyond the bounds of its regulatory perimeter, it could use the concurrent competition powers (which allow it to investigate infringements of competition law).

On the M&A side, the FCA acknowledged that mergers and acquisitions presented a plausible entry strategy for Big Tech firms in financial services and committed to working closely with the CMA to support the effective exercise of its merger review powers.

FCA action and next steps

The FCA noted that it is prioritising its ongoing programme of work, which it acknowledged is not specific to Big Tech firms but aims to enable more effective competition within the financial services industry. It cited existing initiatives including Open Banking and Finance; data sharing and access in the credit information market; investigations into manipulation of consumer decision-making; and developing an approach to AI. To complement these existing policies, the FCA proposed three additional steps following the feedback on DP 22/5:

  • Launch a Call for Input: the FCA aims to gather further information on Big Tech firms as ‘gatekeepers’ and key drivers, including the role of data sharing asymmetry between Big Tech firms and financial services firms, by the end of 2023. Areas of interest include:
    • the extent to which data accessible by technology firms are relevant to developing financial services products and the role of Big Tech firms as ‘gate keepers’ of such data;
    • the potential impacts of this Big Tech data usage on competition; and
    • potential ways to ensure that competition continues to work well, should these data advantages of Big Tech firms exist.

  • Review the supervisory approach: the FCA is considering how best to ensure that it monitors Big Tech’s activities in financial services in the most effective and holistic way, considering their business models, characteristics, and cross-sectoral presence and the FCA’s own regulatory perimeter.

  • Continue work with the Government and the Digital Markets Unit (DMU): as the Digital Markets, Competition and Consumers Bill passes through Parliament, the FCA will work closely with the Government and DMU to identify issues early and assist with mitigating any harms effectively.

This post was written by Jasmine Sharp and Pritpal Virdee