Response to the CMA’s Final Report for its Digital Comparison Tools Market Study
The FCA has recently presented the Competition and Markets Authorities (CMA’s) work featuring digital comparison tools (DCTs). Working with the CMA, it has provided expert guidance on financial services, investigating key areas such as car and home insurance and credit cards.
The year-long project was driven by the CMA, investigating the use of price comparison sites, with the FCA providing input on the technicalities of financial services. The regulator was pleased to see that the CMA’s research showed that the majority of people have positive views and experiences of DCT’s, and that the vulnerable customers who access DCT’s found them useful. However, it was apparent that some DCTs have not been functioning as well as they could in making their websites user-friendly for vulnerable individuals.
The CMA also found that particular types of contracts between suppliers and DCT’s can often limit the ability of suppliers to offer lower prices on other platforms. The FCA aims to explore various areas identified by the CMA to improve the overall functioning of DCTs across home insurance, car insurance and other financial products.
The CMA has also launched an investigation into suspected breaches of competition law around the use of ‘most favoured nation’ clauses by price comparison websites in relation to home insurance products.
Both the CMA and FCA aim to assure DCT’s deliver good outcomes for consumers, with the FCA currently considering what action can be taken from the CMA’s recommendations.
FCA Statement on the Work Plan for ESMA Opinions on Pre-trade Transparency Waivers and Commodity Position Limits
A public statement has recently been issued by the European Securities and Markets Authority (ESMA) around the joint work plan of ESMA and the National Competent Authorities (NCAs) on the issue of opinions on MiFID II pre-trade transparency waivers.
As outlined in its statement, ESMA aims to finalise opinions on equity waivers by the end of the year, however it highlights that due to the high volume and complexity of the applications awaiting to be assessed, opinions on a majority of non-equity waiver notifications will not be issued until after 3rd January 2018.
The FCA states that it will issue responses on complete non-equity waiver applications prior to the finalisation of ESMA opinions. Applicants should take into account that any waiver the FCA communicates will take effect from 3rd January 2018, but this could be subject to review once an ESMA opinion is provided. If the FCA decides to alter its feedback after the review, it will contact applicants to discuss the time scales necessary for them to adapt their rules, systems and processes so the FCA can make a final decision.
In addition, the statement referred to applications where information was missing. Before submission, the FCA does complete its own review before submitting to ESMA and contacts applicants directly is information is omitted.
Commodity Position Limits
From October 2017 the FCA aims to begin publishing position limits on commodity derivatives contracts traded on UK trading venues, in response to ESMA’s Work Plan for ESMA opinions on position limits. The limits will come into effect on 3rd January 2018.
If the FCA decides it is necessary to change the limits depending on ESMA opinions or if required to do so under MiFID II, it will provide a notice period to enable market participants to adjust prior to the new limit being introduced.
FG17/8: Streamlined Advice and Consolidated Guidance
The FCA has recently provided finalised guidance on streamlined advice and the fact find process as a result of FAMR recommendations.
In August 2015, the Financial Advice Markets Review (FAMR) was launched by the FCA and HM Treasury (HMT) with a key aim to investigate ways in which the government, industry and regulators could undertake individual and cumulative steps. These steps are to progress the development of a market which would help deliver valuable and accessible financial advice and guidance. In particular, focussing on individuals who do not have significant wealth or income.
Recommendations were outlined in the FAMR final report in March 2016 which centered on reducing the barriers for consumers accessing advice and guidance. Two of the recommendations will be tackled by the finalised guidance, which aims to:
- Support firms which offer streamlined advice around a particular range of consumer needs (Recommendation 4)
- Confirm the fact finding process (Recommendation 10)
Material from FG12/10 Simplified Advice and FG15/1 Retail Investment Advice is also included in the finalised guidance covering areas such as adviser charging, complaints and redress, professional standards, appropriateness and discretionary investment management.
The guidance in FC15/1 and FG12/10 will no longer be applicable from 3rd January 2018, with the exception of the guidance covering the advice boundary which is currently being considered under a separate consultation in CP17/28.
The new guidance applies to firms or individuals who are administering or thinking of giving investment advice with a focus on streamlined models, as well as firms or individuals who provide services to those who give financial advice.
In August, the FCA published CP17/28 on proposals which included:
- Changes to the definition of retail investments which affect handbook changes;
- Guidance around personal recommendations on the treatment of insistent clients.
The FCA is set to publish a policy statement following this consultation in December 2018 and will integrate new guidance on personal recommendations into The Perimeter Guidance Manual from 3rd January 2018.
The regulator also aims to publish summarised non-Handbook Guidance which included FG17/8 and new guidance based on the proposed Advice Unit guidance CP17/28.
[Speech] Why Free Trade in Financial Services Matters
Andrew Bailey recently delivered a speech at the Official Monetary and Financial Institutions Forum on the importance of free trade and open markets within financial services. We bring you the key points of his speech.
The issue of free trade and open markets in financial services is highly topical, not least as the international community reflects on the 10 years since the start of the financial crisis, but also as thoughts turn to the potential implications of Brexit.
Regulation and Free Trade
Positive regulation supports and enables trade, but for it to work internationally, there must be sufficient harmonisation and co-operation between regulators. Without this, regulation can also have a more negative impact, by acting as a barrier to trade. It’s essential that regulators consider the issues any trade barriers are designed to address and judge whether it is an appropriate restriction in light of the wider regulatory objectives.
By the time of the financial crisis, financial services regulation had reached a point where there was no longer a distinction between domestic and international markets, and consequently, domestic stability could no longer be assured in the face of international issues. This lead to the significant reduction in cross-border activity that contributed to the loss of financial stability.
The Future of Open Markets
Mr Bailey believes the markets are at a crossroads, with the progress made towards open and free trade being questioned. While the post-crisis reforms have put the markets in a stronger position, they are not entirely frictionless.
In the UK, we have the basis for open markets and free trade, supported by the recent regulatory reforms, but the reaction to Brexit (both domestic and internationally) still represents a key threat to achieving this.
In order to entrench open markets and free trades, strong regulatory standards are a must. Regulators all share the same objectives; to deliver financial stability, consumer protection and open markets that enable growth and innovation, but regulators must work together to ensure the markets support these goals.