Analysing the FCA’s approach to authorisation and competition


Following on from its Approach to Customers document, published in November, the FCA has now released the second and third publications in its series designed to shed greater light on its regulatory approach. TCC’s regulatory experts bring you an overview of both the FCA’s Approach to Authorisation and Approach to Competition, with insight into the implications of its approach for the wider industry.


Approach to Authorisation

The FCA sees its authorisation function as a key line of defence, helping to prevent harm to consumers and competition by only allowing firms that meet its Threshold Conditions and minimum standards of conduct to operate in the market. The function also plays a key role in meeting the FCA’s competition objective. Weak competition can prevent innovative ideas coming to market, so the regulator is focused on providing a tailored approach to authorisation, offering firms a number of support options including Project Innovate and various start-up hubs.

The regulator recognises that this will never be a zero-failure regime, some firms will fail and the focus is instead on ensuring that they leave the market in an orderly fashion which mitigates the potential harm to consumers and the market.

Assessing a firm’s culture is a key part of the authorisation process. The FCA will look to assess the importance a firm places on customer outcomes within its business and identify any incentives to harm consumers within its business model and strategy. This focus is no great surprise, as a poor culture, or one which isn’t sufficiently customer-centric, has been found to be at the heart of many past industry failings.

With the forthcoming implementation of the Senior Managers and Certification Regime (SM&CR) the level of scrutiny firms will face, both during the authorisation process and though the FCA’s ongoing supervisory work, is likely to intensify. This is the latest reiteration of the FCA’s expectations that senior management set the cultural tone from the top and are truly committed to delivering positive outcomes from the outset. The FCA will expect that this is genuinely, consistently and robustly evidenced within every facet of the authorisation documentation.


Approach to Competition

The FCA’s focus on competition spans all areas of its work, as well as being the focus of one of its objectives and this document is further evidence that any market is open to investigation and intervention as part of the FCA’s competition remit.

The regulator is focused on competition for the benefit of consumers, not competition for its own sake. It also takes wider considerations into account than merely lower prices. The regulator is concerned with improving consumer choice, reducing barriers to entry, innovation and reducing anti-competitive behavior within the markets it regulates. Its focus is neither on regulating price nor firms’ profitability, although the FCA does take an interest in this area where there’s evidence of consumer harm or a perceived lack of value for money.

As we’ve seen with the Asset Management Market Study earlier this year, the FCA is starting to flex its competition muscles. The study highlighted the direct effect poor price competition has on value for money, so this is likely to remain a key area for consideration as it continues its work examining each component of the value chain.

Ultimately, the regulator is looking to identify and address any issues that impact the ‘virtuous circle of competition’, that is, where competition incentivises firms to meet customer needs, and customers are sufficiently engaged and informed to drive greater competition in the market.

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