How will the PRA, FCA, and CMA manage conflicting competition mandates?
On 24 July, during the second reading of the UK’s Banking Reform Bill, it was stated that a new competition objective will be given to the PRA. UK banks now find themselves with three national competition regulators jostling for position, not to mention those at the EU level. This will have implications for any banks under the supervision of these bodies, and particularly for those functions which affect the bank’s interaction with the general public. Therefore this development will be of concern to legal, strategy and corporate centre, as well as those designing and selling financial products.
When moving the Bill, the Commercial Secretary to the Treasury Lord Deighton announced: “The PCBS argued that effective competition between banks is essential to ensuring high standards of behaviour, and the Government agree. We will therefore amend the Bill to give the PRA a secondary competition objective. This will give the PRA a greater role in championing competition in the banking market, to the benefit of consumers.” (read hansard here)
This unexpected new mandate now sits alongside the competition objective inherited by the FCA when it took over its powers from the FSA, as well as the Competition and Markets Authority – which was recently created by combining the OFT and the Competition Commission – whose chairman has vowed to focus on the banking sector as a priority.
The confusion over powers and overlapping mandates comes at a time when competition appears to be attracting increasing regulatory focus. Earlier this year, the EC charged 13 banks as well as ISDA and Markit with manipulating the CDS market. To this can be added new initiatives on current account switching and unique current account numbers recommended in the Vickers report. More generally, the new FCA conduct risk regime emphasises the transparency of product pricing and their associated risks to the consumer to aid comparison and therefore competition.
However, with these issues already in focus, this additional mandate adds further confusion over competition oversight. It is currently unclear what distinguishes these three overlapping mandates from one another, and what it will mean in practice for the supervision of banking. It also remains uncertain where competition comes in the hierarchy of objectives of each of the regulators.
For instance, if the PRA was considering an additional regulation which would enhance macroprudential oversight but would raise barriers to entry and reduce competition, how will it now weigh up these two factors when deciding whether to implement? What if the FCA decided competition was undermined according to its objectives but the PRA disagreed? And where does the new CMA sit alongside all of this?
If firms are being expected to start gearing up for potential new initiatives on competition and implementing stricter controls, clarity is urgently needed on this issue.