If you are a fan of Financial Conduct Authority (FCA) consultation and market study papers, the last month has been like your best ever Christmas, birthday, Easter and Father’s/Mother’s Day all rolled into one. The FCA awoke from its post-purdah slumber a few days after the 21 June election with its DB Transfer Consultation Paper.
The Asset Management Market Study final report, MiFID II final policy statement and Retirement Outcomes Review interim report all followed within a matter of days, unleashing a migraine-inducing 463 pages of reading on the industry. And as any true fan will tell you, you have got to read the supporting documents to get the full picture, and that is another 1,400 pages of regulation to wade through. Surely that would be enough to see us through the summer months?
Market study
The answer was no. On 17 July the FCA set out the scope for its Investment Platforms Market Study with the publication of a terms of reference document (taking the page count to 497, if you are counting). This paper marks the first stage of a market study into the world of platforms with an industry consultation open until 8 September this year. The FCA then aims to publish an interim report by summer 2018 which will set out preliminary conclusions and any potential remedies to address any concerns it might uncover.
The relatively gentle timeline of this work is probably a good indicator of just how concerned the FCA is with platforms and all those who use them. It is very clear that it is coming at this work from the point of view of wanting to create a more competitive market, as opposed to having concerns of any obvious consumer detriment.
Launching the study, Christopher Woolard, executive director of strategy and competition at the FCA, said: “With the increasing use of platforms we want to assess whether competition between platforms is working in the interest of consumers. Platforms have the potential to generate significant benefits for consumers and we want to ensure consumers are receiving these benefits in practice.”
A central theme to this work will be the impact of vertical integration and commercial relationships between platforms, asset managers, discretionary investment managers and financial advisers. The majority of the market now operates this way, with four of the top five platforms (by assets under management) falling into this camp. The FCA notes “these relationships have the potential to distort competition by encouraging platforms to compete in the interests of those with whom they have commercial relationships rather than in the interests of consumers”. Currently this is noted just as a “potential”, however the study will look at this in detail to see if the potential is indeed a reality. If it is, the second paper next summer could be a real humdinger.
For now, there are two big questions being posed. Firstly, how do platforms compete on price and quality of their services, and secondly, do platforms offer investors value for money? As tempting as it is to say “not very well” and “no”, there is clearly more to it than this, and the study proposes a number of topics to be explored in detail. The vertical integrators will no doubt be looking closely at the “commercial relationships”, “business models” and “customer behaviour” sections, and the technology suppliers will take a keen interest in the “barriers to entry and expansion” topic.
