Competition
Section 129 and Schedule 8: Functions of FCA under competition legislation
283.Section 129 introduces Schedule 8 to the Act, which gives the FCA new competition powers. Paragraph 2 of the Schedule repeals section 234H of FSMA. This section gives the FCA a power to ask the Office of Fair Trading to consider whether a feature, or combination of features, of a market in the United Kingdom for financial services may prevent, restrict or distort competition in connection with the supply or acquisition of any financial services in the United Kingdom or a part of the United Kingdom. These provisions are no longer necessary now that the FCA is to have concurrent competition functions.
284.Paragraph 3 of the Schedule inserts sections 234I to 234O into FSMA. New section 234I makes some of the functions of the CMA under Part 4 of EA02 functions exercised concurrently by the FCA. Subsection (2) provides that the CMA’s functions under Part 4 are exercised concurrently, so far as those functions relate to the provision of financial services. The effect of subsection (2) is that the FCA only has a market study function concurrently exercisable with the CMA (whose Board exercises this function); the FCA does not have the concurrent function of conducting market investigations, which remains solely that of the CMA (which convenes a group to conduct such investigations).
285.The effect of subsections (2) and (4) is to enable the FCA to conduct a market study the purpose of which is, amongst other things, to consider the extent to which a matter in relation to the provision of financial services provided or received in the United Kingdom has or may have effects adverse on the interests of consumers. Having conducted a market study, the FCA can then refer the relevant market to the CMA which has the power to conduct a market investigation and, if necessary, use its powers in Part 4 of the EA02 to remedy any distortion or restriction of competition that it finds in the market.
286.Subsection (3), in conjunction with subsection (5), excludes certain functions of the CMA (relating to the maintenance of registers and publishing of guidance) contained in Part 4 of EA02 from those that the FCA may exercise concurrently.
287.Subsection (6) modifies section 130A of EA02 in its application to the FCA. This section requires the CMA to publish a market study notice when they are proposing to conduct a market study, which, among other things, sets the time frame within which the market study must be completed. The effect of subsection (6) is therefore to ensure that when the FCA exercises its concurrent market study function, the statutory time frame applies.
288.Subsections (7) and (8) impose a requirement on the CMA and the FCA to consult each other before exercising any of their concurrently-held functions and to ensure they do not both exercise the same functions in relation to the same matter.
289.New section 234J provides that the functions under Part 1 of CA98 specified in subsection (2), so far as they relate to the provision of financial services, are functions exercisable by the FCA concurrently with the CMA. This ensures that the FCA will have powers to address restrictions and distortions in competition so far as those arise in the context of financial sector activities. Subsection (3) excludes those functions of the CMA relating to the publishing of guidance and statements of policy from those that the FCA may exercise concurrently.
290.New section 234K ensures that the FCA is required to consider the use of its new powers in CA98 before exercising the powers in FSMA listed in subsection (3). These powers are powers which the FCA could exercise in respect of particular firms rather than generally.
291.New section 234L ensures that for the purposes of assisting a CMA group to carry out a market investigation in response to a reference from the FCA under section 131, the FCA must provide the CMA with any information relevant to the investigation and with any other assistance that the CMA might reasonably require. It also ensures that the CMA group must take note of information provided by the FCA.
292.New section 234M confers on the FCA the function of keeping under review the market for financial services so that it may take informed decisions in the exercise of its concurrent competition functions and may exercise its other functions effectively.
293.New section 234N ensures that where the FCA exercises any of its concurrent competition functions, its general duties under section 1B of FSMA do not apply. This means that the FCA exercises its new competition functions in relation to the provision of financial services without being bound by general duties to which the CMA would not itself be subject when exercising those functions. However, this does not prevent the FCA taking account of the matters relevant to its general duties if the CMA would be able to take those matters into account.
294.New section 234O requires the Treasury to settle any questions that arise as to whether, by virtue of the FCA’s concurrent competition functions, any functions may be exercised by the FCA in relation to a particular case. This provides a mechanism for determining whether the FCA or CMA should exercise competition powers in a particular case. It also ensures that no-one can object to the FCA taking action under its competition powers just because the CMA could have taken that action.
295.Paragraph 4 of the Schedule amends section 3I of FSMA, to ensure that the PRA does not have the power to require the FCA to refrain from a specified action in relation to the exercise of its concurrent competition powers.
296.Paragraph 5 of the Schedule ensures that the restriction contained in section 348 of FSMA on the FCA disclosing confidential information does not apply in respect of information received by the FCA when discharging its competition powers. Instead, the provisions contained in Part 9 of the Enterprise Act 2002, which deals with the disclosure of specified information obtained by those regulators with concurrent competition functions, will apply.
297.Paragraph 6 of the Schedule amends the FCA’s duty to co-operate with other regulators with similar functions under section 354A of FSMA, so that that duty does not apply where the FCA has made a competition reference under section 131 of EA02. This does not affect the FCA’s duty to share information with the CMA under new section 234L of FSMA.
298.Paragraph 7 of the Schedule amends paragraph 8 of Schedule 1ZA to FSMA, ensuring that sub-paragraph (1) of paragraph 8 which allows the FCA to delegate its functions to committees, officers or members of staff does not override any provisions relating to delegation contained in CMA rules made under section 51 of CA98. It also amends paragraph 23 of that Schedule to make it clear that the FCA may charge fees to cover the cost of exercising its new competition functions.
299.Paragraphs 8 to 12 of the Schedule make consequential amendments to the Company Directors Disqualification Act 1986, the Competition Act 1998, the EA02 and the Enterprise and Regulatory Reform Act 2013. Paragraph 8 makes the FCA a “specified regulator” for the purposes of section 9B of the Company Directors Disqualification Act 1986, and therefore able to bring actions for the disqualification of directors under that section. Paragraph 9 makes the FCA a “regulator” for the purposes of Part 1 of the Competition Act 1998. Paragraph 10 makes the FCA one of the “relevant sectoral regulators” for the purposes of section 136 of EA02. Paragraph 11 adds the FCA to the list of sectoral regulators in section 52 of the Enterprise and Regulatory Reform Act 2013 from whom the Secretary of State may remove powers exercisable concurrently by the regulator concerned and the CMA and paragraph 12 amends paragraph 16 of Schedule 4 to that Act to require the CMA to report on the arrangements for co-operation between the CMA and the FCA in relation to the FCA’s concurrent competition powers.
Section 130: Competition as a secondary objective of the PRA
300.Section 130(1) provides the PRA with a new, secondary, competition objective, by substituting section 2H of FSMA. The new section 2H provides that, in exercising its general functions, such as making rules, in a way which advances its general objective (and where relevant, its insurance objective), the PRA must act in a way which, as far as is reasonably possible, facilitates effective competition in the markets in which PRA-authorised persons operate. It also restates the existing requirement that, in exercising its general functions, the PRA must also have regard to the regulatory principles in section 3B. Subsection (2) amends paragraphs 19 and 20 of Schedule 1ZB to FSMA to require the PRA to include information on its compliance with the new competition objective in its annual report, and to invite representations on whether it has facilitated effective competition.
Section 131: Duty of FCA to make rules restricting charges for high-cost short term credit
301.Section 131 imposes a duty on the FCA to make rules under section 137C(1)(a)(ii) and (b) of FSMA to impose a cap on the charges which may be imposed in relation to high-cost short-term credit in order to give borrowers appropriate protection against excessive charges, and to consult the Treasury before doing so. The first rules have to be made no later than 2 January 2015, and apply to credit agreements which are entered into on or after that date (though if the FCA makes rules coming into force before that date, it will not be prevented from applying the rules to agreements entered into before that date). This section also requires the FCA to include information in its annual report on the rules it has made under section 137C, and the types of regulated credit agreements to which those rules apply.
Section 132: Role of FCA Consumer Panel in relation to PRA
302.Section 132 amends section 1Q of FSMA to provide that the FCA Consumer Panel established under that section may make its views on any matter which it is considering which it believes may be relevant to the PRA known to that regulator. This ensures that the PRA may benefit from the expertise of the FCA Consumer Panel even though it is not under an obligation to consult the Panel. This section also enables the PRA to reimburse the FCA in respect of FCA expenditure relating to the FCA Consumer Panel, if the expenditure in question relates to communications between the FCA Consumer Panel and the PRA.