Financial Services and Markets Act

15 March 2004

The OFT has decided not to carry out further research into markets affected by FSMA at this time.

In November 2003, the OFT announced that it was launching research into how FSMA had affected competition in the markets to which it applies. The economic consultancy Oxera was commissioned to design and implement a methodology for assessing the competition impact of FSMA.

Oxera's final report was published in December 2004. It found that there were no indications that FSMA had had a significant negative impact on competition, and that where the legislation addressed market failures it was beneficial to competition.

Download Competition Review of the FSMA (pdf 550 kb).

On publication, the OFT invited views from the financial services industry and other stakeholders on the analysis contained in Oxera's report. No representations were received.

Oxera also identified seven high level markets which met a number of the competition indicators used in the assessment methodology, such as high levels of concentration or barriers to entry. The seven markets are:

• provision of current accounts to small and medium sized enterprises and individual consumers
• trading exchanges – allowing trades of securities or commodities
• clearing and settlement infrastructure – clearing trades through a central counterparty, and settling trading transactions
• credit rating agencies
• pension fund consultants
• investment banking, specifically initial public offerings and mergers and acquisitions
• custody services – safekeeping and servicing financial assets

The OFT has decided not to carry out any further work into these seven markets at this time. Some have been recently examined by other bodies, for example the Competition Commission reported on banking for SMEs in 2000. Similarly, the EC recently proposed a Framework Directive dealing with access to clearing and settlement systems. In others, the nature of the indicators and other evidence in the Oxera report are not such as to make these markets priorities for further work, for example in the custody services market, where the risks were assessed as being relatively small.

There are also competition scrutiny powers in FSMA that can be applied to these markets where appropriate. The effectiveness of this arrangement can be seen from recent FSMA scrutiny cases, such as the recent London Stock Exchange fees case.

For these reasons, the OFT considers that none of the markets highlighted by Oxera's analysis are currently priorities for a market study. See Market studies guidance (pdf 153 kb) for more information on the criteria the OFT uses to decide which subjects to investigate.

The OFT study to assess the impact of FSMA on competition in the financial services sector was part of a two year Government review of regulation in this sector, which was announced by HM Treasury on 4 November 2003. HM Treasury have also announced the conclusion of their strands of the review. See HM Treasury press release.

See OFT press release for more background on the study.

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