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The financial services landscape is constantly evolving. To be an effective regulator, the Financial Conduct Authority needs to respond to today’s challenges and, importantly, be prepared for those which may arise tomorrow.
One of the key areas of focus for our three-year strategy published in April last year is promoting competition and positive change, including a commitment to shaping digital markets to achieve good outcomes.
Big Tech’s presence in UK financial services has recently been increasing and has the potential to grow quickly.
There is a risk the competition benefits from Big Tech entry could be eroded
In payments alone, we have already seen Amazon offer a payments application programming interface for its third-party apps and websites, Google and Apple launch digital wallets for their devices and Meta attempt to enter the crypto-asset space.
Given the potential implications for consumers and competition, we need to better understand the emerging risks and opportunities to ensure benefits to consumers are harnessed and important harms mitigated.
In October, we published a discussion paper (DP) on the competition impacts of Big Tech in financial services. Our work focused on four retail financial services sectors because of their importance to consumers’ daily lives: payments, deposits, consumer credit and insurance.
These sectors also present the largest opportunities for Big Tech, evidenced by international entry.
Once momentum builds, we might see significant market changes occur quickly
While there were some specific differences across the four sectors, our analysis identified five common themes:
For example, evidence from Big Tech firms’ core markets suggests there are at least two main factors that could determine how competition develops. The first is how Big Tech exploits ecosystems and the second is the access to and use of consumer data.
Engagement with domestic regulatory counterparts is an extremely important part of our work. The speed and scale of technological change creates real challenges for regulators – we need to become increasingly agile and coordinated to address emerging developments in digital markets.
We are engaging with the Competition and Markets Authority (CMA) and the Digital Markets Unit (DMU) to strengthen our ways of working on areas of mutual interest regarding Big Tech.
As conglomerate firms, Big Tech impacts more than competition
The government is proposing the DMU consults us where relevant and proportionate, and we are awaiting legislation putting this into effect.
As a member of the Digital Regulation Cooperation Forum, we work closely with the Information Commissioner’s Office, Ofcom and CMA to promote competition, protect consumers and protect people’s data rights.
We are creating a holistic regulatory approach that delivers trustworthy innovation for consumers and markets while proactively addressing risks.
Big Tech companies are global and, as such, we will need to engage with international counterparts to ensure any regulatory approach enables the potential benefits while mitigating important competition and consumer harms.
Engagement with financial conduct regulators, central banks and competition authorities internationally will be critical to creating an effective competition regulatory approach.
As conglomerate firms, Big Tech impacts more than competition. This is why we are also working with the Bank of England and Prudential Regulation Authority on the role of critical third parties to the financial sector, many of whom are Big Tech firms providing services such as cloud infrastructure.
The feedback window for our DP closed on 15 January and we are currently analysing responses while also meeting extensively with external stakeholders. We received nearly 40 responses from a diverse set of stakeholders including academia, Big Tech firms, consultants, law firms, Fintech firms and trade associations.
We plan to publish a feedback statement in the first half of this year to set out full analysis of what we heard and our next steps.
Dr. Liza Lovdahl Gormsen is senior adviser at the FCA and will be speaking at Money Marketing Interactive Leeds on 11 May.
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