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FCA to probe competition in investment banking and asset management

The FCA is to investigate whether the investment banking and asset management sectors are working competitively as part of a wider review of the wholesale market.

The regulator has today launched a competition review of the wholesale sector, which will look at market infrastructure, investment banking, asset management and corporate banking.

It says the review is an “exploratory exercise” which aims to identify any areas where competition is not working properly and which merit further investigation.

In the asset management sector, the regulator will look at whether sufficient incentives exist for asset managers to negotiate the best deal for investors in relation to areas such as governance services, transfer agency and dealing commission and research.

It will also consider whether investors are able to assess effectively the quality of asset managers’ negotiations, and whether the bundling of ancillary services provided by intermediaries to asset managers is in the interests of investors.

This will include looking at whether any benefits of bundling are passed onto the fund, and whether pricing pressures made bundling necessary.

In the investment banking sector, the FCA says where banks bundle services together, clients may be unable to judge the cost of advice on complex transactions.

It says the focus on bundled services may also mean stand-alone or small providers of services, such as corporate broking advice or research, are unable to compete effectively for customers who require a range of services.

The regulator will also look at best execution, considering whether benefits are always passed back to clients and how well clients are able to monitor best execution.

FCA director of policy, risk and research Christopher Woolard says: “It is vital that wholesale financial markets are efficient, fair and competitive. We are publishing this call for inputs today to seek views and evidence from stakeholders on areas where they think competition may not be working effectively.

“Effective competition within the wholesale sector can lead to an increase in institutional efficiency, lower prices, greater innovation and can improve the quality and range of financial services provided.”

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