Big Tech's expansion into UK financial services raises FCA concerns

The Financial Conduct Authority (FCA) has published a feedback statement on the potential competition impact of Big Tech entry and expansion in retail financial services.

The 12 July statement is part of the UK financial regulator's three-year strategy, which was launched in April 2022 to identify the potential benefits and harms for competition resulting from the entry of Big Tech firms into the financial services sector.

The statement highlights the responses to the FCA's discussion paper published in October last year.

Growing presence

There is a growing presence of Big Tech firms in financial services markets, both domestically and internationally. 

The statement concludes that Big Tech firms should not be considered a homogenous group, given their differing business models, strategies and incentives for entering or expanding into financial services.

It suggests that the analytical framework used by the FCA should be broadened to include further sectors such as investment management, wealth management, micro-credit and crowdfunding services. 

Moreover, it clarifies that there is need to distinguish between the technology providing the financial services (and its potential to improve financial services for consumers) and the business model used to provide this technology and its effect on competition.

Big Tech regulation

It says that the FCA should consider data access and data sharing in greater detail as Big Tech firms have the advantage of access to unique datasets (for example, social media and biometrics), unlike other financial service providers. Pertinently, data privacy and ethics should also be considered further.

The UK financial regulator needs also to ensure that Big Tech firms, which operate at the boundary or outside the regulatory perimeter, do not escape regulation. For example, the FCA should form partnerships with other regulators to ensure thorough and consistent supervision and monitoring.

Cooperation with domestic regulators, as well as international regulators, may be necessary to address common challenges in digital markets and to develop the FCA's competition regulatory framework.

Market policy initiatives

As part of the three-year strategy, the FCA has focused on the risks posed by Big Tech firms in this sector and have committed to several market design policy initiatives.

The UK financial regulator has facilitated data sharing to support consumers and small businesses (via open banking and open finance) and to reduce the risk of Big Tech firms gaining and exploiting market power.

It has investigated digital consumer journeys to empower decision-making in consumers' best interests and to reduce the risk that the benefits resulting from Big Tech innovations are offset by manipulation of behavioural biases; and an approach to artificial intelligence, outsourcing and third-party data has also been under development to reduce the competition risks outside the regulatory perimeter.

An approach to artificial intelligence, outsourcing and third-party data has also been under development to reduce the competition risks outside the regulatory perimeter.

Three additional steps

Following the responses to the discussion paper published last year, the FCA have proposed three additional steps:

• Launch a "call for input" on Big Tech firms as "gatekeepers" and key drivers by the end of 2023.
• Review how Big Tech activities are monitored within and outside of the FCA's regulatory perimeter.
• Continue to work with the government and the Digital Markets Unit (DMU) as the Digital Markets, Competition and Consumers (DMCC) Bill passes through Parliament.

Osborne Clarke comment

It is clear that the FCA will continue to focus on the financial services sector, with the next step being a "call for input" before the end of 2023, with which a range of companies in the financial services sector may wish to engage.

Furthermore, the UK financial regulator has confirmed that it will publish a memorandum of understanding with the DMU setting out how it will implement the regulatory coordination provisions provided in the DMCC Bill. This will aim to facilitate consultation between the FCA and the DMU where they have a concurrent competition law remit.

Cooperation between the two bodies will not only help to ensure the DMCC Bill effectively caters for the financial services sector once implemented but will also help to ensure competition concerns are raised and investigated efficiently through effective allocation of resources.

Millie Bird, Trainee Solicitor at Osborne Clarke, contributed to this Insight.