On 12 July, 2023, the Financial Conduct Authority (FCA) published a Feedback Statement summarising responses to its October 2022 Discussion Paper entitled “The potential competition impacts of Big Tech entry and expansion in retail financial services.”[1]

The primary aim of the Discussion Paper was to stimulate dialogue among stakeholders about how the entry of what it calls “Big Tech” firms into retail financial services could benefit consumers most, and where harm might occur if competition does not develop effectively.[2] Specifically, the Discussion Paper focused on four retail financial services sectors – payments, deposits, consumer credit, and insurance – and considered the activities of Google, Apple, Facebook and Amazon in these sectors.

Themes from the Discussion Paper
While “Big Tech” companies have already entered some retail financial services sectors in the UK,[3] the Discussion Paper considered the potential for further expansion and its possible impact on competition.  The FCA identified the following themes.

  1. The FCA considered that entry and expansion into retail financial services may enhance the overall value of “Big Tech’s” ecosystems.  For example, the FCA considered that entry into one sector in the short-term may create opportunities in other adjacent or complementary sectors in the long-term.  
  2. Short term partnerships and long-term direct competition. The FCA considered that “Big Tech” firms are likely to pursue partnership-based models as an entry strategy.  However, over the longer term, they may rely less on partnerships and compete more directly with incumbent firms.  
  3. The FCA considered that initial entry into retail financial services may be unpredictable or gradual but then accelerate.  Even if initial efforts to enter financial services sectors are relatively tentative,momentum may build and lead to significant market changes occurring quickly.  
  4. In the short term, entry into retail financial services could benefit many consumers, however, the FCA highlighted the need to ensure competitive benefits do not erode over the longer term.  Consumers are likely to benefit from innovative and efficient products and services in the short term.  However, the FCA identified the risk of digital markets ‘tipping’ quickly in favour of one or other provider.

Themes identified in the Feedback Statement
In its Feedback Statement, the FCA summarised the feedback it received in response to the Discussion Paper and identified the following themes.

  1. “Big Tech” firms are not homogenous.  Their business models, and strategies and incentives for entering financial services may vary.  The FCA explained that “most” respondents raised this point, and that some also suggested that the FCA’s definition of “Big Tech” should include large fintech firms that have the potential to grow and impact competition. 
  2. Refining the FCA’s analytical framework.[4]  Some respondents suggested that the framework should be broadened in scope to include additional sectors such as investment management, wealth management, micro-credit and crowdfunding services.
  3. Data access and data sharing warrants further consideration.  Somerespondents argued that “Big Tech” firm have access to unique datasets from their core activities, which other financial services providers do not.  Others highlighted that issues related to data privacy and data ethics are important and so any intervention in relation to data would need further detailed consideration.
  4. “Big Tech” activity at or beyond the regulatory perimeter.  Some respondents felt that there was a bigger role for the FCA to play in regulating “Big Tech” firms.  For example, it was suggested that the FCA should play a role when firms enter partnerships to provide technology to financial service providers that enables digital payments services or digital credit solutions.
  5. Co-ordination with other regulators and regimes to address common challenges to digital markets.  Respondents cited issues that may arise from “Big Tech” firms being designated as ‘gatekeepers’ under the EU Digital Markets Act (DMA) and noted that the global nature of “Big Tech” firms necessitates the FCA’s continued engagement with regulators in other jurisdictions.

Next Steps
Based on the feedback received, the FCA has proposed the following next steps:

  1. Launch a Call for Input on “Big Tech” firms as ‘gatekeepers’ and key drivers.  The FCA plans to launch a call for input by the end of 2023 focusing on the role of data-sharing asymmetry between “Big Tech” firms and financial services firms.  The FCA has alleged that data asymmetry may place financial firms and new entrants at a competitive disadvantage, which the FCA considers could have significant implications for how competition develops in the future.  
  2. Review the FCA’s supervisory approach in relation to “Big Tech” firms.  The FCA argues that “Big Tech” firms are unique and that it should therefore adapt its approach, in order to monitor their activities in financial services.  However, the Feedback Statement does not signal any immediate changes to the FCA’s regulatory perimeter.
  3. Collaboration with the Government and the Digital Markets Unit (DMU).   As the Digital Markets, Competition and Consumers Bill passes through Parliament, the FCA will continue to work with the Government and the DMU – a new regulatory unit sitting within the Competition and Markets Authority.  The Bill proposes a new regulatory regime for digital markets that will, among other things, subject firms designated with ‘Strategic Market Status’ to specific conduct rules (see our previous blog post here).  The Bill recognises the importance of cross-regulatory co-operation and introduces new co-ordination mechanisms between the DMU and FCA.[5]  The FCA also plans to publish a memorandum of understanding with the DMU, which will set out how the regulators will implement the coordination provisions in the Bill.

The Feedback Statement expressly states that the FCA is not proposing any regulatory or policy changes at this stage.  Rather, it aims to foster discussion among stakeholders to inform the FCA’s future work.[6]  The Feedback Statement also outlines the FCA’s ongoing policy initiatives aimed at facilitating effective competition in digital markets more generally (summarised in the Figure below). 

[1]              “Big Tech” is defined in the Discussion Paper as “large digital companies with established technology platforms and extensive established customer networks” (see Discussion Paper, paragraph 1.2).

[2]              See Discussion Paper, page 3.

[3]              Financial services firms require permissions to carry out regulated activities in the UK.  “Big Tech” firms already have FCA permissions to undertake certain business in retail finance services, most notably with respect to payments and e-money, although Apple and Amazon also have some consumer credit and insurance permission.  See Discussion Paper, Table 2.

[4]              The FCA’s analytical framework in the Discussion Paper considered, in relation to each of the four financial services sectors: (i) The incentives and barriers “Big Tech” firms face when considering entry into new markets; (ii) strategies “Big Tech” firms could use to enter new markets; and (iii) the associated potential benefits and harms to competition.

[5]              The CMA has competition powers which apply across the whole economy in all sectors, whereas the FCA may exercise competition law powers as it relates to the provision of financial services including enforcing the prohibitions on anti-competitive agreements and abuse of dominance, and to make market investigation references. 

[6]              See Feedback Statement, paragraph 1.2.