On 22 April 2024, the Financial Conduct Authority (FCA) published a Feedback Statement on the potential competition impacts from data asymmetry between Big Tech firms and firms in financial services. On the same day, Nikhil Rathi, the FCA’s Chief Executive, delivered a speech at the Digital Regulation Cooperation Forum on ‘Navigating the UK’s Digital Regulation Landscape’.

The Feedback Statement marks a significant milestone in the FCA’s regulatory consideration of this topic, which previously included: (i) the FCA’s October 2022 Discussion Paper on the potential competition impacts of Big Tech[1] entry and expansion in retail financial services, and (ii) the FCA’s November 2023 Call for Input on the potential competition impacts from the data asymmetry between Big Tech firms and firms in financial services (discussed in a previous blog post). In parallel, in the EU, the European Supervisory Authorities (ESAs), in a February 2024 report, also recently examined Big Tech financial services provision in the EU (discussed in a previous blog post).

This blog post sets out the key issues identified in the Feedback Statement and the next steps the FCA envisages.

Key issues emerging from respondents’ input

Reviewing the contributions, the FCA found that there were currently no significant effects from the data asymmetry between Big Tech and financial services firms.

However, the FCA identified three key areas where, in its view, competition concerns could arise in the future:

  1. Big Tech gaining market power through increasing barriers to entry and expansion in financial markets over time. The FCA considered that there is potential for Big Tech to use the data that it holds to gain additional insight into consumer behaviour that is not available to other firms in financial services. Respondents to the Call for Input highlighted in particular the potential for personalised marketing and credit scoring to be built around the large amount of data that Big Tech now holds on consumer activity. Without access to similar data, financial services firms could face a high barrier of entry to certain retail finance activities which would, over time, lead to a reduced incentive for innovation in the retail finance market. Although the FCA noted that there is not currently sufficient evidence to judge the value of Big Tech’s data in retail financial markets, it is conscious of its potential impact and is therefore encouraging the use of the FCA’s Digital Sandbox to test use cases before suggesting potential regulation.
  2. Big Tech becoming a gatekeeper for retail financial services. The growing proliferation of certain services offered by Big Tech (e.g., digital wallets, payment authentication and verification) brings with it the potential for Big Tech to become “gatekeepers” for retail financial services and exclude current firms. While, unlike in some other countries, digital wallets have not yet evolved into “super-financial apps”, several respondents suggested that legislators should act now to place digital wallets within the FCA’s regulatory perimeter. As noted below, the FCA is reviewing the scope of its regulatory perimeter, but also refers to the Digital Markets Unit and the powers it will be given under the Digital Markets, Competition and Consumers Bill.
  3. Risk of financial services firms’ partnerships with Big Tech firms being concentrated and limiting bargaining power of financial services firms. Big Tech has become an increasingly critical partner for financial services firms in areas such as data processing and cloud computing. This trend is likely to continue with the increasing proliferation and sophistication of AI technologies. Aside from systemic and operational risks arising from reliance on third party services (which is being addressed through regulators’ work on critical third parties), the FCA is concerned that increasing concentration of third-party services amongst Big Tech firms affects competition, e.g., by limiting financial services firms’ bargaining power. Moreover, the FCA observes that Big Tech’s potential downstream role as gatekeepers could reinforce their upstream bargaining power, given that consumer data captured downstream can enhance the value of data and AI services upstream.

As part of the Call for Input, the FCA had also sought feedback on whether the scope of its analysis should be extended from retail markets to include also wholesale markets. However, the Wholesale Data Market Study found little evidence of Big Tech firms entering into wholesale markets to directly compete with incumbents. Moreover, the FCA considers that Big Tech firms are unlikely to be able to leverage partnerships with wholesale financial services firms to directly compete in these markets, given strict privacy agreements regarding access and use of customer data. Accordingly, the FCA has decided not to widen the scope of its analysis to include wholesale markets at this point.

Next Steps

In light of the FCA’s concerns mentioned above, the FCA has proposed four next steps with a view to developing a regulatory framework that encourages data sharing between firms and improves competition and innovation.

  1. Monitoring. The FCA proposes to continue monitoring the effect of Big Tech in financial services (both within and outside its perimeter) and assess whether policy change is needed, while maintaining cooperation with other regulators in this area (e.g., the Digital Markets unit).
  2. Testing. The FCA will identify and pilot “use cases” to understand the value of data from Big Tech and its use in retail financial markets. The results of this testing will be used to develop policy proposals (including in the context of Open Finance) and to better cooperate with the CMA.
  3. Incentive alignment. If step 2 identifies value in Big Tech’s data, the FCA will examine how incentives can be aligned to ensure that data sharing agreements are beneficial for the market and consumers.
  4. Cooperation with other regulators. In addition to the above, the FCA highlighted that the provision of digital wallet services is not currently a regulated activity, but the FCA and the Payment Systems Regulator will examine the risks and opportunities of digital wallets and the regulatory implications thereof (including in the context of the FCA’s planned review of the Payment Services Regulations 2017).

[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).