An investigation has been launched as to whether there is sufficient competition in the investment and corporate banking sectors.
The Financial Conduct Authority, the UK financial regulator, said on Thursday it was launching the study after a review found that “limited clarity over price and quality of services make it difficult for clients to assess whether they are getting value for money”.
It is the first review of the sector and the FCA said that the potential benefits of improvements could be high.
“We have chosen this particular area because the benefits of effective competition in the market could be significant,” said Christopher Woolard, director of strategy and competition at the FCA.
“The UK is a global hub for investment banking, and this sector plays a crucial role in our economy, helping companies raise capital for investment, expansion and funding ongoing operations.”
The FCA also said that following discussions with stakeholders and firms, there were “unanswered questions about potential conflicts of interest and value for money in this market”.
The regulator added it would consider launching a separate market study into asset management later in the year.
The announcement stunned banking executives. “That is unbelievable,” one said. “If anything there are too many people still in investment banking, so I would say there is too much competition.”
The review comes as the FCA inherits new antitrust powers for banking at the beginning of April.
This means that the FCA can, like the Competition and Markets Authority, fine companies for anti-competitive practices such as price-fixing and stop monopolistic mergers. If it believes competition is being stifled, it could refer whole markets for further review by the CMA — which has almost unique powers among developed nations to order companies to sell off business lines, even if there has been no technical breach of the law.
The CMA has already launched its own review of competition in banking, but is focusing more on current accounts and lending to small businesses.
Terms of reference for the investigation will be published in spring.