UK Financial Regulator to Review Data Markets as Competition Concerns Loom

The U.K. Financial Conduct Authority (FCA) announced on Tuesday (Jan. 11) that it will launch two market studies to investigate the competitive conditions to access wholesale data in financial markets. Following a market consultation in 2020, the feedback the FCA received from the main stakeholders is that there is limited competition in the markets for benchmarks and indices, credit rating and trading data.

Sheldon Mills, executive director, consumers and competition at the FCA, commented, “Access to wholesale data is really important for those who want to make investment decisions. Without it, they lack the information they need to make properly informed choices.”

The FCA is the U.K. financial regulator, but it also has powers to analyze competition concerns in these markets and impose penalties if it finds evidence of any breach of competition rules. Markets studies are an investigative tool that regulators use to gather information on how markets work, and companies operate. If the findings indicate that competition concerns are evident in the market, regulators can either impose measures to address these concerns or to open antitrust investigations.

A recent example of a similar market study by the FCA was on the Asset Management Market, where the FCA concluded that a few companies accumulated too much power in certain segments. The FCA imposed some measures on the companies to increase transparency in the market and avoid any possible coordination among the three main competitors, AON, Willis Towers Watson and Mercer.

According to the press release on this new study on wholesale data markets, the FCA “will look into concerns that complex contracts for benchmarks and indices prevent switching to cheaper, better quality or more innovative alternative providers.” Additionally, by the end of the year, the FCA will launch a second market study to “assess whether high charges for access to credit ratings data is adding costs to investors and limiting new market entrants.”

Markets for the provision of wholesale data in financial services in the U.K. has been subject to concentration in the last years, and in particular in the areas covered by the market studies. First, the $27 billion LSEG acquisition of Refinitiv raised some red flags about the loss of competition in trading services and provision of financial data products. The companies were ordered to divest part of their businesses and to continue offering some services to rivals before the transaction could be cleared. Second, the merger between S&P Global and IHS Markit further concentrated the market for data in certain commodity prices, and again, the parties obtained the green light only after they offered some remedies to regulators.

These recent moves in the markets for the provision of financial data, together with the feedback obtained from stakeholders, provided enough evidence for the FCA to launch these studies.

See also: UK’s FCA Scraps 90-Day Reauthentication Open Banking Rule

These studies will allow the regulator, not only to identify possible antitrust concerns, but also to understand how innovation in data generation and use may change the wholesale markets. Additionally, if the regulator finds that there are any blockers to using data, it could propose new regulation instead of, or to complement, any other action.

These studies show that data is at the forefront of regulators’ policy agenda, including Big Tech, consumers or financial institutions. The U.K. is immersed in a comprehensive legislative reform that will include payments, artificial intelligence, data protection and online regulation, among other sectors. Given the criticisms that some regulators received in the past for not acting fast enough in certain digital markets that led to the dominance of the Big Tech firms, now they probably won’t want to face the same situation in other markets.

See more: FCA Proposes Changes That Remove ‘Barriers’ to Growth And Innovation in UK Payments