HM Treasury 10 - 9 November 1999

Improvements to the competition regime in the Financial Services and Markets Bill

The Government today announced that it would make important improvements to the competition regime in the Financial Services and Markets Bill to take account of recommendations made in Don Cruickshank's interim report.

Amendments will be brought forward to the Bill in due course aimed at:

- ensuring the Financial Services Authority (FSA) gives full weight to competition concerns and takes account of the effect of its rules on competition in the light of market developments; and

- strengthening the existing arrangements for competition scrutiny by giving the Competition Commission a central role in deciding whether anti-competitive rules are justified in order to protect consumers and the markets.

Economic Secretary, Melanie Johnson, commented:

"I am very grateful to Don Cruickshank and his team for their interim report.

"While the Bill already requires the FSA to take account of competition in the way it regulates and provides for external scrutiny in this area, this report has helped us to identify some significant improvements which can be made to the current proposals. These will help ensure that competition concerns are given their full weight by the FSA.

"It is vital that in fulfilling its statutory objectives the FSA continues to regulate in a way which does not unnecessarily distort competition. A healthy and competitive market is in the interests of consumers and practitioners, providing greater choice, innovation and opportunities for growth."

The changes will:

ensure that the FSA keeps to a minimum any distortionary effects of its regulation on competition;

require the FSA to consult on the economic costs of its rules. The FSA will also be expected to report annually on the effects of regulation on competition in the financial services market in the light of market developments;

provide that the Competition Commission, rather than Ministers, will take the final decision on whether a rule or practice is anti-competitive, and reach a view on whether the rules or practices are nevertheless justified;

narrow the exclusion from general competition law so that the conduct of financial services businesses is only excluded if it is required, urged or legitimised by FSA rules or practices; and

allow the Office of Fair Trading and the Competition Commission, when investigating complex monopolies, to consider and comment on any part played by FSA rules.

Miss Johnson added :

"This is an important package of changes, in particular we place great importance on the new role for the Competition Commission alongside the Office of Fair Trading. The Competition Commission, as well as taking the final decision on whether a rule or practice is anti-competitive, will also come to a view on whether an anti-competitive rule or practice is justified on regulatory grounds, with a Ministerial override which would only be used in exceptional circumstances."

NOTES TO EDITORS

Chancellor of the Exchequer, Gordon Brown, announced the setting up of the banking review in his Pre-Budget report on 3 November 1998. Its terms of reference are to:

examine the banking sector in the UK, excluding investment banking;

examine the levels of innovation, competition and efficiency in various sub-markets, including SMEs;

look at how these levels compare with international standards; and

consider whether there are options for change which the industry or Government should consider.

The review is being undertaken by a team of Treasury officials under Mr Cruickshank's direction, and calls on the advice of outside experts.

2. On 13 April 1999 Mr Cruickshank announced that electronic commerce and money transmission issues would be added to the scope of the review, in response to consultation (HMT press release 62/99).

3. The Banking Review Team's interim report, 'Competition and Regulation in Financial Services: Striking the Right Balance', was published on 22 July 1999. The interim report, the initial consultation document, responses to it, and banking review press releases are available on the Bank Review website at www.bankreview.org.uk.

4. Mr Cruickshank was Managing Director of the Virgin Group Plc (1984-89); Chief Executive of the NHS in Scotland (1989-93); and Director-General of OFTEL (1993-98). He is Chairman of the Government's Action 2000 Millennium Bug campaign and Chairman of Scottish Media Group plc.

5. The Financial Services and Markets Bill (FSMB), was introduced to Parliament on 17 June 1999 (HMT news releases 98/99 and 99/99). It establishes a single regulatory system in place of the existing separate arrangements for different sectors.

6. Media enquiries should be addressed to Charles Keseru or Deborah Done in the Treasury Press office on 0171 270 5188 and 0171 270 5222.

HM TREASURY PRESS OFFICE

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