The FCA’s consultation on regulating Big Tech

Niall Hearty of Rahman Ravelli details the Financial Conduct Authority’s approach to Big Tech and financial services. 

The Financial Conduct Authority (FCA) has announced that it plans to examine the issue of regulation of Big Tech’s financial services. 

The UK regulator is to consider how such regulation of firms such as Apple, Google and Amazon could prevent the potential for them causing harm to the financial services sector. While acknowledging the ability of such companies to bring innovative approaches to financial services, the FCA has voiced concerns that if they build dominant positions this could lead to a “potential exploitation of market power”. 

The FCA’s announcement comes at a time when US technology companies are assessing whether the global financial services market could be an area where they could use their profits, data and market power to make huge gains. Google’s owner Alphabet, Amazon, Meta and Apple are already offering some financial services in the UK, according to the FCA. The FCA has said that while the entry of Big Tech firms into financial services may benefit consumers, it is concerned that those benefits could be eroded if the firms use their market power to “harm healthy competition and worsen consumer outcomes”. 

Discussion Paper 

The FCA has produced what it calls a discussion paper on the subject, called “The potential competition impacts of Big Tech entry and expansion in retail financial services’’.  The FCA defines Big Tech firms as “large technology companies with established technology platforms and extensive established customer networks’’ and emphasises that its focus is primarily on Big Tech firms that operate in the UK. 
While the FCA is not yet making any proposed changes to regulation, it has asked for responses to its paper. 

In its paper, the FCA says that the presence of Big Tech firms internationally and in UK financial services markets has been increasing, creating the potential for market outcomes to be changed quickly. The regulator says that the purpose of its paper is to stimulate discussion on the potential for Big Tech firms to affect four retail sectors - payments, deposit taking, consumer credit and insurance. These are areas that Big Tech companies have already entered. The focus is not on wholesale financial markets or technology services provided by Big Tech firms to financial firms. 

Questions for discussion 

The FCA has included in its paper a range of questions that it hopes can prompt discussion and help it assess how it needs to approach the issue of Big Tech regulation. 

These are: 

• Will Big Tech firms in UK financial services follow a similar path to other countries?
• What factors would make the UK experience similar? Or what reasons may exist for Big Tech firms to look for new approaches in the UK? 
• Has the right analytical approach to assessing Big Tech entry and competition been identified? 
• Have the key drivers for Big Tech firms to enter been identified? Have the most likely entry scenarios been identified? 
• What competitive advantages and disadvantages do Big Tech firms have over existing providers and potential entrants, such as fintech? 
• How are current market participants likely to respond to entry by Big Tech firms?
• How might potential entrants’ plans be affected?  
• Have the key potential competition benefits and harms been identified? And who stands to benefit most or face the greatest risk of harm? 
• If Big Tech firms enter and expand in financial services, will they create new complementarities between markets or their activities that have not yet been identified?
• Will the ways in which Big Tech firms enter and compete in the UK financial services markets be significantly influenced by regulatory boundaries? And will this differ across the four sectors (payments, deposit taking, consumer credit and insurance) the discussion paper is focusing on? 

 
The FCA wants responses to its paper to be made by 15 January to “inform its regulatory approach”. The FCA will host an expert panel event on this subject on 28 November, followed by sector-specific workshops on 6 and 7 December. It intends to publish a “Feedback Statement’’ in the first half of 2023, setting out how it will develop its regulatory approach in response to the feedback received. 

It is clear that the regulator is looking ahead as Big Tech expands its presence in the UK financial services market. Such a presence could be a welcome benefit to consumers, as competition may see lower prices as these companies seek their market share. Yet, as the FCA has indicated, any market share grab needs to be carefully regulated to protect against any potential exploitation of market power.