CP13/6 - CRD IV for Investment Firms - Financial Conduct Authority

CRD IV for Investment Firms
CP13/6
Competition assessment
54. The main competition impacts arising from CRD IV will come from the requirements imposed by the
Regulation and new rules resulting from transposition of the Directive. The exercise of discretions
aims to keep disproportionate impacts on investment firms to a minimum. This approach generally
implies that the impacts from the exercise of discretions on current market structures and hence
the effectiveness of competition should also be minimised. The overall impacts on investment
firms (in terms of costs and benefits) will be significantly smaller than those on credit institutions.
We believe this is also true for the impacts on the effectiveness of competition.
55. We have estimated that non-capital compliance costs will be more significant for small firms, and
in particular small limited license firms who are subject to full CRD IV. The compliance costs are to
a large extent caused by the COREP/FINREP requirements, which we are required to implement.
Such burdensome requirements could in principle lead to market exit by some of the affected
smaller firms. They could also act as barriers to entry to markets as potential entrants are deterred.
This is potentially costly in terms of the effectiveness of competition in the market.
56. There may be some small beneficial impacts on the effectiveness of competition that arise
from increased transparency in firms (and improved governance in some firms where such rules
become applicable). These regulatory changes should result in a better approach to risk-taking
in investment firms as incentive structures improve and investors become better informed
about firm behaviour. In turn, competition in the market may result in products and services
that are more beneficial to consumers.
57. The approach outlined in respect of exercising derogations and discretions is likely in our view
to be positive for competition insofar as the least burdensome outcomes are generally being
sought. The possible exception to this is where options are deliberately chosen to limit the
impact on incumbent firms. It may be that such choices benefit incumbents at the expense of
potential entrants. However, we consider that such adverse impacts will be small.
58. For many products and services affected by CRD IV there is a good degree of cross-border
substitutability. This is evidenced by the fact that many wholesale, and to a lesser extent
retail consumers use investment firms which are established in other Member States to their
own. Such markets are therefore European in nature. Further, the majority of UK based full
CRD IV firms passport outwards through MIFID to at least one other Member State, providing
investment services across the EU. Also a large number of EEA firms passport in to the UK.
59. Where the markets are European, there are likely to be competition benefits from the
implementation of a single rulebook. This harmonises rules for the industry across the market,
ensuring that firms treat the same exposures and products in the same way. In addition, it
removes previous competitive distortions due to different Member States having different
rules, which could enable market participants to exploit differences in regulatory regimes.
60. There may however be markets affected which are national in nature. In such markets the
effect of a single rulebook is not unambiguously good for competition since the benefits from
harmonisation described above do not apply.
Q28: Do you have any comments on our cost benefit analysis?
Financial Conduct Authority July 2013
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