The UK Financial Conduct Authority has concluded its market study in data competition concerns, with no plans for further regulatory intervention through the Competition Markets Authority (CMA) despite concluding some areas of competition are not working.
First launched in March last year, the study explored three key areas including benchmarks provision, credit ratings data by credit ratings agencies (CRAs) and their affiliates, and the provision of market data vendor (MDV) services, following calls from participants that competition was not working within these areas and costs were too high.
Overall, the watchdog said it had not found evidence that firms cannot access the wholesale data that they need.
It has however, concluded that there is evidence of what it referred to as “market power” across all three markets, finding that markets are concentrated, key providers are highly profitable, the data they provide is essential and key providers face limited competition from challenger firms.
“This report shows there are features of these markets in the UK that prevent, restrict or distort competition,” said the FCA in its report.
With regards to credit ratings, the FCA found that the three largest CRAs accounted for over 99% of revenues for data feeds, there were barriers to entry for challenger CRAs and that pricing lacked transparency.
When assessing benchmarks data, the watchdog has found that “market power” has meant there is limited ongoing competition and barriers to switching providers, while “complex and opaque licensing” has meant users cannot compare prices.
With regards to market data vendors, the FCA has concluded that there are high levels of concertation – worsened by recent market consolidation, there are barriers to switching providers, and that pricing practices mean some users are paying more.
The FCA launched a new wholesale data market study under the Enterprise Act in March last year, inviting any persons wishing to make representations on the subject – most importantly on whether the subject should be submitted as a market investigation reference under the Act to the Competition Markets Authority.
However, despite its findings published today, the watchdog has concluded that it will not be taking further action via an MRI through the Competition Markets Authority (CMA).
“Our assessment of whether to make an MIR is therefore based on whether this would be the most appropriate way of addressing the concerning features we have identified. Our view remains unchanged since our update report,” said the FCA in its findings.
“We do not think an MIR would be the most appropriate way to address the competition problems we have identified. […] Our view remains that we are well placed to develop an appropriate and proportionate approach to addressing issues identified in the market study. We have set out in this report our planned further work,” said the FCA.
“We will use this to identify any areas we will take forward. As we progress this work, we will also keep under review our ability to tackle any issues we have identified and whether we need to consider alternative approaches.”
This is thanks to several factors listed in the FCA’s report, namely that because it is a sector regulator with concurrent powers, it is in a better position to take action going forward.
“We note that the FCA has recognised shortcomings in the three markets but has ultimately decided not to make a market investigation reference to the Competition and Markets Authority. We also note that this decision is based on the FCA’s assessment that, as a sector regulator, it is in a strong position to shape remedies and supervise their implementation,” said AFME’s managing director of equities, April Day, and managing director of fixed income, Victoria Webster.
“As the FCA continues to develop its framework for the UK consolidated tapes for bonds and equities, we encourage policymakers to ensure holistic market regulation of wholesale market data.”
Read more – Market data prices rising ‘faster than ever’ despite FCA investigation, new data finds
According to a report released by Substantive Research in October, the average price increase for an unchanged customer use case at ratings agencies is 12% – not including year-on-year inflation increases within a multiyear contract. For index providers, the average price increase for an unchanged customer use case is 13%, also not including year-on-year inflation increases within a multiyear contract. Some outlier providers are repricing clients by 600%, found Substantive Research’s report.