On 12 July 2023, the FCA published Feedback Statement 23/4: The potential competition impacts of Big tech entry and expansion in retail financial services (FS23/4). FS23/4 summarises feedback to the FCA’s October 2022 discussion paper (DP22/5) which aimed to stimulate conversation on areas where Big Tech entry is likely to create the biggest competition benefits for consumers and where there is the greatest risk of significant harm if competition does not develop effectively.
DP22/5 assessed the potential competition benefits and harms arising from Big Tech entry and expansion in four retail financial services sectors: payments, deposits, consumer credit, and insurance.
Following the FCA’s analysis in DP22/5, a webinar held in November 2022 and industry roundtable events in December 2022, five key themes emerged:
- Differing Big Tech business models and strategies: Most respondents raised that Big Tech firms may have differing business models and strategies, and therefore they should not be considered as one. Some noted that Big Tech firms’ incentives for entering or expanding in financial services may vary, depending on their ecosystem of core products and services. Some respondents also suggested that the FCA’s ‘Big Tech’ definition should include large fintech firms that have to potential to grow and impact competition.
- Refining the FCA’s analytical framework: Some respondents felt that, while DP22/5 explored the most appropriate sectors, the analysis could be broadened to incorporate further sectors where Big Tech firms may have incentives to enter such as investment management, wealth management, micro-credit and crowdfunding services. A few respondents also stressed the importance of making a distinction between (a) the technology and its potential to improve financial services for consumers; and (b) the business model through which the technology is provided and its effect on competition in the financial services sector.
- Data access and data sharing: Given the competitive data advantages Big Tech firms have, various respondents raised that the FCA should consider data access and data sharing in greater detail, and highlighted that Big Tech firms have access to unique datasets (for example browsing data, social media data and biometrics) which other financial services providers do not. Other respondents highlighted that issues such as data privacy and data ethics may also need to be considered further.
- Big Tech activity at or beyond the regulatory perimeter: Respondents flagged that the FCA may need to consider how it addresses potential challenges with Big Tech firms operating at the boundary or outside the regulatory perimeter, which may include entering into partnerships. For example, where Big Tech firms provide technology to enable digital payment services or digital credit solutions, they should be regulated appropriately to ensure that consumers are protected, competition benefits are harnessed, and harms are mitigated.
- Overlaps with regulators and other regimes: Respondents highlighted that the FCA needs to continue coordinating with domestic regulators to address common challenges in digital markets, citing potential issues arising from the Big Tech firms’ ‘gatekeeper’ status and data advantages. Given the global nature of these firms, respondents also suggested that the FCA should continue to engage with international regulators as it develops its competition regulatory framework.
The FCA’s strategy commits to shaping digital markets to achieve good outcomes, including its work on open banking and open finance, the development of regulatory approaches for critical third parties (CTPs) and artificial intelligence (AI).
Following the feedback received to DP22/5 and to complement its ongoing programme of work in relation to digital markets, the FCA proposes to take three additional steps:
- Launch, by the end of 2023, a Call for Input on Big Tech firms as ‘gatekeepers’ and key drivers including the role of data sharing asymmetry between Big Tech firms and financial services.
- Review its supervisory approach for Big Tech firms, given that they are active across different financial sectors with complementarities between them and with the Big Tech firms’ core products and services.
Continue its work with the government and the Digital Markets Unit (DMU) as the new Digital Markets, Competition and Consumers Bill passes through Parliament; and, at the appropriate time, set out the detail of how the FCA will implement the regulatory coordination provisions in the Bill through a memorandum of understanding with the DMU.