On 1 October 2018, the FCA and the Competition & Markets Authority (CMA) published a joint paper summarising their work in the UK Competition Network (UKCN) on the design, testing, monitoring and implementation of remedies on consumer markets with a focus on which actions regulators can take to change the way that firms interact with consumers.
The paper is structured as follows:
- it starts by providing an overview of the ways in which demand-side problems can lead to poor consumer outcomes in markets;
- it discusses types of remedies to address these issues and some preliminary views on their effectiveness;
- it highlights that the careful design of remedies is integral to their effectiveness and that consumer-focused testing and ex-post evaluation offer a valuable means of learning which remedy is likely to work; and
- finally, it sets out the key lessons learned and identifies future priorities.
The paper also summarises the lessons the regulators have learned into a set of high level principles. Briefly, the high level principles are:
- understand the problem – significant problems can arise on both the demand and supply sides of the market and a combination of supplier and consumer-facing interventions may be needed to deliver better outcomes for consumers;
- be bold in identifying possible remedy options – think broadly about a range of options and do not rule out radical solutions too quickly;
- let consumers stay in control – the most successful remedies that the FCA and CMA have looked at are those which recognise that consumers are not to ‘blame’ for poor market outcomes, but provide them with the necessary framework, support and tools to make their own robust decisions;
- leverage the experience and resources of the private sector – learn from private-sector approaches, both in terms of what works well and what does not. It may also be possible to directly involve the private sector in an intervention, by directing their commercial incentives to deliver better consumer outcomes;
- test the remedy – the process of identifying and designing effective remedies benefits significantly from testing. The FCA’s and CMA’s initial assumptions about what is likely to work may be incorrect;
- good analysis is not enough – take account of real-life behaviour, pay careful attention to detailed implementation, use effective communication, demonstrate sound judgement in balancing needs of different groups, and act as advocates for policy reform;
- review effectiveness – ex post evaluations of effectiveness can provide important insights and lessons for existing and future interventions, as well as helping other regulators if they encounter similar problems in the future.
The paper notes that two particular areas have emerged representing the greatest opportunity for further work. These are: (i) consumer diversity and vulnerability; and (ii) the digital economy.
Initial views around the opportunity and challenges around the digital economy include:
- the opportunity to redesign markets to provide consumers with an easier wat to interact with markets in the way they would prefer (for example the CMA’s Open Banking remedy);
- the opportunity to improve testing, as well as reducing the time and expense required, for example though online, live tests with consumers;
- increasing risk that those without access to the internet, or who are disinclined to use it, will not benefit from certain types of intervention. Regulators need to consider this when selecting and designing their interventions; and
- increasing risk of speed of change within markets, as the digital economy is relatively capital light. Both regulators and their interventions will need to be more flexible to cope with these changes.
The FCA has also published a speech by Christopher Woolard (Executive Director of Strategy and Competition, FCA) at the UKCN conference. In his speech Mr Woolard covers the FCA’s approach to testing its market interventions.