The Financial Conduct Authority fears that the lack of transparency in investment and corporate banking and bundling reduces competition. They are in the process of a major study into this whole field. Any action they take is likely to hit the revenue model of these firms. Perhaps the traditional and unique British model of corporate broking will not survive.
Recent feature articles in this Monthly have explored some of the challenges facing the investment banking industry. In September we considered MiFID2, which comes into force in January 2017, and is likely to more that halve the amount institutional fund managers pay for research from brokers and investment banks, which, in all likelihood, will result in a dramatic cut in the number of analysts and research, leaving many companies without any research coverage. Last month we analysed an Office for National Statistics survey to show how important the retail investor was to the market, particularly for smaller capitalised companies, yet how he was ignored by the mighty institutions of investment banks and brokers.
The lives of senior management in investment banks and brokers are unlikely to get any easier any time soon. There is an investigation into their activities going on which, potentially, could have a major impact.
In February this year The Financial Conduct Authority published its feedback document resulting from its wholesale sector competition review. The FCA has decided to follow this with a market study into investment and corporate banking to identify ‘Whether competition is working effectively’. It is obviously of the view that it already knows the answer: and it is ‘No’. It says that ‘External feedback and our own analysis suggests that competition is not working effectively in this sector’.