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FCA to end banking league table 'misrepresentation'

The Financial Conduct Authority (FCA) has set out a series of remedies to improve competition in the banking sector after finding that UK banks manipulated league tables, limiting clients' future choices in the investment and corporate banking sector. 19 Oct 2016

Banks "routinely" present league tables in a way that inflates their own position, the FCA said. Investment banks have also been carrying out loss-making transactions purely to move themselves to a higher position on these tables, it said.

The FCA will work with the British Bankers' Association and the Association for Financial Markets in Europe to develop guidelines on how information should be presented, and has asked league table providers to review their criteria to reduce banks' incentive to make league table 'trades' for higher positions.

New rules are also being developed to ban contractual clauses that limit clients' choices in future transactions, the FCA said, and these should be published in early 2017.

The authority will put a supervisory programme in place for initial public offering (IPO) allocations, because the allocation of shares is "at times skewed towards buy-side investors from whom banks derive greater revenues from other business lines", such as trading commission, it said.

Christopher Woolard, FCA director of competition said: "Wholesale financial services markets play a vital role in the economy and the FCA has an important role to play to ensure these markets work well."

"The universal banking model [in which banks provide lending and corporate broking services at low or below cost in exchange for more lucrative transactional business] clearly works well for a wide range of participants but areas such as the use of restrictive contractual clauses, league table credibility and the allocation of shares in IPOs are not always working as well as they could. We’ve developed a package of remedies designed to address these problems. This sends a signal that we expect firms to compete on the merits, not by restricting clients’ choice on future transactions, drawing misleading comparisons with competitors’ performance, or exploiting conflicts of interest," he said.

The FCA published an interim report on competition between investment banks in April.

Its interim report found that most corporate banking clients, particularly larger ones, felt "well served" by the universal banking model. However, this model potentially made it harder for banks that do not offer lending facilities to compete for transactional business, not least because of the "widespread" use of clauses preventing clients from conducting future business with other providers.

The FCA also said in the interim report that industry league tables were at best ignored by clients, and at worst had the potential to distort decision making.

The FCA announced the terms of reference for its market study in May 2015, after an earlier review of wholesale banking uncovered "unanswered questions" about potential conflicts of interest and value for money. Its focus was on "choice, transparency, bundling and cross-subsidisation" in debt and equity capital markets, mergers and acquisitions and acquisition financing; as well as the extent to which competition for these services affects competition for corporate lending, broking and other related services.