The Mortgages Market Study has a significant focus on technology and innovation.  In trying to put that into perspective it appears it starts with desire from government to change our market.  Earlier this year, the Department for Business, Energy & Industrial Strategy issued a green paper on “modernising consumer markets”.  It sought views on how to ensure that the markets are suitable for the modern economy and consumer.  The paper was based on principles that the government believes are key to responding to the challenges and opportunities of modern consumer markets:

• competition should be central to the government’s approach and it should always look to remove barriers to competition where they arise
• consumers should benefit from new technology and new business models, with competition and regulation working together in the consumer interest.

The paper primarily focused on utilities but included references to financial services with government holding the following beliefs:

• Energy, telecoms and financial services markets are “open to competition; the combination of complex choice, transaction costs, the individualised nature of pricing and the ongoing nature of contracts takes away the competitive pressure.”
• “Regulators recognise the challenge in these markets and are working to improve competitive outcomes by improving the availability of information, lowering the costs to switching and using prompts so that consumers who want to engage find it easier to do so.”
• “We want to make sure that those who remain loyal to their existing suppliers are not penalised for doing so, including the most vulnerable.”
• “Price comparison websites and other types of digital comparison tools can save time and effort for consumers.  New technologies can make it easier for consumers to manage the range of services they require.”
• “Companies hold large amounts of data about consumers and their use of products and services. Too often this data works against consumers rather than for them, for example when companies identify loyal customers and put them on expensive deals.”

The Competition and Markets Authority (CMA) response to this paper included:

• Innovation “is most likely in a competitive environment with regulation that works with the grain of competition and supports new business models in exploiting the opportunities of the digital economy.”
• The concept of Open Banking “could be expanded to other financial service products such as mortgages, investments and pensions.” There is also the potential for the use of open, standard APIs to enable the sharing of data in a controlled and secure manner. This would enable customers to share their data with alternative providers, “to help ensure they get the best deals and stimulate innovation in the supply-side to develop new service and product offerings.”
• Publication of information (e.g. performance data), especially in regulated markets, is a useful avenue to explore further to help consumers make informed decisions. There are risks if firms are allowed to choose their own performance standards.

For each Parliament the government issues a non-binding Strategic Steer for the CMA.  The draft Steer sets out that the CMA should lead work with sector regulators to ensure the overall competition regime is co-ordinated and that consumers are protected from illegal and anti-competitive practices.  Government also wants the CMA to help consumers get the most from the digital economy, through building consumer trust in markets and enforcing the law to protect consumers and engage and lead the UK and international debate on competition and consumer policy in the digital economy.

In the FCA’s recently published annual report on competition it sets out how it provides “expert input on the financial services sector” to the CMA during its investigations.  In light of the government’s drive for “a world-leading digital economy” and the mandate it has given the CMA, it appears the approach taken by the FCA competition team has a deeper background.

In particular the Mortgages Market Study is all about enhancing choice and empowering consumers.  Industry concern is that this is ahead of the development of the technology, thinking and controls required in a lending based world with 25 or 30 year contracts.  This is very different to the annual or short term contract in the rest of financial services.  The importance of the protections afforded by advice needs to kept front of mind.

Robert Sinclair
Oct 18