UK Financial Regulators Kick Off Investment, Corporate Banking Probe

NEW YORK (The Deal) -- The Financial Conduct Authority laid down the parameters of its long-awaited market probe into the investment and corporate banking sectors Friday. 

The regulator warned about an investigation in February, having culled evidence in an earlier review of the wholesale sector that pointed to competition issues, including some which particularly affect smaller clients.

On Friday it said its study would focus on "primary market activities," namely equity and debt capital markets, M&A advisory services and acquisition financing. It will consider whether clients have adequate choice when picking banks and advisers and whether they can clearly see what services they are getting and whether they offer value. It will also look at banks' practice of bundling and cross-subsidizing services.

The FCA probe comes six months into a Competition and Markets Authority probe into the banking markets for personal current accounts and for small and medium-sized enterprises, and as the Bank of England oversees a review of the fixed income, foreign exchange and commodities markets after a rash of scandals, including the fixing of Libor and foreign-exchange rates.

Domestic regulatory changes, which come on top of international Basel III requirements, include compulsory capital buffers around the largest banks' retail operations, criminal sanctions for wayward bankers, a new licensing regime for top executives, as well as a steady series of increases to a post-credit crisis tax on banks' balance sheets. France, meanwhile, is attempting to force Britain to fall in line with the bloc's concurrent plans to reform banks' structures, saying the EU reforms complement rather than clash with Britain's home-grown overhaul.

Major U.K. banks including Royal Bank of Scotland Group (RBS) and Barclays (BCS) have dramatically curtailed investment banking in recent years to focus on less risky operations and rebuild their reputations after problems within those divisions.

This week the two banks were among a transatlantic group fined a total of $5.7 billion for misdemeanors including the rigging of foreign exchange rates.

Meanwhile, HSBC Holdings (HSBC) warned in April it may move its domicile from the U.K.

The FCA called for feedback on the terms of reference of its study by June 22 and said it plans to publish a provisional report around year-end, and deliver its final verdict in spring 2016.

The FCA is also considering an investigation into the asset management industry and related services.

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