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Amid a hastening surge of big tech firms into the financial services space, the question of regulatory reform is becoming ever more critical. By Katherine Kirrage, Nikki Worden, John Buyers and Ashley Hurst of international law firm Osborne Clarke.

The UK’s Financial Conduct Authority (FCA) is leading discussions into early 2023 on the future regulation of the financial services sector as a result of digitalisation.

The FCA, with the publication of a discussion paper on October 25, is seeking views on the potential competition benefits and harms from big tech firms’ entry into retail financial services. 

The paper focuses on the impact that big tech can have on payments, deposit taking, consumer credit and insurance, and potential entry strategies for these firms into these financial markets as well as their potential competition implications.

This crosses over with the regulator’s contribution to a separate discussion paper published with the Bank of England and Prudential Regulation Authority on the use of artificial intelligence (AI) and machine learning (ML) in financial services.

Financial services firms are increasingly using AI and ML across a range of areas, including fraud and money laundering detection, and assessing insurance risk, creditworthiness and affordability. 

Big tech – large technology companies with established technology platforms and extensive established customer networks – is becoming increasingly active in the financial services markets with the aim of rapidly expanding operations by leveraging wide user bases, ecosystems, and financial capabilities. Big tech firms have access to immense seams of data and have well-developed AI and ML capabilities.

Big tech firms in retail financial services

The FCA’s paper identifies five themes:

  • There is potential for big tech firms to enhance the overall value of their ecosystems with further entry and expansion in retail financial services sectors through innovative propositions; for example, using mobile phones to make payments.
  • While in the short term a partnership-based model is likely to continue to be the dominant entry strategy for big tech firms, in the longer term they may seek to rely less on partnerships and compete more directly with existing firms.
  • Big tech firms’ entry may not be sequential or predictable. While initial forms of entry may be hard to predict, once momentum builds, significant market changes might occur quickly.
  • In the short term and possibly enduring longer, big tech firms’ entry into financial services could benefit many consumers. These benefits could arise from big tech firms’ own innovations as well as increasing other market participants’ incentives to innovate, improve quality and reduce prices through increased competition.
  • In the longer term, there is a risk that the competition benefits from big tech entry into financial services could be eroded if these firms can create and exploit entrenched market power, scale and size to harm healthy competition and worsen consumer outcomes.

The FCA and wider scrutiny

The list of big tech firms that are explicitly named in the FCA's paper look strikingly similar to the expected class of designated “gatekeepers” under the EU’s Digital Markets Act (DMA), as well as the potential players likely to have “significant market status” under the UK Digital Market Unit’s (DMU) competition regime. All of these companies are subject to the FCA permissions allowing them to do business in retail financial services in the UK (for example, payments permissions, e-money permissions, as well as consumer credit and insurance distribution permissions).

Before the recent emergence of the DMA and DMU, big tech firms had been subject to a number of competition enforcement cases, market studies and investigations around the world with a considerable degree of scrutiny under competition laws. For example, in the UK in March 2021, the Competition and Markets Authority (CMA) opened an investigation into Apple Pay in relation to the distribution of apps, in particular the terms and conditions governing app developers’ access to Apple’s App Store.

At the same time, the FCA is clear that the entry of big tech firms into the financial services value chain is likely to create a number of positive competitive pressures. These could include increased operational and technological efficiencies, which could result in lower prices and better provision of financial services, as well as improved access to financial services.

The FCA’s paper forms part of the increased regulatory interest in the way that large digital players operate in the UK and could have an impact on the rules under the upcoming DMU regime. A number of issues that have influenced the DMA and DMU regimes are of relevance to the financial services markets, such as, for example, Apple Pay’s restrictions on app developers’ ability to use competing payments providers.

However, the FCA – which has a sizeable internal team of competition professionals and enjoys concurrent competition law powers with the CMA – has to date not been actively engaged in this area (having joined the Digital Regulation Co-operation Forum after other UK regulators). The publication of its discussion paper could signal a change in its approach.

The FCA has invited comments on specific questions in its paper by January 15, 2023, while responses to questions in the Bank of England-led paper are requested by February 10, 2023.

Now is the time to provide industry perspectives and help shape and drive policy decisions that will potentially shape future regulatory change for the better.


Katherine Kirrage is a digitalisation and competition partner, Nikki Worden is head of the financial institutions group, John Buyers is head of AI, and Ashley Hurst is international head of tech, media and comms at international law firm Osborne Clarke.

Read more about the impact of big tech on financial services here.


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