FCA releases update to wholesale data market study

Newest communication follows watchdog’s findings in March that found competition in the wholesale data market lacking.

The Financial Conduct Authority (FCA) published an update to its progress regarding its wholesale data market study on Thursday, aimed at addressing the markets’ competition concerns. 

Speaking to the current state of play, the regulator explained: “We are continuing to identify any harm in these markets and, where appropriate, potential ways to address it.”

Since its last announcement in March, the FCA confirmed that it had received 28 responses from various trade associations, financial firms, benchmark administrators, trading venues, and MDVs.

According to the update, the potential competition concerns brought to light in these responses were in line with already-established issues in the market which had previously been highlighted by the FCA.

The progress update explained that the body has been proactively engaging with regulators in other countries to identify common ground and shared experiences as regards competition issues, delving into how other jurisdictions are tackling them.

According to the report, this has highlighted similar concerns about market features – including lack of transparent pricing practices, excessive charging, bundling practices and complex licensing agreements.

In addition, the FCA has requested information from relevant firms in the market in order to collate qualitative information across various areas, “including product offerings, business strategy, relationships with customers and redistributors, terms and conditions, as well as views on the competitive landscape and regulatory environment”.

The watchdog is also seeking contributions related to financial information, specifically data (on both a global and UK scale) related to revenues, liabilities, costs, assets, level of investments, and transaction data on historical customer contracts.

The FCA confirmed it was launching a three-pronged investigation into data competition concerns in January last year following lobbying from both the buy- and sell-side that the cost of data was too high and some firms held a monopoly over the market for it.

In March, the ‘Wholesale Data Market Study’ was launched in a bid to investigate potential competition problems, specifically in the markets for: benchmarks, market data vendor services, and credit ratings data, following user concerns around how well wholesale data markets were working.

In its update, the FCA reiterated that “this market study helps us deliver our strategic aim to strengthen the UK’s position in global wholesale markets and our commitment to promoting competition and positive change”.

The first phase of the FCA’s investigation found that competition in wholesale data market was not working, concluding that some trading markets were not concentrated on enough firms, thus limiting choice for institutions, as well as making switching suppliers difficult.

It also found that the process of procuring data, and subsequently the way it is sold, is too complex which once again has the effect of limiting choices for investors when it comes to sourcing this essential data.

Now, the study update has emphasised the key emerging issues regarding competition, including these concerns about market power of large and established firms.

It also makes clear the significance of existing commercial practices which could be contributing to increased complexity and reduced transparency in pricing and contractual terms.

Additionally, the update made clear that, at this stage, none of the three markets covered will be referred to the Competition and Markets Authority (CMA).

Elsewhere, the FCA is currently working with the government to develop a consolidated tape (CT) with a consultation paper published earlier this year in order to collect market opinion on the proposed framework. A CT is widely considered to be a solution which could contribute to the improvement of overall quality, cost, and accessibility of wholesale data.

The wholesale data market study is part of a broader strategy aimed at strengthening the UK’s position in global wholesale markets, the FCA has confirmed it will continue to conduct analysis on the current state of play and potential remedies, adding that it “would welcome views on the issues highlighted in this report”. It is set to be published no later than 1 March 2024.