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UK FCA calls for further competition in investment, corporate banking

TheU.K. Financial Conduct Authority said April 13 thatits investmentand corporate banking market study showed that improvements could be made toencourage further competition in primary market services and related activities such ascorporate lending and broking, and ancillary services.

Theregulator's market study focused on choice, transparency, bundling andcross-subsidization in debt and equity capital markets and in M&A.Despite most, particularlylarger, clients feeling well-served by the universal banking model, the FCAfound that cross-selling could make it harder for banks that do not offerlending facilities to compete for primary market services. The regulator alsocalled for an end to the widespread use of contractual clauses that purport tolimit clients' choice of providers on future transactions.

TheFCA is also looking for the industry to address concerns that league tables oninvestment and corporate banking services may be unreliable, "which meansthey are at best ignored by clients and at worst could distort clients'decision making."

Theregulator will undertake supervisory work with a targeted group of lenders tobetter understand how potential conflicts of interests are managed when sharesin IPOs are allocated, after discovering evidence that some banks may seek toreward favored investor clients when allocating shares in an IPO.

Additionally,the FCA opened a discussion with the aim of ensuring that market participants haveaccess "to the right information at the right time" during an IPOprocess. It said a customary 14-day blackout period between research on theissuer being published by the banks supporting an IPO and circulation of theissuer's prospectus means that investors only gain access to an importantsource of information late in the process.

Proposalsto address the situation comprise combinations of a requirement to delay therelease of any research by analysts at banks connected to the IPO until afterthe prospectus is published, and to invite analysts from unconnected banks andindependent research providers to any meetings with management to stimulatedebate.