THE Financial Conduct Authority (FCA) has announced measures to help root out misrepresentation in the corporate banking industry and boost consumer choice.

It said some bank clauses demanded a “right of first refusal” which has prevented clients from picking a different provider for future services.

The City watchdog said the study into investments and corporate banking covered a range of primary market issues and assessed the effects of cross-selling and cross-subsidisation. The FCA said it found that primary market providers generally used a “universal banking” model, which involved the cross-selling and cross-subsidisation of services.

While many clients, particularly large corporates, felt this worked well, the watchdog found that some practices could hinder competition, especially for smaller clients. The right of first refusal was among the clauses in contracts, mandates or engagement letters used by banks that obliged clients to give or offer future services to that bank.

“We found that these clauses can restrict a client’s choice in future transactions,” said the report.

“We considered a range of interventions and proposed that these restrictive contractual clauses should be prohibited where they relate to future primary market services.”

The watchdog is also looking to draw up fresh guidelines for bank league tables to stop lenders “inflating their own position” when they are pitching to clients.

It comes after the FCA discovered that some banks were making transactions to boost their league table position even if they led to a significant loss. It is now asking league table providers to review their recognition criteria so as to reduce the incentives for banks to undertake such trades.

The raft of measures are part of the FCA’s final report into the investment and corporate banking market after it published its interim findings in April. And the FCA said it will continue its investigation into the market practice around initial public offerings (IPOs).

Christopher Woolard, director of strategy and competition at the FCA, said: “The universal banking model clearly works well for a wide range of participants but areas such as the use of restrictive contractual clauses, league table credibility and the allocation of shares in IPOs are not always working as well as they could.

“We’ve developed a package of remedies designed to address these problems.

“This sends a signal that we expect firms to compete on the merits, not by restricting clients’ choice on future transactions, drawing misleading comparisons with competitors’ performance, or exploiting conflicts of interest.”

The FCA’s interim report also found that certain investors and analysts were not receiving the right information at the right time when a company embarked on an IPO.

It pointed out that there is a blackout period of around two weeks between the bank revealing its research on a company issuing shares and the publication of the prospectus.

The FCA wants outside analysts to have access to management, while banks working on the IPO delay their research until after the prospectus is published.

The watchdog said it plans to announce its final rules on contractual clauses in early 2017 and publish its final report on the IPO market towards the end of the year.


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