An Update On The FCA's Strategic Review of the Wholesale Data Market

In March 2023, the Financial Conduct Authority (FCA) launched a comprehensive study to investigate potential competition problems in the markets for benchmarks, credit ratings data, and market data vendor services.

The study aims to identify any harm in these markets and propose potential ways to address it.

The FCA is on track to publish its wholesale data market study report by March 1, 2024. In an update report published recently, the FCA has proposed, at this stage, not to refer any of the three markets covered by the study to the Competition and Markets Authority (CMA).

The update report highlights emerging issues in these markets, particularly concerns about the market power of large and established firms. The dominance of these firms can reduce competition, leading to potential harm for consumers and market participants. Additionally, the report points out commercial practices that could increase complexity and reduce transparency in pricing and contractual terms.

Markets Covered by the Study

The FCA’s wholesale data market study focuses on three key areas: benchmarks, credit ratings data, and market data vendors.

Benchmarks

Benchmarks play a crucial role in financial markets, providing reference points for pricing and valuation. The FCA’s study examines the functioning of benchmark markets, including potential competition issues and the impact on market participants. The aim is to ensure that benchmarks are robust, reliable, and representative of market activity.

Credit Ratings Data

Credit ratings data is essential for assessing the creditworthiness of entities, such as governments, corporations, and financial instruments. The study investigates competition concerns and potential barriers to entry in the credit ratings data market. The goal is to promote competition and ensure the availability of high-quality credit ratings data for market participants.

Market Data Vendors

Market data vendors play a vital role in providing timely and accurate financial information to market participants. The study examines the conduct and competitiveness of market data vendors, focusing on potential barriers to entry and the impact on competition and innovation. The objective is to foster a more competitive and efficient market data vendor industry.

Proposed Actions

Based on the findings of the study so far, the FCA has outlined several proposed actions to address the emerging issues and promote competition in the wholesale data market. These actions include:

1. Enhancing Market Oversight: The FCA aims to strengthen its oversight of benchmark administrators, credit rating agencies, and market data vendors. This includes reviewing and updating regulatory frameworks to ensure they remain fit for purpose in the evolving market landscape.
2. Addressing Market Power: The FCA will scrutinize the market power of large and established firms, particularly in the benchmark and market data vendor markets. It will explore measures to promote competition, reduce barriers to entry, and foster innovation.
3. Improving Transparency: The FCA recognizes the importance of transparency in promoting fair and efficient markets. It will work towards increasing transparency in pricing, contractual terms, and the availability of market data. This will enable market participants to make informed decisions and enhance competition.
4. Promoting Data Access and Portability: To encourage competition and innovation, the FCA will explore measures to facilitate data access and portability. This will enable market participants to switch between market data vendors more easily and promote the development of new data-driven products and services.
5. Engaging with Market Participants: The FCA recognizes the importance of stakeholder engagement in shaping effective regulatory interventions. It will actively seek input from market participants, industry experts, and other stakeholders to ensure that regulatory actions are proportionate, targeted, and effective.

A summary of the report findings

Throughout the study, the FCA has identified emerging issues in the wholesale data market, including concerns about the market power of large and established firms, complexity in pricing and contractual terms, and potential barriers to entry for new market participants.

To address these issues, the FCA has proposed a range of actions, including enhancing market oversight, addressing market power, improving transparency, promoting data access and portability, and engaging with market participants.

These actions aim to promote competition, reduce barriers to entry, and foster innovation in the wholesale data market. The FCA will continue to monitor and assess the market to ensure fair and efficient outcomes for market participants and consumers.