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Financial Conduct Authority to ban banks locking clients into contracts

Published 18/10/2016

City watchdog announces plans to crack down on banking industry
City watchdog announces plans to crack down on banking industry

The City watchdog has announced measures in the corporate banking industry to help root out misrepresentation and boost customer choice.

The Financial Conduct Authority (FCA) said it plans to ban banks from using clauses that lock clients into contracts and prevent them choosing from a wide range of services in the future.

It said some bank clauses demand a "right of first refusal", preventing clients picking a different provider for future services.

The FCA is also looking to draw-up fresh guidelines for bank league tables to stop lender's "inflating their own position" when pitching to clients.

It comes after it discovered that some banks were making transactions to boost their league table position even if it lead to a significant loss.

The raft of measures are part of the FCA's final report into the investment and corporate banking market after publishing its interim findings in April.

The FCA said it will also 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 embarks 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.

It plans to publish its final report on the IPO market towards the end of the year.

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