Competition law is most frequently encountered in the context of M&A deals and cartel investigations. However, the current economic climate in which closer regulatory controls on trading markets are being advocated across the world is highlighting the role the UK Office of Fair Trading (OFT) has in ensuring markets regulated by the Financial Services Authority (FSA) remain competitive and operate to the benefit of consumers.

The OFT has a standing responsibility under section 160 of the Financial Services and Markets Act 2000 (FSMA) to scrutinise the FSA's rules and practices to ensure they do not have the by-product of damaging competition. To the extent that the OFT finds competition concerns in the operation of FSA rules (for example, to the extent they discriminate in favour of a certain group of operators, or prevent future market entry), it must report on these concerns to HM Treasury and the Competition Commission, as well as the FSA itself, for further scrutiny - which could ultimately lead to FSA rules and practices being changed.

The OFT also has a duty to analyse applications made to the FSA for recognised exchange or clearing house status (section 303, FSMA), and to report to the Treasury on any arrangements which could have a significantly adverse effect on competition.

Although the exact scope of the OFT's reviews remains ambiguous under the wording of FSMA, in practice the examination has taken into consideration two main areas:

The general rule that new entry can only increase competition in the market does not guarantee that this will be a smooth process. In the case of the application for clearance of ICE Clear Europe clearing house (granted last summer), ICE applied for clearance in July 2007, but protracted discussions with third parties meant the OFT report was not issued until April 2008 - a delay which could have had significant commercial implications.

The OFT also has a duty under section 304 of FSMA to monitor the rules and practices of recognised exchanges and clearing houses. Therefore, to the extent that these are reformed in response to the current climate, the OFT will need to examine the method and substance of reform (or diversification of business) to ensure that this does not negatively impact on competition. The OFT's report could again potentially lead to in-depth investigation by the Competition Commission and the imposition of remedies, or action by HM Treasury or FSA to address concerns. In the face of such potential sanctions, it is essential that those active in the area are aware of the competition aspects of FSMA and take advice as to how best to manage the risks that arise.